REG - Aquila Energy Effcn. - Final Results
02/05/2023 07:00
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RNS Number : 9688X Aquila Energy Efficiency Trust PLC 02 May 2023
LEI Number: 213800AJ3TY3OJCQQC53Aquila Energy Efficiency Trust
AQUILA ENERGY EFFICIENCY TRUST PLC
Aquila Energy Efficiency Trust Plc (the "Company" or "AEET") is pleased to
announce its audited results for the year ended 31 December 2022.
Investment Objective
The Company seeks to generate attractive returns, principally in the form of
income distributions by investing in a diversified portfolio of energy
efficiency investments.
Highlights (Consolidated figures(1))
As at 31 December 2022 As at 31 December 2021
Financial information
NAV per Ordinary Share (pence)(2) 95.23 97.38
Ordinary Share price (pence) 71.00 95.75
Ordinary Share price discount to NAV(2) (%) (25.4) (1.7)
Dividends per Ordinary Share (pence)(3) 3.5 -
Net assets (in £ million) 95.23 97.38
Ongoing charges(2) (%) 2.6 0.9
Performance summary % change % change
NAV total return per Ordinary Share(2) 0.1 (0.6)
Share price total return per Ordinary Share(2) (23.5) (4.3)
1 During the year under review, as a result of the development of the
portfolio of investments, the actual investments made and the structure of
those investments, many of which were receivables purchase investments with
fixed rates of return, the Committee determined that this required judgement
and re-assessment of the Company's investment entity status for the year ended
31 December 2022. As a result of this re-assessment, which identified that
fixed rate of return investments constituted a substantial proportion of the
pipeline of investments and resultant actual investments, the Committee
determined that as from 1 January 2022 the Company was no longer an investment
entity. Accordingly, the Company consolidates its subsidiaries at 31 December
2022. For more information, please see note 2 of the financial statements. The
Company and its subsidiaries are together referred to as the "Group" in this
report.
2 These are Alternative Performance Measures (''APMs'') for the year ended 31
December 2022. Definitions of these APMs and other performance measures used,
together with how these measures have been calculated can be found at the end
of this announcement.
( )
(3) Dividends declared relating to the year under review. Two dividends were
paid during 2022 and a third one was paid in 2023 (in respect of the period
from 1 October 2022 to 31 December 2022) of 1.25 pence per Ordinary Share.
CHAIR'S STATEMENT
On behalf of the Board, I am pleased to present the annual report (the "Annual
Report") for Aquila Energy Efficiency Trust plc for the year ended 31 December
2022.
Investment Performance
The Company's NAV as at 31 December 2022 was £95.23m (£97.38m as at 31
December 2021). The principal contributor to the decrease in NAV was the
payment of £2.25m in respect of two dividends in the six months ended 31
December 2022. These payments were not fully covered by earnings and were
partly paid out of distributable reserves. The Company's share price has
recorded total returns of minus 23.5% in sterling terms. The disappointing
share price performance has yet to reflect the increasing level of commitments
that has been achieved. The Company's share price has been at a significant
discount to NAV since January last year with the discount widening with the
impact of a higher interest rate environment.
Changes following the investment strategy review
The Board instigated a number of actions, following the investment strategy
review in April 2022, to provide additional assurance to investors that
measures were in place to support an accelerated pace of commitments and
deployment of capital. A greater focus was placed on a smaller number of
geographies, larger transactions, the establishment of partner relationships
with a number of Energy Service Companies ("ESCOs") and an increase in
dedicated resources by the Investment Adviser.
As part of this strategic review, it was agreed that a continuation vote would
be put to Shareholders at a general meeting of the Company. This was held on
28 February 2023 (as further detailed below).
The Investment Adviser also agreed, as a result of the strategy review, to
amend the original Investment Advisory Agreement such that any advisory fees
payable to the Investment Adviser would be calculated on committed capital
(funds contractually committed for deployment) rather than on the Net Asset
Value of the Company, in order to ensure greater alignment of incentives for
deployment. This revised fee basis was applied to all fees charged by the
Investment Adviser from the date of the Company's Initial Public Offering
("IPO") in June 2021. This has had the effect of lowering the investment
advisory fees by £0.3 million for the period from IPO to 31 December 2022.
Update on Deployment
As at 31 May 2022, £19.7 million of the Company's IPO proceeds had been
committed for investment and approximately £15.7 million had been deployed,
as disclosed in the Company's annual report for the period ended 31 December
2021. As at 31 December 2022, the total amounts committed and deployed were
£96.7 million and £61.2 million respectively. Additional commitments of
£7.3 million were made in the period up to 28 February 2023. However, the
total amount committed as at 31 March 2023 was £98.7 million, a net increase
of £2.0 million because the Company was able to withdraw from certain
commitments. Amounts deployed as at 31 March 2023 increased to £62.2
million(1). Since the date of the Continuation Vote, the Company has not
entered into any new commitments and its investing activity is solely in
respect of funding legal commitments to existing investments, with the aim of
protecting the future returns from those existing investments and
realisations.
Dividends
The Company targeted and paid a dividend of 3.5 pence per Ordinary Share for
the year to 31 December 2022. Following consultation with Shareholders
undertaken in April 2022, it was decided to pay this dividend largely out of
capital. For the year to 31 December 2023, the Board was targeting a dividend
of 5.0 pence per Ordinary Share. However, following the failure of the
Continuation Vote, the Board has reviewed the dividend policy of the Company
and future dividends will only be paid from net income, and after reviewing
cash flow forecasts, and only in respect of six month periods not quarterly
periods. Therefore, the next dividend declaration will be in respect of the
six month period ended 30 June 2023.
General Meeting held in February 2023
The consultation with Shareholders in April 2022 indicated that the majority
of Shareholders were supportive of the continuation of the Company. However,
in order to provide Shareholders with the opportunity to review performance on
commitments and deployment, it was agreed to hold a Continuation Vote in
February 2023. Although the IPO proceeds had been substantially committed at
that point, the continuation resolution proposed at the meeting on 28 February
2023 failed to pass, primarily, the Board understands, because of the
relatively small size of the Company (and consequential lack of liquidity in
the shares) and the discount to Net Asset Value at which the Company's shares
trade.
A special resolution had been proposed to amend the Company's articles of
association (the "Articles"), to revise the date of the subsequent
continuation vote, which otherwise was and is required to be held by 30 June
2023. This vote required the support of 75% of those voting but was also not
approved by Shareholders. As such, and in accordance with the Company's
Articles, a further continuation vote is required to be held at the Company's
Annual General Meeting ("AGM") in June 2023.
In response to the failed Continuation Vote, the Board is also proposing, at
the AGM, along with the subsequent continuation vote, an amendment to the
Company's Investment Policy whereby the Company is placed into a managed
run-off (the "Managed Run-Off"). This resolution (the "Continuation Managed
Run-Off Resolution") seeks to acknowledge and reflect the views expressed by
Shareholders in the February 2023 Continuation Vote, whilst the Board
continues to consider strategic solutions in respect of the Company's assets
to realise maximum value for Shareholders in the shortest possible time,
recognising the inherent difficulties in the construct of the portfolio,
including the number of individual investments, multiple geographies and long
tenors. The Continuation Managed Run-Off Resolution is described in greater
detail in the Notice of Annual General Meeting, which can be found on the
Company's website.
As announced on 15 March 2023, the Board appointed Stifel Nicolaus Europe
Limited ("Stifel") as sole financial adviser and sole corporate broker, with
immediate effect.
Board changes
The Board is now at full strength with the appointments of David Fletcher and
Janine Freeman. David Fletcher is a highly experienced Non-executive Director
and Audit Chair and was appointed as our new Chair of the Audit and Risk
Committee ("ARC") and as Chair of the Remuneration Committee in April 2022.
Janine Freeman is an experienced, senior energy industry executive and
Non-executive Director with over 20 years' of involvement in the energy
industry. Janine was appointed as a member of the Company's Audit and Risk,
Nomination, Remuneration and Management Engagement Committees in November
2022. Biographical summaries for all the Directors of the Company can be found
in the Company's Annual Report.
The need for Energy Efficiency
The Board continues to believe that energy efficiency is the natural partner
to renewable energy in achieving the European goal of net zero emissions by
2050. The more efficient use of energy is one of the main pillars of the
energy transition away from fossil-based methods of energy production and
consumption. The reduction of daily energy consumption is, conceptually,
Europe's greatest energy resource. As part of the REPowerEU plan set out in
May 2022, the energy efficiency target for 2030 was increased from 9% to 13%
compared to 2020 reference levels. Energy efficiency must become part of our
everyday lives, to consume less energy and consume it better. Efficiency
protects businesses and consumers against increases in energy prices, is
better for the environment and it improves the competitiveness of our
economies. Increasing energy efficiency also ensures reduced dependence on
energy imports, thereby improving energy security.
AEET was launched in recognition of the opportunities, both economic and
social, that are available from investing in energy efficiency. In terms of
implementation to date, energy efficiency thus far lacks the focus and
attention that renewables have received. We believe this continues to be an
area with significant growth potential and opportunities, both currently and
for the foreseeable future.
Having explained why we believe investment in energy efficiency is important,
I would like to express my thanks to my fellow Directors and the team who have
supported the Company over what has been a challenging time since IPO in June
2021. This includes the Investment Adviser, the AIFM and our other advisors. I
would be personally disappointed if the UK market sees the disappearance of an
investment vehicle, which was established to provide funding to support the
goal of reducing energy consumption and to play a part in the achievement of
the goal of net zero.
Annual General Meeting ("AGM")
The Company's AGM will be held on 14 June 2023 at 2.00pm at the offices of
Apex Listed Companies Services (UK) Limited located at 6th Floor, 125 London
Wall, London, England, EC2Y 5AS. Further details can be found at the AGM
Notice. Shareholders are encouraged to attend the AGM. Proxy voting figures
will be made available shortly after the AGM on the Company's website where
Shareholders can also find the Company's AGM Notice, Annual Report, factsheets
and other relevant information.
Miriam Greenwood OBE DL
Chair of the Board
30 April 2023
( 1 ) Reflecting 31 December 2022 valuation in local currency (Euro), with
investments at cost since then, translated into £, where relevant, at
€0.8853: £1.00. The Company's next NAV per share will be published in
respect of 30 June 2023.
INVESTMENT ADVISER'S REPORT
Investment Adviser's Background
The Company's AIFM, FundRock Management Company (Guernsey) Limited (formerly
Sanne Fund Management (Guernsey) Limited), has appointed Aquila Capital
Investmentgesellschaft mbH as the Investment Adviser to the AIFM in respect of
the Company.
The Investment Adviser offers advice on potential energy efficiency
investments in line with the Company's Investment Policy. Aquila Capital
Investmentgesellschaft mbH is part of Aquila Group, an experienced and
long-term investor in real asset investments. Founded in 2001 by Dieter
Rentsch and Roman Rosslenbroich, Aquila Group currently manages and/or advises
assets worth around €14.7 billion on behalf of institutional investors
worldwide (as at 31 December 2022). Daiwa, one of Asia's largest investors, is
a minority shareholder in the Group.
By investing in clean energy and sustainable infrastructure, Aquila Capital
contributes to the global energy transition and strengthens the world's
infrastructure backbone. Aquila Capital initiates, develops, and manages these
essential assets along their entire value chain and lifetime. Aquila Capital's
primary objective is to generate performance for its clients by managing the
complexity of essential assets.
Currently, Aquila Capital manages wind energy, solar photovoltaics ("PV") and
hydropower assets with a generating capacity of more than 17 Gigawatts
("GWs"). Additionally, 2.0 million square metres of real estate and green
logistics projects have been completed or are under development. Aquila
Capital also invests in energy efficiency, carbon forestry and data centres.
Aquila Capital has been carbon neutral since 2006. Sustainability has always
been part of the company's value system and is an integral part of its
investment strategies, processes and the general management of its assets. The
company has around 700 employees from 56 nations, operating in 17 offices in
16 countries worldwide.
Investment Advisory Team
Alex Betts - Senior Investment Manager: Alex Betts has over 30 years'
experience in private equity and 15 years in resource efficiency and has
invested in a range of industries, geographies and stages. Based in London, he
joined Aquila Capital from Adaxia Capital Partners ("Adaxia"). Prior to Adaxia
Alex was a member of the private equity team at Climate Change Capital
("CCC"), which span out into Adaxia. Prior to CCC he was Head of Royal Dutch
Shell's corporate venture capital unit and a former partner of Montagu Private
Equity. He is British and graduated in Classics from Oxford University.
Bruno Derungs - Senior Investment Manager: Bruno Derungs has over 25 years'
experience in private equity and 21 years in resource efficiency and has
invested in a range of industries, geographies and stages. Based in Zurich, he
joined Aquila Capital from Adaxia. Bruno is a former member of the private
equity team at CCC, principal at SAM Private Equity, managing director of ATV,
a Swiss-based venture capital fund and consultant with Bain & Company. He
holds a master's degree in electrical engineering from the ETH in Zurich and
an MBA from Columbia Business School in New York. He is Swiss and speaks
English, German, Italian and French.
Franco Hauri - Senior Investment Manager: Franco Hauri has over 20 years' of
experience in private equity with 15 years in resource efficiency of which the
last five years have been focused on investing in energy efficiency projects.
Based in Zurich, he joined Aquila Capital from Adaxia. Franco is a former
member of the private equity team at CCC, an Investment Adviser at
NanoDimension, a venture capital firm investing in nanotechnology, and a
consultant with Bain & Company. Franco holds an MBA from Harvard Business
School and a master's degree in finance, accounting & controlling from the
University of St. Gallen (HSG). He is Swiss and speaks English, German,
Italian, Spanish and French.
Investment Activity
During 2022, the Company made substantial progress in executing its strategy
to invest in energy efficiency projects. As at the year-end, the Company had
entered into commitments to invest £96.7 million of which the total deployed
in investments were £61.2 million. As at 31 March 2023, the total commitments
had increased to £98.7 million and the income generating capital deployed
since IPO increased to £62.2 million.
The Company's portfolio is characterised by projects with (i) a low technology
risk through the use of proven technologies; (ii) medium to long term
contracts providing for predictable cash flows; and (iii) counterparties with
good creditworthiness. As at 31 March 2023, the portfolio of 38 investments
was diversified across geographies (Italy, Spain, Germany and the United
Kingdom), technologies, counterparties and ESCO partnerships.
The majority of the Company's forecast project cash flows, approximately 69%,
are investment grade, as assessed by using both the Investment Adviser's
credit analysis and external agencies. In projects which are non-investment
grade, there are typically additional protections; these include the ability
to export power to a grid and to extend the maturity of a contract with the
ESCOs in question and the underlying counterparty to recover missed payments.
The latter is possible because the Company's financing agreements are of a
shorter duration than the useful life of equipment installed and, in many
cases, of a shorter duration than the contract between the ESCO and the
counterparty.
The Company's portfolio also benefits from a combination of fixed and variable
return payments. While approximately 67% of the total investment value
provides a fixed rate of return from contractual cash flows, approximately 33%
by investment value has variable cash flows linked to power production and
power prices, or inflation indexation. In many cases, these variable return
investments have downside protections, for example, minimum contractual
returns, which reduce the risk of lower than forecast cash flows.
This portfolio of investments is forecast to achieve an unleveraged, average
yield of 8% per annum, which the Board believes is attractive given the credit
quality of the portfolio.
The Company's investments provide funding to third parties to enable capital
expenditure for energy efficiency projects. Rather than owning the assets
installed in these projects, the Company has structured its investments as
purchases of receivables, largely from contracted cash flows. The Investment
Adviser has recommended this approach to reduce the costs of managing numerous
special purpose vehicle ("SPVs") companies. Accordingly, the assets are
owned by SPVs of the ESCOs that develop the projects. These SPVs contract to
provide energy efficiency services to clients and receivables from these
contracts are transferred to the Company, which takes a security interest in
the assets together with undertakings and performance guarantees from the
ESCOs themselves.
In Italy and Germany, the Company and its subsidiary, Attika Holdings Limited
("AHL" or "Attika"), purchases notes, which entitle the noteholders to the
receivables, while in Spain and the United Kingdom, Attika purchases
receivables from the projects direct. The use of notes is driven by the
respective legal and regulatory frameworks in Italy and Germany.
All of the investments in Italy have been made by the Company through
purchasing notes issued by an Italian special purpose vehicle ("SPV")
established under securitisation laws in Italy. This SPV has made the
respective capital investments in energy efficiency projects in consideration
return for which receivables have been transferred to it. The receivables are
the payments due from the purchase of tax credits in the case of the
Superbonus investments and from operating leases and energy services
agreements in the case of the investments developed by Noleggio Energia and
CO-VER. The notes issued by the SPV entitle the Company to the economic return
from the receivables and are structured to provide a fixed interest rate
amounting to a 3% p.a. return on capital and variable interest to capture the
return above 3% p.a.
In Germany, Attika has purchased notes issued by special purpose subsidiaries
of the four ESCOs with which Attika has invested. These notes provide for a
fixed rate of interest, repayment of capital and, in certain cases, a variable
rate of interest, which provides the economic return from the receivables.
Investments in Italy
Investments in Italian "Superbonus" projects
In December 2021, the Company entered into commitments to finance two clusters
of "Superbonus" energy efficiency projects for apartments and other
residential buildings in Italy amounting to £16.8 million. "Superbonus" is an
incentive measure introduced by the Italian government through Decree
"Rilancio Nr. 34" on 19 May 2020, which aims to make residential buildings
(condominiums and single houses) more energy efficient through improvements to
thermal insulation and heating systems. When qualifying measures are
completed, ESCOs delivering the measures are awarded a tax credit equal to
110% of the cost of the measures. These tax credits can then be sold to banks,
insurance companies and other corporations and, thus, projects can be financed
without the need for a financial contribution from landlords.
The projects which the Company committed to finance in 2021 are being managed
by two ESCOs, Enerstreet and Enerqos Energy Solutions, and entail commitments
of £10.7 million and £6.1 million respectively. The projects involve a range
of energy efficiency measures including insulation, the replacement of heating
systems with more efficient solutions, and energy efficient windows.
During 2022 the Company entered into three other commitments, totalling £16.7
million, to finance Superbonus projects, another £8.71 million project with
Enerqos Energy Solutions and two projects, totalling £7.95 million, with Sol
Lucet, an Italian ESCO. These investments are structured in a very similar
way to the first Superbonus investments, using almost identical documentation,
to provide for a contractual return of 8% p.a. These projects are being
managed by Sol Lucet S.r.l., an energy services company which, since 2013, has
successfully installed renewable energy plants with a generating capacity of
17.0 Megawatts peak ("MWp") as well as Combined Heat and Power ("CHP") plants
producing 3.2 Megawatts electric (" MWe"). Sol Lucet is currently managing
solar PV plants with a generating capacity of 14.0 MWp. The tax credits, which
these projects are designed to generate, will be acquired by Credit Agricole,
which has a short-term rating of A+ from S&P ("Standard & Poor's").
As at 31 December 2022, £32.95 million had been committed to Superbonus
projects and were earning a contracted rate of return. Of this, £24.28
million had been deployed in cash. The balance of the commitments is forecast
to be deployed before the end of October 2023. These projects, which are being
delivered in a series of stages, generate tax credits which exceed the cost of
the Company's investments. Six companies have agreed to purchase these tax
credits, including four banks: BNP Paribas, Credit Agricole, Intesa Sanpaolo
and Monte dei Paschi di Siena along with Assicurazioni Generali, one of the
largest global insurance companies and Enel X, a subsidiary of Enel, Italy's
largest utility company. The purchasers of the tax credits have S&P credit
ratings of A+, AA-, BBB, B+, A+ and BBB+ respectively, with the lower rated
bank being majority owned by the Italian state. The proceeds from the sale of
the tax credits are forecast to redeem these investments before the end of
January 2024. The investments are structured to deliver contracted returns
of 8-9% per annum from the expected project start dates. This means that the
investment commitments become income generating from the dates set out in the
investment documentation and not from the date of cash deployment.
Solar PV Investments for self-consumption in Italy
The Company has committed £3.6 million to six rooftop Solar PV projects in
Italy with an aggregate capacity of 3.6MWp. As at 31 December 2022, £2.5m
had been deployed into four operational projects. The balance of the
commitment will be deployed when the two other plants have become operational,
which is expected to be achieved by the end of May 2023. These projects
enable companies to reduce their energy expenses and CO(2) emissions and avoid
grid losses through the self-consumption of the electricity produced.
Projects with Noleggio Energia
Five projects in which the Company has invested have been developed by the
ESCO, Noleggio Energia, which was established in 2017 and is an Italian
company that specialises in providing operating leases for energy efficiency
and renewable energy projects for commercial and industrial clients in
Italy. These projects are all structured as the purchase of receivables from
operating leases with maturities of seven or ten years and all use very
similar documentation. Noleggio Energia has transferred to SPV the monthly
receivables from these operating lease agreements, which provide for fixed
rates of return ranging between 7.2% p.a. and 9.4% p.a.
The first investment of £0.31 million which the Company made in Italy was
completed at the end of June 2021 to finance a rooftop solar PV project with a
capacity of 238 kilowatt peak ("kWp") located in Lombardy for the Italian food
product manufacturer Galletti di Galletti Aurelio e C. snc ("Acetificio
Galletti"). Acetificio Galletti is a family-owned business founded in 1871 and
is a renowned producer of vinegars, dressings, pickles, and other food
products. It has an investment grade credit rating (B1.2/BBB) from the credit
ratings agency Cerved.
The second investment of £0.12 million was completed at the end of December
2021 to finance a rooftop solar PV project with a capacity of 127 kWp in
Veneto for Enofrigo SpA. Enofrigo SpA, founded in 1978, is an Italian designer
and manufacturer of wine cabinets and both hot and cold food display units for
bars, restaurants, small supermarkets, and larger retail chain stores.
Enofrigo SpA now serves more than 5,000 clients in more than 100 countries.
Its Cerved credit rating is B2.1, equivalent to BB+.
The third investment of £1.32 million was committed to at the end of March
2022 to finance a 1MWp rooftop solar PV project in Lombardy for the
engineering company, Tecnocryo SpA. The project, which included the
refurbishment of the roof, was completed in August 2022 and is operational.
Tecnocryo has been trading since 1992 and focuses on the design and
realisation of machines for handling cryogenic fluids. The company has a
Cerved credit rating of B2.1, equivalent to BB+, which is just below
investment grade.
The other two projects with Noleggio Energia are under construction. In
September 2022, the Company committed £0.35 million to a 443 kWp rooftop
Solar PV project installed on the production facilities of Ali Group, a
foodservice equipment manufacturer in Veneto, Northern Italy. Ali Group is
an Italian corporation that was founded in 1963, it is one of the largest and
most diversified global leaders in the food service equipment industry. The
company has a Cerved credit rating of A2.1, equivalent to A+. In December
2022 the Company committed £0.82 million to an 876 kWp rooftop Solar PV
project installed on the production facilities of Orlandi, a nonwovens
manufacturer in Lombardy, Northern Italy. Since its establishment, the company
has expanded its product offering, which now includes applications for a wide
variety of sectors including medical, hygiene, home furnishing,
industrial/household wipes and more. The company has a Cerved credit rating of
B1.1, equivalent to BBB+/BBB-.
Project with CO-VER Power Technologies
In January 2022, the Company refinanced the acquisition of an existing rooftop
solar PV plant in Ascoli Piceno (Central Italy) with a generating capacity of
902 kWp. The investment is based on the purchase of receivables generated by
an energy service contract between the leading Italian engineering firm CO-VER
Power Technologies ("CO-VER") and its subsidiary Futura APV S.r.l. ("Futura").
The contract governs the management of an operating roof-mounted solar PV
plant until April 2028. Thereafter, the investment is based on a
feed-in-tariff for an additional six years, aggregating to a 12-year tenor.
The investment is forecast to generate a return ranging between 7.0% and 7.3%
p.a.
CO-VER has a successful 20-year history in developing industrial projects in
the areas of energy storage systems, co/tri-generation plants and renewable
energies. Futura, which was established in 1981, specialises in the design and
construction of overhead and floor conveyors and is the owner of the PV plant,
which benefits from feed in tariffs payable by Gestore dei Servizi Energetici
("GSE"). GSE is a joint stock company managed by the Italian government which
is responsible for promoting and developing the growth of renewable assets in
Italy. GSE has a credit rating of BBB+ from the Italian government.
Investments in Spain
In line with its pan-European investment strategy, the Company, through its
wholly owned subsidiary, Attika, had as at 31 December 2022 committed £32.6
million across ten Spanish projects, nine of which are Solar PV projects and
one of which is a buildings energy efficiency project. The capital deployed
as at 31 December 2022 was £4.9 million. Since 31 December 2022, the Company
has committed to a further three projects with three new project developers.
Due to various changes, including a withdrawal from one commitment, the
Company's total commitments to investments in Spain as at 31 March 2023 were
£31.5 million of which £6.0 million had been deployed. The balance of the
commitments is expected to be largely deployed during 2023 at construction
completion of relevant projects.
Solar PV investments in Spain
The market in Spain presents continuing and favourable prospects, particularly
in the solar photovoltaic sector. The Company has committed capital to finance
the development of ten solar PV installation projects throughout Spain with
eleven project developers. Most of these projects have been structured under
Power Purchase Agreements ("PPA") with maturities of up to 18 years and have
variable revenues, which are often subject to production risk, power price
fluctuation or inflation. In addition, excess production beyond the on-site
demand may be injected into the grid. These variable revenue risks are
mitigated by conducting technical due diligence prior to making commitments
and by contracted prices within the PPAs.
Notable investments include:
· £9.6m commitment for a group of five Solar PV installations with a
total capacity of 12MWp, three of which are ground mounted, for a major
battery manufacturer and other industrial businesses, which have a blended
S&P equivalent rating of BBB+/ BBB-;
· £6.2m commitment to finance an 8MWp ground-mounted solar PV project,
with revenues generated through off-site Power Purchase Agreements to
commercial clients around Borja (Zaragoza), which have a blended S&P
equivalent rating of BB-;
· £2.9m for a 3.83MWp roof mounted solar PV plant for an insulation
material manufacturer located near Tarragona, which has a S&P equivalent
rating of BBB+/ BBB-;
· £1.7m commitment to finance Solar PV plant and battery projects
developed by a major European technology manufacturer and to be deployed at
sites of the leading owner and operator of wellness centres in Spain, which
has a S&P equivalent rating of BBB+/ BBB-; and
· £0.9m commitment to fund a Solar PV project for self-consumption,
developed by a Valencia based ESCO, for a leading Spanish ceramic tiles
manufacturer, which has a S&P equivalent rating of BBB+/ BBB-.
Since 31 December 2022, the Company has successfully completed a £3.5 million
commitment to invest in ground mounted solar PV plants for self-consumption
for four farms operated by a Spanish agricultural company with a capacity of
approximately 4MWp. In addition, two smaller commitments of £0.7 million
and £0.6 million were completed to finance groups of projects across Spain.
Both transactions mark the start of new relationships with the respective
project developers.
The credit ratings of the counterparties of the Spanish Solar PV investments
have been rated as the S&P equivalent of between BB and BBB+/BBB-. These
investments also have, in many cases, the benefit of being able to generate
revenues from selling power to the grid if there are payment issues with the
counterparty.
Buildings Energy Efficiency investments in Spain
The Spanish Government has established incentive schemes to promote buildings
energy efficiency measures, including the "Programa de Rehabilitacion
Energetica de Edificios" ("PREE"). PREE is a EUR402.5 million incentive scheme
across the Spanish jurisdiction and is designated to promote and reward energy
efficiency improvements for condominiums and buildings improving their energy
rating by at least one energy class. Under this scheme the Company has
committed £4.2 million to fund the refurbishment of condominiums, which is
being managed by a leading ESCO specialised in designing and implementing
energy efficiency and renewable energy projects in Spain. The investment
cash flows are based on the purchase of receivables generated by the
underlying energy saving contracts between the ESCO and the so-called
"Comunidad de Proprietarios", the legal entities which represent each of the
owners of the apartments in a residential building. The receivables have been
rated as the S&P equivalent of A+/A.
Investments in Germany
As at 31 December 2022 the Company, through Attika, had made four investments
in Germany through note subscriptions for a total commitment of £23.4 million
of which £19.4 million had been deployed, across a variety of four
technologies including smart metering technologies, water management
solutions, heat pumps and Bio-LNG.
£1.8 million Investment in Comgy GmbH & Co KG ("Comgy")
In April 2022, the Company purchased a note for £1.8 million with a tenor of
ten years issued by Comgy. The note is structured to provide a fixed return
of in excess of 10% p.a. through a fixed interest rate of 6.5% p.a.,
repayments and a variable interest component, which takes account of the
contracted cash flows through to the maturity of the investment. Comgy is a
wholly owned subsidiary of Comgy GmbH, active in the German sub-metering
market. Comgy provides metering equipment, billing and Operations and
Maintenance ("O&M") services mainly to housing companies with an average
rating comparable to an S&P rating of BBB+/BBB. The note is secured on
sub-metering contracts, including equipment rental and billing as well O&M
services with tenors of between five and ten years.
£8.3 million for the purchase and upgrade of a biogas plant in Northern
Germany
In October 2022, the Company made an £8.3 million commitment to fund the
acquisition of a biogas plant and an investment into liquefaction equipment by
one of Germany's leading biogas development companies with more than 20 years'
experience in the sector. The investment is structured as a note purchase.
The terms of the note provide for the payment of interest at a fixed rate of
5% p.a. plus a variable return, which is equivalent to 8% of revenue generated
by the asset company, capped at EUR1.3 million across eight years.
Liquefaction of the biogas produced makes the resulting Bio-LNG eligible for
greenhouse gas certificates under German energy law. These certificates are
frequently resold on the secondary market to companies within carbon-intense
industries under pressure to comply with emission regulations and as a result
Bio-LNG is gaining popularity in the transportation market. The structure of
this investment benefits from an extensive security package including a pledge
over the assets and land, a parent company guarantee and step-in rights. The
parent company was deemed to have an S&P rating of BB-. However, once the
plant becomes operational, scheduled in September 2023, the underlying credit
risk will shift to the counterparties purchasing the Bio-LNG and associated
carbon credits, which are likely to be more highly rated businesses.
£11.0 million investment for water management solutions
In December 2022, the Company invested £11.0 million to acquire receivables
due under water management service agreements for condominiums and
multi-family homes in Germany, mainly managed by large property managers. As
with the Company's other German investments, the investment is structured
through a note purchase which provides for a fixed interest rate of 8% p.a.,
to be paid out on a quarterly basis over a ten year period. The developer's
water management solutions consist of hardware and software detecting user
behaviour and optimizing the temperature management of the house or
condominium's waterflow, resulting in significant energy cost reductions for
tenants. The counterparties comprise a large number of property management
companies and have been evaluated with a weighted average S&P equivalent
rating of BBB+.
£2.2 million junior loan purchase
The Company has purchased a subordinated note from a SPV set up by one of
Germany's fast-growing heat pump companies. The note investment was purchased
in December 2022 for a total price of £2.2 million, and is structured to pay
a fixed annual interest rate of 7.5% p.a. The proceeds from this investment
are being applied by the developer in its roll out of heat pumps across
Germany. The note is subordinated to a loan from a large German Bank and
consists of approximately 11% of the total loans issued by the SPV. The
investment has a planned maturity of 15 years and benefits from a first rank
guarantee from the SPV's parent company up to the nominal amount of the loan
and includes covenants related to the minimum cash balance of the SPV as an
additional security buffer. The cash flows due to the SPV are from German
households, who are deemed to have an S&P equivalent rating of A+/A.
Investments in the United Kingdom
As at 31 December 2022 the Company, through Attika, had committed and deployed
£4.1 million and £3.6 million respectively into investments in the United
Kingdom comprising investments in CHP, Lighting and Wind Power projects.
These investments were made with five different ESCOs.
CHP Investments
The Company has invested in CHP projects in the UK for a total investment
value of £1.9 million developed by three separate ESCOs. The CHP projects are
with a major convention centre, a hotel and a food producer, Vale of
Mowbray. The convention centre and hotel have credit ratings of S&P
equivalents of BBB+/BBB- and BB+/BB respectively. The Vale of Mowbray
project is on hold because the company has entered into administration. The
amount of £0.9 million has been invested in the project with the majority of
the capital applied to acquire the CHP equipment, which is not yet onsite. The
result of the administration is that the site was acquired in March 2023 by a
cold storage logistics business with whom discussions are due to be held
regarding utilisation of CHP at the site. Ega Energy, the ESCO developing
the Vale of Mowbray project, has identified other clients who may use the CHP
equipment. The Investment Adviser believes that its contractual arrangements
with Ega Energy protect the value of the investment made to date.
Wind Power Investments
The Company has invested £2.0 million (£1.6 million at 31 December 2022) in
five operational small wind farms in the UK, managed by a UK ESCO, which
benefit from feed-in and export tariffs and provide onsite power for
self-consumption. The Company's investments are structured to receive an
agreed share of net revenues from these projects, which have remaining lives
of approximately 10 years. The Company's investment income is dependent on
the levels of power production, feed in tariff rates, which benefit from
Retail Price Index ("RPI") indexation, and export tariff rates which are
typically renegotiated annually, less direct operating costs such as rent,
insurance and operational & maintenance costs, which are managed by the
ESCO. The weighted average credit rating of the revenue streams for these
projects are S&P equivalent ratings of BBB+/BBB- with the feed in tariff
revenues being deemed to be UK Government risk, rated AA, and export tariffs
payable by the utilities currently contracted being deemed to be
sub-investment grade. However, it would be possible to replace the current
utilities should they fail to pay amounts due.
Lighting Investments
Following an investment of £0.3 million in December 2021, the Company has
invested an additional £0.1 million in operational lighting projects
developed by a Northern Ireland based lighting services company, Lumenstream
Limited. The Company's investments are structured as purchases of receivables
under five-year lighting contracts with industrial companies and a leisure
business. The weighted average credit rating of the receivables in this
portfolio of projects is rated at an S&P equivalent of BBB+/BBB-.
Since 31 December 2022, the Company has committed and invested £0.9 million
across two projects with two additional ESCOs providing lighting as a service
for a variety of counterparties with contract maturities of up to ten years.
These counterparties have a weighted average credit rating of an S&P
equivalent of BBB+/BBB-.
Investments completed after 31 December 2022
A summary of the investments the Company has made since the year-end is set
out below:
Description Receivables Term Technology Status Country Committed Deployed
Weighted Avg. Credit rating years £'000 £'000
Purchase of receivables generated by an operating lease linked to a solar PV BBB+ / BBB- 10 Solar PV Construction Spain 3,490 -
in self-consumption installation for a Spanish agricultural company
Purchase of receivables from PPA agreements for two solar PV plants in BB+ / BB- 14 / 15 Solar PV Operating Spain 616 605
self-consumption in Spain
Purchase of receivables generated from grid sales and PPA agreements by BBB+ / BBB- 18 Solar PV Construction Spain 725 142
financing four solar PV plants in self-consumption in Spain.
Acquisition of receivables of FiTs and export tariffs generated from an BBB+ / BBB- 12 Wind Operating United Kingdom 331 331
operating wind turbine in Scotland.
Purchase of receivables generated from the installation and operation of BBB+ / BBB- 5-7 Lighting / Metering Construction United Kingdom 457 404
metering and LED projects with eleven different counterparties in the UK.
Financing the installation of a roof mounted solar PV plant for BB+ / BB 10 Solar PV Construction Italy 857 -
self-consumption in Central Italy.
Purchase of receivables generated from the installation of a roof mounted A- 5 Solar PV Construction Italy 513 -
solar PV plant for self-consumption in Northern Italy.
Purchase of receivables generated from refinancing the installation of LED BBB+ / BBB- 5-10 Lighting Operating United Kingdom 456 456
lighting projects for 15 different clients in the UK.
Summary of all Investments that have Committed Capital as at 31 March 2023
Description Receivables Term Technology Status Country Committed Deployed
Weighted Avg. Credit rating years £'000 £'000
Receivables (fixed) from a 238 kWp rooftop Solar PV project installed at B 7 Solar PV Operating Italy 314 314
the production facilities of a food manufacturer in Lombardy.
Receivables (fixed) from a 127 kWp Solar PV project installed on the BBB+ / BBB- 7 Solar PV Operating Italy 120 120
production facilities of a manufacturer in Veneto.
Receivables (fixed) from sales of tax credits generated under the B+ 2 Building Retrofit Construction Italy 6,137 4,783
Italian Superbonus scheme, which supports the energy efficiency retrofits
(insulation, more efficient heating etc.) of residential buildings.
Receivables (fixed) from sales of tax credits generated under the A 2 Building Retrofit Construction Italy 10,668 10,164
Italian Superbonus scheme, which supports energy efficiency retrofits
(insulation, more efficient heating etc.) of residential buildings.
Receivables (fixed with RPI) from lighting as a service contracts with 6 UK BBB+ / BBB- 5 Lighting Operating United Kingdom 390 390
companies.
Receivables (fixed/variable) from a 901.6 kWp rooftop Solar PV project at a BBB+ / BBB- 12 Solar PV Operating Italy 740 740
site in Ascoli Piceno (Central Italy).
Receivables (fixed) from sales of tax credits generated under the AAA / AA- 2 Building Retrofit Construction Italy 1,601 1,601
Italian Superbonus scheme, which supports the energy efficiency retrofits
(insulation, more efficient heating etc.) of residential buildings.
Receivables (fixed) from a 1,000 kWp rooftop Solar PV project to be BB+ / BB 10 Solar PV Operating Italy 1,325 1,325
installed at a manufacturer's production facility in Lombardy.
Receivables (fixed) from sub-metering hardware and services contracts with BBB+ / BBB- 9 Sub-meters Operating Germany 1,821 1,821
landlords of multi-occupancy buildings.
Receivables (fixed) from CHP Energy Services Agreement with a major BBB+ / BBB- 6 CHP Operating United Kingdom 200 200
conference centre in Wales.
Receivables (fixed) from CHP Energy Services Agreement with food BB+ / BB 7 CHP Construction United Kingdom 1,396 951
manufacturer.
Receivables (fixed) from sales of tax credits generated under the BBB+ / BBB- 2 Building Retrofit Construction Italy 8,714 6,529
Italian Superbonus scheme, which supports the energy efficiency retrofits
(insulation, more efficient heating etc) of residential buildings.
Receivables (PPA with fixed price) from a 3,830 kWp rooftop Solar PV project BBB+ / BBB- 15 Solar PV Construction Spain 2,947 1,468
to be installed at a facility in Tarragona (North of Spain).
Purchase of receivables generated through a PPA from three solar PV plants in BB- 15 Solar PV Construction Spain 286 235
self-consumption for a poultry producer.
R Receivables (fixed) from CHP Energy Services Agreement with a hotel BB+ / BB 8 CHP Operating United Kingdom 433 425
Receivables (fixed) from sales of tax credits generated under the BB+ / BB 2 Building Retrofit Construction Italy 6,356 6,356
Italian Superbonus scheme, which supports the energy efficiency retrofits
(insulation, more efficient heating etc.) of residential buildings.
Purchase of receivables from five solar PV plants in self-consumption in BBB+ / BBB- 15-18 Solar PV Construction Spain 9,605 666
Spain. The revenues are generated through PPAs with
multiple counterparties.
Purchase of receivables generated through an off-site PPA from a BB- 15 Solar PV Construction Spain 6,321 1,559
ground-mounted solar PV plant in Zaragoza between a Spanish developer and
different clients.
Purchase of receivables (fixed) generated by two operating lease agreements BB- 10 & 12 Solar PV Construction Spain 155 155
between a Spanish developer and two counterparties in Spain.
Receivables (fixed) from a 443 kWp rooftop Solar PV project installed on A- 7 Solar PV Construction Italy 345 345
the production facilities of a foodservice equipment manufacturer in
Veneto, Northern Italy.
Purchase of receivables generated by Power Purchase Agreements ("PPA") BBB+ / BBB- 15 Solar PV Construction Spain 966 764
between a Spanish developer and a Spanish ceramic tiles manufacturer.
Acquisition of receivables of FiTs and export tariffs generated from 3 BBB+ / BBB- 10.6 Wind Operating United Kingdom 484 484
operating wind turbines in the UK, of which the generated energy is used
for self-consumption & for export to the grid.
Subscription for a note for the refinancing of an operating bio-gas plant in BB- 8.25 Biogas / BioLNG Operational (Phase 2 construction) Germany 8,283 4,440
north-eastern Germany and an upgrade to a Bio-LNG(1) facility. The
note provides for a fixed return plus an agreed share of revenues from the
Facility.
Receivables (PPA with fixed price) from six rooftop solar PV projects used BB+ / BB- 15 Solar PV Construction Spain 324 282
for self-consumption, to be installed at six different locations in Cordoba
and Granada in Spain.
(1 Bio-LNG is a highly sustainable version of liquefied natural gas (LNG),
with almost the exact same chemical makeup. It is produced during the
anaerobic digestion (AD) process, which breaks down organic matter (such as
food or animal waste) in an oxygen-free tank to produce methane-rich biogas.)
Receivables (fixed) from solar PV plant in self-consumption for a total BB+ / BB 10 Solar PV Construction Italy 821 -
installed capacity of 875.6kWp located at the site of nonwovens manufacturer
in Lombardy, Northern Italy.
Receivables from service agreements related to the water management between BBB+ / BBB- 10 Water management Operating Germany 11,067 10,989
the developer and condominiums and multi-family homes, mainly managed by
large property managers via a note structure.
Purchase of receivables generated by 2 Energy Saving Contracts ("ESC") A+ / A 15 Building Retrofit Construction Spain 4,330 211
between the developer and five Spanish condominiums located in the proximity
of Madrid, Guadalajara and Gerona, as well as subsidies generated under the
incentive scheme.
Acquisition of receivables of FiTs and export tariffs generated from an BBB+ / BBB- 13 Wind Operating United Kingdom 1,162 1,162
operating wind turbine in Scotland.
Subscription for a junior note issued by largest heating installer in A+ / A 15 Heating Construction & Operational Germany 2,240 2,213
Germany, entitling the noteholder to receivables generated through service
and maintenance contracts for heat pump systems for the residential sector
throughout Germany.
Purchase of receivables (fixed) from Solar PV and battery installations for a BBB+ / BBB- 12 Various Construction Spain 1,702 -
leading operator of wellness centres in Spain.
Purchase of receivables (fixed) from solar PV installations for a leading BBB+ / BBB- 10 Solar PV Construction Spain 3,490 -
agricultural business engaged in the cultivation of grapevines, cereals,
onions, olives, almonds, and peas.
Purchase of receivables from PPA agreements for two solar PV plants in BB+ / BB 14 & 15 Solar PV Construction Spain 616 605
self-consumption for a total installed capacity of 869kWp located around
Alicante, Spain.
Purchase of receivables generated from grid sales and PPA agreements through BBB+ / BBB- 18 Solar PV Construction Spain 725 142
the investments financing four solar PV plants in self-consumption with
combined capacity of 1.3MWp in Spain.
Acquisition of receivables of FiTs and export tariffs generated from an BBB+ / BBB- 12.37 Wind Operating United Kingdom 331 331
operating wind turbine in Scotland.
Purchase of receivables (fixed) generated from the installation and operation BBB+ / BBB- 5 to 7 Various Construction United Kingdom 457 404
of metering and LED projects with eleven different counterparties in the UK.
Financing (fixed payments indexed to CPI) the installation of a roof mounted BB+/BB 10 Solar PV Construction Italy 857 -
solar PV plant for self-consumption in Central Italy, with a total installed
capacity of approximately 1.0 MWp.
Purchase of receivables (pre-determined fixed payments) generated from the A- 5 Solar PV Construction Italy 513 -
installation of a roof mounted solar PV plant for self-consumption in Northern
Italy, with a total installed capacity of ca. 478.8 kWp.
Purchase of receivables (fixed) generated from refinancing the installation of BBB+ / BBB- 10 Lighting Operating United Kingdom 456 456
LED lighting projects for 17 different clients in the UK. The various
operating lease agreements range from five to ten years.
MARKET OUTLOOK
Electricity prices for industrial and residential customers across Europe have
increased significantly since the Company's IPO in June 2021. Given this
strong upward pressure on energy prices, we have seen a noticeable increase in
investment opportunities. From our discussions with ESCOs and other market
participants, it is clear that higher power prices compared with those seen
prior to the Russia /Ukraine conflict, notwithstanding power prices since
retreating to pre-conflict levels are accelerating investments in energy
efficiency projects, and the Company is well positioned to benefit from this
increased demand for funding of such projects.
Market Commentary
Introduction
The energy market crisis in 2022, caused by the Russia/Ukraine conflict
brought critical issues of energy supply security to the fore. The European
region's gas supply remains uncertain, even if the prices are no longer at the
same elevated levels. Against this backdrop, the European Commission is
deliberating on market reforms to devise better long-term incentives to help
manage price and supply volatility. Incentives are also needed for the demand
side, essential in balancing the system. Experience shows that investment in
energy efficiency infrastructure is essential to delivering on climate-neutral
goals.
The interaction between renewable energy and energy efficiency follows a
complex relationship. The rising levels of distributed renewable energy
penetration in most of the European region effectively displaces a
proportional share of primary energy consumption. This assumes that primary
energy consumption is measured net of distributed (or behind the meter) energy
generation. Conversely carbon-saving measures (including electrification)
enhance the scope for renewable energy. The inverse relation is most robust in
countries with a high renewable energy share in the total energy mix. The
historical trend in primary and renewable energy consumption shows this
relationship. In this regard, the step-up in renewable energy projects
establishes a strong case for energy efficiency.
There are steeper targets to build upon the progress in rationalising primary
energy consumption. The active policy involvement in addressing immediate
energy sector challenges will extend to hastening energy efficiency
activities. Energy demand segments such as buildings and space heating/cooling
are now attracting maximum attention for investments by public authorities and
the private sector.
Policy and Regulatory Developments
Progressively, the European region has coordinated policy and regulatory
measures for energy efficiency. Renewable energy targets are part of this
framework for the overarching goal of a climate-neutral area by 2050. In
September 2022, the European Parliament voted on Energy Efficiency and
Renewable Energy Directives. Renewable energy-based sources are part of an
envisaged integrated system in which energy efficiency standards are supposed
to operate. The guiding principle of 'Energy Efficiency First' reinforced its
place with the recent energy sourcing and pricing challenges. In March 2023,
the European Commission approved the provisional agreement for setting higher
energy efficiency targets. With this agreement, which requires 1.4% average
annual energy savings by member countries during 2024-2030, there is
legislative backing for reaching beyond the 'Fit for 55' plan. The annual
targets are almost twice those in the original scheme.
While the end-use sectors continue to be buildings, industry and
transportation, the focal points include the public sector (regional and local
levels) and the companies (energy-intensive large entities). Also significant
is the emphasis on energy efficiency financing to enable investment
mobilization - the provisions require the promotion of financing schemes and
lending products and involve a reporting structure.
The recent developments in the European Union's policy narrative on energy
efficiency come after the collective action taken in 2022 to counter supply
shocks (through price caps and windfall taxation). The measures also involved
voluntary curtailment, most of which was borne by the energy-intensive
industrial consumers. While the market intervention measures implemented to
achieve these one-off actions may not be required further, there is still a
strong case for continuing to reduce primary energy consumption.
The persistent geopolitical challenges and the uncertainty around energy
security make it difficult to draw any visible signs of stability. For this
reason, in March 2023, the EU Council agreed to a one-year extension of member
states' voluntary 15% gas demand reduction. Thus, based on the average
consumption between April 2017 and March 2022, member states should reduce
their annual natural gas consumption by 15% between April 2023 and March 2024
(compared with the prior year).
Key Measures Introduced for Energy Efficiency
Date Country / region Policy / regulatory measures
March 2023 European Union
Final energy consumption target for 2030 raised to 11.7%. This is beyond the
targets in the original 'Fit for 55' plan.
March/February 2023 UK
Energy Efficiency Taskforce launched for a 15% reduction in energy demand by
2030. Earlier, a £1.8 billion outlay was announced for energy efficiency
initiatives.
October France
/December 2022 Energy Sobriety Plan (October 2022), aiming for a 10% reduction in consumption
by 2024, though without binding targets. An enhanced outlay was provided for
the MaPrimeRénov retrofit grant scheme due to the encouraging response.
October 2022 Germany
New energy efficiency law in discussions for binding targets at federal and
state level from 2024 onwards. Among other sectors to be potential in focus
include data centres.
May 2022 European Union
REPowerEU launched as a comprehensive policy about energy transition and
energy savings. About 30% of the estimated outlay was on energy efficiency.
Measures introduced across these countries have varied. For most countries,
energy efficiency was an urgent requirement in the aftermath of the
Russia/Ukraine armed conflict. As a result, both renewable energy and
efficiency, in tandem, took the highest priority. The measures so far have
been a mix of incentives and related voluntary measures for reducing demand.
Progressively, the need is for binding targets along the lines of the European
Union's recent step.
Concrete policy measures with binding targets may take more work to implement,
although efforts are underway to reach that goal. The German example is one
case in point. The country's upcoming energy efficiency law is challenging
(such as requiring new residential heating systems to be renewable-based from
2024 onwards) and subject to significant delays. The investor interest is high
due to the potential opportunity. In January 2021, The Canadian infrastructure
fund Brookfield acquired a majority stake in Thermondo, a German start-up
specialised in technology-enabled space heating systems. Similar scope is
observed in other markets. In the UK, a Parliamentary report (House of Commons
Committee report) pointed out energy efficiency in buildings as among the
glaring gaps in policy implementation. Similar issues exist across European
countries regarding energy efficiency objectives against actual implementation
through policy measures.
The policy paradigm is an evolving one given the short-term switching costs
for households and businesses, e.g. to replace gas boilers with heat pumps.
The policy response in the prevailing energy scenario is different from the
one the same countries faced earlier as the case of Italy illustrates.
In 2020, during the COVID pandemic, the Italian government implemented the
Decreto Rilancio, which introduced the Superbonus 110% scheme. This initiative
aimed to stimulate the Italian economy by encouraging property owners,
tenants, and others with a legal right to use a property to carry out
anti-seismic renovations and energy efficiency improvements on Italian
properties. Qualifying work for the Superbonus included the installation of
photovoltaic systems and electric vehicle charging stations inside a property,
among others.
The Italian Superbonus scheme provided a tax credit of up to 110% of the
installation expenses for eligible renovation work. The Legislative Decree
Aiuti quater, which is set to become law soon, reduces the Superbonus tax
credit from 110% to 90% in 2023, but extends the possibility of applying the
discount to invoices or assigning the tax credit in 10 instalments instead of
5. The Superbonus scheme will continue into 2024 and 2025, but the tax credit
will decrease to 75% in 2024 and 65% in 2025.
However, the Italian Budget Law 2023 allows condominiums that submitted a CILA
(Comunicazione di Inizio Asseverata) before 31 December 2022, to remain
eligible for the full 110% Superbonus tax credit. Additionally, single-family
properties can also qualify for the full Superbonus tax credit if at least 30%
of the renovation work was completed by 30 September 2022, and all of the work
was finished by 31 March 2023. None of our projects should be impacted by the
change in the regulatory framework since (i) the development of the projects
is significantly prior to said change and ii) all the projects should be
completed and revised by the various advisors (asseverazione) before the end
of the current year.
As a tool, overall(2) the Italian Superbonus programme had an important impact
on the construction sector overall which in turn stimulated GDP growth and job
creation. Italy's economic output is estimated to have grown by 3.9% in 2022,
driven by domestic demand, in particular housing investment. After contracting
by 5.5% in 2020 due to the impact of COVID, investment in construction in the
country grew rapidly by 24.6% in 2021. In 2022, the industry continued to
expand by approximately 15.4%, with a significant boost from a 25.7% increase
in the home renovation sector. According to ANCE, Italy's national builders'
association, construction investment reached an estimated €172bn in 2022.
This surge in activity marks a reversal of the industry's decade-long decline,
which saw a drop of almost a quarter in total construction revenues and almost
a third of workers losing their jobs between 2010 and 2020, according to the
European Commission.
Investment environment
Private sector financing has yet to play a more significant role in
facilitating energy efficiency projects. Part of the reason is the impact
potential of such projects with social implications and the return potential
but the constraints to more capital allocation remain with market
fragmentation, scalability and scarcity of dedicated players. Energy
efficiency in the residential housing segment is one such area.
There is significant scope for the deployment of private capital in the
emerging energy efficiency space. The need is to develop innovative financing
models to help adoption. There has been a rise in funding activity in the
overall Climate and Sustainability space, with about $37 billion(1) in dry
powder understood to be available for deployment as of March 2023. Of the
various investment subsectors, an important one is the buildings sector. A
combination of distributed energy resources (such as solar) and energy
efficiency (space heating/cooling) systems present an effective means of
mitigating emissions in the buildings sector. The investment upside is
significant for the near-untapped potential in most of the markets.
(1) The data point of $37 billion was sourced from a BCG article dated 30
March 30 2023. BCG's article attributed this data to the Center for
Climate-Aligned Finance.
https://www.bcg.com/publications/2023/private-capital-and-climate-opportunity-europe
(https://eur06.safelinks.protection.outlook.com/?url=https%3A%2F%2Fprotect-de.mimecast.com%2Fs%2Fvom8CWPxzWcjyv3Ys6f09t%3Fdomain%3Dbcg.com&data=05%7C01%7Cfizzah.jafri%40aquila-capital.com%7C0e6ca33d2f6d4e1b2b8b08db457c5706%7C3d0a5a71aa06479091858796f123cf92%7C1%7C0%7C638180172559733718%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=TyV5DXoplpxCkiBV4piqwywlUp%2BuDbuvk2sSU94oWL0%3D&reserved=0)
As of November 2022, the energy efficiency sector had seen investment in 280
deals backed by private equity and venture capital worth $31.79 billion.
Comparatively, the total transaction volume for 2021 stood at $16.36 billion
across 307 transactions involving companies in the energy efficiency, energy
management, innovative energy, and carbon emission sectors. Investments in
this field defied the general downward trend of private equity and venture
capital deployment in 2022, reflecting nations and companies racing to meet
carbon emission reduction targets through sustainable energy management
strategies. As VC and PE capital continues to flow into the sector, it is
critical to support this with dedicated lending solutions for asset and
working capital finance as banks often face internal organisational issues
that limit their capacity to follow the market or increase the costs of energy
efficiency funding. These issues include the availability of resources, the
need to build capacity among loan officers and develop innovative solutions
for energy efficiency financing.
The emergence of dedicated energy efficiency funds in recent years has been
notable, but their number and with that competition for projects remains small
compared to the market size. This allows them to access a complexity premium
for their capital deployed and they also play a significant role in certain
markets due to their in-depth understanding of energy efficiency risk
characteristics.
While several funds have also reported initial difficulties in deploying their
capital, many have crossed this hurdle and have now established proven models
to successfully deploy capital across and expanding the range of energy
efficiency sectors such as building retrofit, Building Management System
improvements, heating as a service, and storage, among others. These funds are
in fact specialised financial players with a strong knowledge of the market,
creating a reliable source of capital for such projects and support the
development of dedicated service providers.
In the larger global context, the European region's funding commitments
towards energy would need to rise by a significant margin. A recent and
notable example for comparison comes from the US legislation, the Inflation
Reduction Act ("IRA"). The latter has been in focus for its generous
incentives to attract projects. Under the Recovery and Resilience Facility
("RRF"), the European funding devotes a proportionate amount towards energy
efficiency projects. In absolute terms, though, there is a stark difference.
The US IRA allocates about $96 billion in energy efficiency, which is 33%
higher than the $73 billion allocated by the EU RRF.
Energy Price/Cost Summary View
The steadily rising wholesale power price through 2021, and its unprecedented
spike in 2022, triggered a rush towards prioritising energy efficiency at
enterprise and policy levels. A significant impact of the price rise was in
terms of reduced demand. International Energy Agency ("IEA") estimates show a
13% decline in the European Union's gas demand in 2022. It was the steepest
fall in the region's history and was primarily led by the energy-intensive
industrial sectors.
At a policy level, some of the most severe austerity measures were implemented
to manage the crisis. The primary energy demand in this context varied across
the sectors. The power sector had a net rise in the total demand (additional
gas and coal) due to the lack of compensating supply sources (renewable, hydro
and nuclear energy). Other sectors, such as process-based energy-intensive
industries (such as steel) and households, bore the brunt of energy austerity
measures.
Market Intervention by European Countries during 2022
Country Market intervention during 2022
Spain
and Portugal In April 2022, Spain and Portugal obtained agreement from the European
Commission for a €50/MWh cap on the gas price paid by consumers, thereby
decoupling gas and electricity markets for a period of up to 12 months.
France
Imposed cap on gas prices for final consumers (though not for wholesale
prices) and undertook measures for curbing the regulated prices.
Austria
Windfall energy taxes and revenue caps imposed on utilities and energy
producers to claw back profits earned from abnormally high prices. The
measures were supposed to be valid until the end of 2023.
Germany
Dual target of reducing gas demand and shielding consumers. The German
government had imposed windfall profit tax and activated revenue caps for both
consumers across residential, commercial, and industrial segments until April
2024.
Prices have moderated since their peaks of 2022. By February 2023, European
gas prices had declined by about 85% since August 2022. Prices are still
higher than historically, but the corresponding demand rationalization by
industries has helped. Additional factors, such as the abatement in winter
demand and a rise in gas storage levels, reinforce the price trend. But the
phase of price rises may be far from over. Higher futures contract prices for
2023/2024 indicate persistent supply uncertainties (IEA).
Development in Focus: Energy communities
Energy communities consist of various entities such as municipalities,
households, public institutions, private businesses, and cooperatives. A
significant increase in the number of energy communities is expected to occur
in the near future. According to a study conducted by the Politecnico di
Milano (Electricity Market Report), it is estimated that by 2025, there will
be approximately 40,000 energy communities in Italy, involving 1.2 million
households, 200,000 offices, and 10,000 SMEs. In Europe, a federation of
energy cooperatives has been established, which includes more than 1.2 million
citizens from around 1,900 cooperatives. The European Union's Joint Research
Center conducted a study in 2020 that found Germany to have the highest number
of energy communities (1,750), followed by Denmark (700) and the Netherlands
(500). Energy communities, as per EU legislation, can be structured as an
association, cooperative, partnership, non-profit organization, or limited
liability company, among others. Participation is voluntary, and the primary
goal is to provide environmental, economic, or social benefits to members and
the local areas they serve. These communities are considered legal entities
and should have equal access to energy markets as other market actors. Due to
their strict participation and governance criteria, they receive additional
benefits, such as access to financing, support schemes, capacity building, and
information.
As the concept of energy communities has emerged from the ground up, EU
countries have implemented national policies to support them and related
business models. For example, the Netherlands offers regulatory exemptions in
licensing requirements for new business models, while Germany applies special
rules in auction schemes for renewable energy source support.
Energy communities can engage in a range of activities, including energy
production, distribution, supply, consumption, aggregation, storage, energy
efficiency services, electromobility, and other energy services for their
members or shareholders.
The most common business models for energy communities today include
generation and supply, where they supply electricity and gas sourced from
local producers is supplied through power purchase agreements or
community-owned production capacity to their customers. Another model is
collective investments in production installations, where consumers pay a
fixed membership fee or variable stake to become members of an energy
community that acts as an energy producer. Power purchase agreements are often
used in cooperative investments to cover the produced energy and related
financial products like green certifications or guarantees of origin.
Collective self-consumption is another model where energy consumers and
producers in the same area are linked. However, the ability of members to sell
their electricity to other community members and use the off-setting
mechanisms of electricity meters may vary based on national regulations.
These models can be combined and are not exhaustive; they are likely linked to
the continued growth of C&I and residential solar. As part of the Rooftop
Solar Initiative, the European Commission has proposed a solar rooftop mandate
for all commercial and public buildings by 2027, and for new residential
buildings by 2029. In 2022, the German state of Baden-Wurttemberg implemented
its first rooftop solar mandate. With solar mandates becoming a standard for
new buildings, architects will now integrate solar PV into their building
practices. The industry association SolarPower Europe sees that rooftop solar
is primarily limited by installers' capacities, while permitting issues, which
affect much more the large-scale systems, are yet to be fixed in most member
states and on local levels, as government market interventions are starting to
cause insecurity among investors and lending institutions.
Evidence(1) increasingly suggests that energy community projects have a
positive impact on the local economy and job creation, although the magnitude
and nature of these effects vary depending on the specific community. As part
of the trend towards decentralization of the energy system, energy communities
are expected to have significant impacts on the distribution network, but more
research is needed to determine the exact positive and negative effects.
On the other hand, research has shown that community projects can increase
local acceptance of renewable energy and support for climate action.
Additionally, participation in community projects is linked to more
energy-efficient behavior, increased knowledge and skills, and stronger social
trust and capital to some extent.
Outlook
Global energy supply security remains uncertain for a mix of macroeconomic and
geopolitical factors but has worked to act as a headwind for the energy
efficiency sector. The stress on the demand-supply balance in natural gas,
Europe's critical primary energy resource, could also be accentuated as the
region's winter demand is unlikely to be as unseasonably mild as in 2022. The
urgency for energy efficiency thus continues. IEA's study indicates a €95
billion funding requirement to bridge the projected gas demand-supply deficit
in 2023 through incentivizing faster improvements in energy efficiency,
renewable energy integration, electrification of heat sources, and behavioural
changes in energy consumption.
The investment requirement for energy efficiency for 2023 and beyond is far
less than the resources expended to counter the energy crisis. EU region's
countries are estimated to have allocated about €681 billion so far (since
September 2021) in energy crisis spending. The UK and Norway added to this
with another €103 billion and €8 billion, respectively. It is
unsustainable for public finances and largely mistargeted as fossil fuel
consumption was subsidised. A realignment in budgets is overdue. In the UK,
for instance, about a third of the allocated funding for energy-efficient
buildings in 2020-2025 was unspent as of February 2023.
With timely investments, the region's built environment could be vital in
transforming the landscape. The existing buildings' stock significantly
contributes to decarbonisation (35% of energy-related emissions) and
rationalisation of primary energy consumption (32% of natural gas
consumption). Despite the challenges involved, some major areas of
interventions with maximum impact include rooftop solar, replacement of gas
boilers with heat pumps, insulation, smart thermostats, and district heating.
McKinsey's projections indicate that to adhere to the 'Fit for 55' and
RePowerEU targets, the buildings' renovation rates need to be 15 times the
current level of 0.2% per year. The corresponding investment requirements are
enormous, translating to an attractive market opportunity if followed through
with an actionable plan.
The projected energy efficiency investment and the resulting market size are
simply quantified reiterations of the low-hanging untapped opportunity. The
ambitious objectives of climate neutrality require a cohesive approach,
incorporating multiple lines of action. The measures related to energy
efficiency offer the most optimum and cost-effective solutions to address
immediate and long-run targets for carbon reduction in businesses and society
at large.
(1) Source:
https://cadmus.eui.eu/bitstream/handle/1814/68383/QM-04-20-447-EN-N.pdf?sequence=1
Acronyms used for Power Market Price Trend
Acronym Full form
DEU/AUT (EPEX) European Power Exchange Spot
FRA France
NLD The Netherlands
Nordpool Nord Pool AS
DK1 DK1 price zone (western) of Denmark
DK2 DK2 price zone (eastern) of Denmark
SE4 SE4 price region of Swedish power market
NO2 NO2 price zone of Norwegian power market
DEU/AUT (EXAA) Energy Exchange Austria
CHE Switzerland
BEL Belgium
ESP Spain
ITA Italy
ITA North Northern Italy
ITA South Southern Italy
CZE Czech Republic
SVK Slovakia
POL Poland
HUN Hungary
ROU Romania
GRC Greece
BGR Bulgaria
SVN Slovenia
DEU (EPEX) EPEX spot price -Germany
AUT(EPEX) EPEX spot price -Austria
DEU(EXAA) EXAA spot price -Germany
AUT(EXAA) EXAA spot price -Austria
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
Introduction
The Company's goal is to generate attractive returns for investors by reducing
Primary Energy Consumption ("PEC"). AEET seeks to achieve this through
investing principally in a diversified portfolio of energy efficiency projects
with high-quality counterparties. AEET's investments positively impact the
environment by reducing the amount of carbon dioxide produced, by decreasing
PEC and by increasing the amount of renewable energy used. The synergies
generated by the reduction of PEC and simultaneously using renewable energy
sources further decrease CO(2) emissions.
This is reflected across the investment philosophy and approach, including the
Company's investment adviser, Aquila Capital Investmentgesellschaft mbH, which
is dedicated to the green energy transition. The Company is committed to being
a responsible investor, ensuring that environmental, social and governance
criteria are incorporated into day-to-day investment decisions as well as
generating a positive impact for society. By reducing PEC, the Company often
improves life standards for end users, for example, better lights, easier
maintenance, reduced danger, security of supply and very importantly, the
reduction of emissions like Nitrogen Oxides ("NOX").
Investment Approach and ESG Approach
AEET's investment approach is focused on investments in energy efficiency
projects located primarily in Europe. These assets are predominantly proven
operational projects that deliver energy savings for commercial, industrial,
and public sector buildings. AEET seeks to invest in projects for the long
term with a focus on optimizing and improving the assets' PEC.
Technologies typically include:
§ LED Lighting Systems: significant reduction of consumed energy (up to 70%)
and other positive outcomes: reduced heat emission and therefore less need for
ventilation and cooling; better light for workplaces; less maintenance work;
reduction in the use of glass (particularly beneficial in food production).
§ LED Street Light Systems: significant reduction of consumed energy,
increased safety (better light, light where needed, choice of light colour);
integration of other technologies such as sensing (traffic control), mobile
communication systems etc.
§ Solar PV: increases the level of efficient and locally produced renewable
energy. Lower transportation costs, free energy source.
§ Biomass Boilers: locally consumed; generate energy (heat, cooling and
electricity) from renewable sources, very often contributing to local job
creation. The exhaust dust needs to be managed and fulfil strict environmental
regulations.
§ Combined Heat and Power plants (CHP): Highly efficient generation of
combined energy outputs like electricity and heat or cooling.
§ Electrification of transportation vehicles (batteries) such as trains,
trams, buses, ferries, boats etc; replacement or hybridization of large fossil
fuel engines; significant reduction of fossil fuel consumption, other
emissions, NOX and Sulphur Oxides ("SOX"); often create a greener and
healthier local environment e.g. by electrification of inner-city buses.
§ HVAC/buildings: Highly efficient heating, ventilation and air conditioning
systems. Often a combination of more efficient use of energy while
simultaneously increasing wellbeing, effectiveness, and controllability of
systems e.g., avoid overheating/cooling of workspace by taking weather
conditions into consideration.
§ Smart Metering/Submetering: Often providing real-time or timely information
about personal consumption volume, patterns and costs of energy (heating,
electricity, water or gas) to enable energy consumers to manage usage and
costs. Pre-requisite to change consumer behaviour which in itself could reduce
energy consumption by up to 20% (e.g. avoiding standby electricity
consumption).
Environmental Impact
The Company's investment approach is focused on reducing PEC, which should
lead to significant reductions in carbon dioxide emissions. In addition, local
production of energy (CHP, Biomass Boilers, Solar PV) reduces transportation
energy losses and grid over-utilisation. Smart Meters and other control
technologies enable a better visibility and management of energy and therefore
represent a basis for energy savings.
All projects are managed within the guidelines of local, regional, and
national environmental laws in order to adhere to the Do No Significant Harm
("DNSH") principles. Aquila Capital ensures all required regulations and
corresponding approvals are completed prior to the acquisition of the assets
(for example, any required planning permissions).
Social Impact
Energy efficiency measures not only reduce PEC but typically also increase the
life quality and health aspects for stakeholders, employees, users of public
facilities and/or private individuals. This is mainly achieved through
advanced solutions for lighting, heating, cooling and ventilation and the
associated control units.
All project developers are required to adhere to local, regional, and national
health & safety laws, to train and educate employees accordingly to ensure
casualties and injuries are avoided.
We incorporate Aquila Capital's ESG policy, which excludes suppliers and
manufacturers that do not meet Aquila Capital's criteria (exclusion of
sectors/subsectors, companies that use unfavourable labour conditions etc).
For all counterparties a rating exercise is performed (in collaboration with a
third-party rating agency) assessing creditworthiness of the client as well as
a Know Your Client check being undertaken for the relevant parties involved.
Governmental Impact
All our business partners are required to adhere to the requirements of the
national social security and tax authorities.
Where required by local, regional and/or national authorities our business
partners need to provide evidence that they adhere to anti bribery and
corruption laws.
Due Diligence
The Investment Adviser performs detailed ESG due diligence for each asset
prior to investment. The investment management team follows a structured
screening, due diligence and investment process which is designed to ensure
that investments are reviewed and compared on a consistent basis. Execution of
this process is facilitated by the team's deep experience in energy efficiency
project investing. As part of this process, the Investment Adviser will, as
relevant for each investment, consider:
· total PEC reduction, and implied greenhouse gas emissions reduced
and/or avoided; and/or
· total energy production from renewable and non-renewable sources.
As part of this due diligence, various risks are assessed and documented
including risk of climate change, risk of harm to local biodiversity and other
environmental risks. These risks are evaluated as part of the technical, legal
and insurance due diligence as applicable. The independent risk management
team evaluates the initial evaluation of the investment management team in
assessing each asset for acquisition. The Investment Adviser considers the
ability for the acquisition to contribute to the UN Sustainable Development
Goals and whether it fits within the Principles for Responsible Investment
("PRI").
Governance Framework
AEET benefits from an independent Board of Directors, as well as FundRock
Management Company (Guernsey) Limited (part of Apex Group, previously known as
Sanne Fund Services UK Limited) as the Alternative Investment Fund Manager
("AIFM"). The Board of Directors supervises the AIFM, which is responsible for
making recommendations in relation to investment proposals put forward by the
Investment Adviser. The Investment Adviser is fully regulated and supervised
by BaFin in Germany.
The Company has established procedures to deal with any potential conflicts of
interest in circumstances where Aquila Capital (or any affiliate) is advising
both the AIFM (for the Company) and other Aquila Capital managed funds who are
counterparties to the Company. In the context of an investment decision, these
procedures may include a fairness opinion in relation to the valuation of an
investment, which is obtained from an independent expert.
Monitoring of Environmental, Social & Governance Characteristics
After an investment has been made, ongoing monitoring commences at both the
portfolio and asset levels by the Investment Adviser. The aim of this ongoing
monitoring is to monitor and calculate the energy consumption/reduction and
derive the CO2 reduction from that.
The environmental characteristics of the Company are monitored throughout the
lifecycle of investments, including:
· ongoing monitoring of the PEC based on the energy consumption and
derive from that the CO2 savings, where appropriate, monitoring additional
environment and ESG relevant developments both at the portfolio and asset
level; and
· annual reporting, including ESG aspects, to relevant stakeholders
including ad-hoc reporting of any material. and urgent issues identified in
the monitoring process.
AEET has been awarded the Green Economy Mark from the London Stock Exchange.
The Green Economy Mark identifies London-listed companies and funds that
generate between 50% and 100% of total annual revenues from products and
services that contribute to the global green economy.
INVESTMENT POLICY
As at the date of this Annual Report, the Company's investment policy
(including defined terms) is as set out in its IPO prospectus dated 10 May
2021.
The Company will seek to achieve its investment objective through investment
in a diversified portfolio of Energy Efficiency Investments (as defined below)
located in Europe, with private and public sector counterparties. The Company
will predominantly invest in (i) energy efficiency investments including the
installation, in the built environment, transportation industry and other
sectors of the economy, of proven technologies and solutions such as energy
efficient lighting, smart building and metering services, cogeneration plants,
heating, ventilation and air conditioning (HVAC) systems, efficient boilers,
solar photo voltaic plants, batteries, other energy storage solutions,
electric vehicles and associated charging infrastructure as well as (ii) in
the acquisition of majority or minority shareholdings in companies with a
strategy that aligns with the Company's investment objective, such as
developers, operators or managers of energy efficiency projects ("Equity
Investments") ("Energy Efficiency Investments"). These investments seek to
reduce primary energy consumption, reduce CO2 emissions and in many cases
deliver economic savings and other benefits to the counterparties including
improved air quality. The Company will not invest in fossil fuel extraction or
mineral extraction projects. The capital value of the investment portfolio
will be supplemented and supported through reinvestment of excess cash flows,
asset management initiatives and the use of leverage.
The Energy Efficiency Investments will typically include long term contracts,
which entitle the Company or its subsidiaries to receive stable, predictable
cash flows payable by the counterparties, who will benefit from the use of the
installed equipment during a contractual period typically ranging from five to
fifteen years.
The Company will make Energy Efficiency Investments in operational,
ready-to-build or under construction assets. The Company may, when making
Equity Investments, through such investments, indirectly hold investments that
are in the development phase.
In respect of each type of investment, the Company will seek to diversify its
commercial exposure by contracting, where practicable, with a range of
different equipment manufacturers, project developers and other service
providers, as well as off-takers.
Whilst the Company will seek to diversify its commercial exposure by investing
in a diversified mix of technologies, the assets of the Company may be
predominantly concentrated in a small number of proven technologies.
Investments may be acquired from a single or a range of vendors and the
Company may also enter into joint venture or co-investment arrangements
alongside one or more co-investors, including Aquila Managed Funds.
The Company will acquire controlling and, opportunistically, non-controlling
interests in Energy Efficiency Investments and may use a range of investment
instruments in the pursuit of its investment objective, including but not
limited to equity, mezzanine or debt investments.
In circumstances where the Company does not hold a controlling interest in the
relevant investments, the Company will secure its rights through contractual
and other arrangements, to, inter alia, ensure that the Energy Efficiency
Investment is operated and managed in a manner that is consistent with the
Company's Investment Policy.
Investment restrictions
The Company aims to achieve diversification principally through investing in a
range of portfolio assets across a number of distinct geographies and a mix of
technologies. The Company will observe the following investment restrictions
when making investments:
· no more than 20 per cent. of its Gross Asset Value will be invested
in any single asset;
· no more than 20 per cent. of its Gross Asset Value will be invested
in Energy Efficiency Investments with the same Counterparty;
· following full investment of the Net Issue Proceeds, the Company's
portfolio will comprise no fewer than ten Energy Efficiency Investments;
· no investments will be made outside of Europe; and
· no more than 7.5 per cent. of its Gross Asset Value, in aggregate,
will be invested in Equity Investments, and at all times such investments will
only be made with appropriate share holder protections in place.
The Company will hold its investments directly or through one or more SPVs and
the investment restrictions will be applied on a look-through basis.
The Company complies with the investment restrictions set out below and will
continue to do so for so long as they remain a requirement of the FCA:
" neither the Company nor any of its subsidiaries will conduct any trading
activity which is significant in the context of the Group as a whole;
" the Company must at all times, invest and manage its assets in a way which
is consistent with its object of spreading investment risk and in accordance
with the published investment policy; and
" not more than 15 per cent. of the Gross Asset Value at the time an
investment is made will be invested in other closed- ended investment funds
which are listed on the Official List.
Currency and hedging
The Company does not intend to use hedging or derivatives for investment
purposes. The functional currency of the Company is sterling. With many of
its investment assets in euros the Company uses a series of regular forward
foreign exchange contracts to provide protection against movements in the
sterling exchange rate. Under these arrangements the Company is required to
provide £5 million in cash as collateral for these forward foreign exchange
contracts. Following the failure of the Continuation vote the Company is
currently reviewing the strategic options for realising value for
shareholders. The Board will consider the appropriateness of the current
hedging arrangements and the cash collateral as part of the review of
strategic options and In light of the cash requirements of the Company.
Borrowing policy
The Company may make use of long-term debt on both a limited recourse and full
recourse basis to finance the acquisition or construction of Energy Efficiency
Investments and for working capital purposes. Gearing will be employed at the
level of the Company, at the level of any intermediate wholly owned subsidiary
of the Company or at the level of the relevant SPV, and any limits set out in
this document shall apply on a look-through basis. In addition, the Company
may make use of short-term debt, such as a revolving credit facility, to
assist with the acquisition of or investment in suitable opportunities as and
when they become available. Aggregate gearing, whether via long-term or
short-term debt, will not exceed 50 per cent. of Gross Asset Value, calculated
at the time of drawdown. The Company will target aggregate gearing, whether
via long term or short-term debt, of 35 between 40 per cent. of Gross Asset
Value, but in any event will not exceed 50 per cent. of Gross Asset Value, in
each case calculated at the time of drawdown.
Debt may be secured with or without a charge over some or all of the Group's
assets depending on the optimal structure for the Group and having
consideration to key metrics including lender diversity, cost of debt, debt
type and maturity profiles. Intra-group debt between the Company and
subsidiaries will not be included in the definition of borrowings for these
purposes.
In circumstances where the above limits are exceeded as a result of gearing of
one or more Energy Efficiency Investments in which the Company has a
non-controlling interest, the borrowing restrictions will not be deemed to be
breached. However, in such circumstances, the matter will be brought to the
attention of the Board who will determine the appropriate course of action.
Cash management
Cash held pending investment in Energy Efficiency Investments or for working
capital purposes will either be held in cash or invested in cash, cash
equivalents, near cash instruments, bearer bonds and/or money market
instruments ("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 Equivalents position. For the avoidance of doubt, the restrictions set
out above in relation to investing in UK listed closed-ended investment
companies do not apply to money market type funds.
Changes to and compliance with the Investment Policy
As required by the Listing Rules, any material changes to the Company's
Investment Policy as set out above will require the approval of Shareholders
by way of an ordinary resolution at a general meeting and the approval of the
FCA.
Compliance with the above restrictions will be measured at the time of
investment and non-compliance resulting from changes in the price or value of
assets following investment will not be considered as a breach of the
investment restrictions.
In the event of a breach of the investment guidelines and the investment
restrictions set out above, the AIFM shall inform the Board upon becoming
aware of the same and if the Board considers the breach to be material,
notification will be made to a Regulatory Information Service.
Following the unsuccessful Continuation Vote, the Directors are proposing
amendments to the Company's Investment Policy in a resolution at the Annual
General Meeting of Shareholders on 14 June 2023. For more information, please
see the Chair's Statement.
KEY PERFORMANCE INDICATORS
The Board measures the Company's success in achieving its investment objective
by reference to the Key Performance Indicators ("KPIs") described below:
Deployment of IPO proceeds
In the Company's IPO prospectus published on 10 May 2021, it was stated that
the proceeds would be significantly deployed or committed to acquire suitable
assets within twelve months from IPO (2 June 2022). As announced on 21 April
2022, the Investment Adviser revised this target to the end of December 2022.
The Company achieved its revised target to substantially commit the gross
proceeds raised through its IPO by the end of 2022. As at 31 May 2022,
£19.7 million of the Company's IPO proceeds had been committed for investment
and approximately £15.7 million had been deployed. As at 31 December 2022,
the total amounts committed and deployed were £96.7 million and £61.2
million, respectively. Commitments continued to increase at a steady pace in
2023 until the continuation vote on 28 February 2023 ("Continuation Vote").
The total amounts committed and deployed as at 31 March 2023 were £98.7
million and £62.2 million, respectively, taking into account the timing of
the realisation of funds from the Italian Superbonus investments.
To meet its target total dividend in each financial year
As disclosed in the Company's IPO prospectus published on 10 May 2021, the
Company was targeting a dividend of a minimum of 3.5 pence per Ordinary Share
in relation to the financial year ended 31 December 2022, and a minimum of 5
pence per Ordinary Share in relation to the financial year ending 31 December
2023, with the aim of increasing this dividend progressively over the medium
term. The Company did not intend to pay a dividend in the first financial
period to 31 December 2021, whilst it was deploying the IPO Proceeds.
As previously announced on 21 April 2022 and in subsequent dividend
declaration announcements, the Board did not expect that this stated dividend
target would be fully covered by earnings, due to slower than anticipated
deployment. However, the Board decided that it would retain the 2022 dividend
target and meet any earnings shortfall through paying out of distributable
reserves. Accordingly, the Board declared three interim dividends totalling
3.5 pence during the financial year ended 31 December 2022 (for the period
ended 31 December 2021: Nil).
Following the failure of the Continuation Vote on 28 February 2023, the Board
has reviewed the dividend policy of the Company and future dividends will be
paid from net income after taking into account cash flow forecasts, and only
in respect of 6 monthly periods, rather than quarterly periods. Further
details are set out in the Chair's Statement.
Discount of share price to NAV
The Board monitors the price of the Company's shares in relation to their NAV
and the premium or discount at which they trade. The share price closed at a
25.6% discount to the NAV as at 31 December 2022.
Between 31 January 2022 and 21 April 2022, the Board performed an Investment
Strategy Review and throughout the year 2022 was engaging very closely with
the Company's major Shareholders. On 28 February 2023 the Company held a
General Meeting when the Continuation Vote did not pass. For more details,
please see the Chair's Statement. The Company has shareholder authority to buy
back shares, if appropriate.
Maintenance of a reasonable level of ongoing charges
The expenses of managing the Group are carefully monitored by the Board. The
Board receives and reviews management accounts which contain an analysis of
expenditure which are reviewed at quarterly Board meetings. The Board
reviews the ongoing charges on a quarterly basis and considers these to be
reasonable in comparison to its peer group of investment trust corporates.
Based on the Group's average net assets during the year ended 31 December
2022, the Group's ongoing charges figure calculated in accordance with the AIC
methodology was 2.6% (Period from IPO to 31 December 2021: 0.9%).
RISK MANAGEMENT
Principal risks and uncertainties
During the year under review, the Company has carried out a robust assessment
of its principal and emerging risks and the procedures in place to identify
any emerging risks are described below.
Procedures to identify principal or emerging risks:
The Board regularly reviews the Company's risk matrix, with a focus on
ensuring that the appropriate controls are in place to mitigate each risk. The
experience and knowledge of the Board is important, as is advice received from
the Board's service providers, specifically the AIFM, which is responsible for
the risk and portfolio management services and outsources the portfolio
management to the Investment Adviser.
1. Investment Adviser: the Investment Adviser provides a
report to the Board on a quarterly basis or such other period as required on
industry trends, insight into future challenges in the energy efficiency
sector including the regulatory, political and economic changes likely to
impact the sector;
2. Alternative Investment Fund Manager: following advice
from the Investment Adviser and other service providers, the AIFM maintains a
register of identified risks including emerging risks likely to impact the
Company;
3. Broker: provides advice periodically specific to the
Company on the Company's sector, competitors and the investment company market
whilst working with the Board and Investment Adviser to communicate with
Shareholders;
4. Company Secretary: briefs the Board on forthcoming
legislation/ regulatory change that might impact on the Company; and
5. Association of Investment Companies ("AIC"): The
Company is a member of the AIC, which provides regular technical updates as
well as drawing members' attention to forthcoming industry and regulatory
issues.
Procedure for oversight
Audit and Risk Committee: Undertakes a review at least twice a year of the
Company's risk matrix and a formal review of the risk procedures and controls
in place at the AIFM and other key service providers to ensure that emerging
(as well as known) risks are adequately identified and, so far as is
practicable, mitigated.
Principal risks
The Board considers the following to be the principal risks faced by the
Company along with the potential impact of these risks and the steps taken to
mitigate them.
Principal Risks Potential Impact/Description Mitigation
Portfolio
Counterparty / Credit The risk that the Company allocates funds to a Counterparty that defaults on The Company seeks to invest mostly, although not exclusively, in projects
its obligations. where the counterparties have an investment grade or near investment grade
rating. The Investment Adviser uses third party credit rating service
This could impact the financial performance of the Company and its ability to providers to support its credit risk assessments.
meet dividends as well as achieving its intended goals and returns for its
investors. Continued monitoring of the investments and the associated
counterparties/service providers, including the use of credit rating data
providers, allows the Investment Adviser to identify and address these risks
early. The Investment Adviser seeks to mitigate credit risks, for example, in
the case of Solar PV investments, by the counterparty having the opportunity
to sell electricity to the grid or other customers where possible. The
Investment Adviser also seeks to structure investments whereby contracts can
be adapted/extended to accommodate periods of payment defaults.
Diversification of counterparties and service providers ensures any impact is
limited. In addition, a diversified portfolio provides further mitigation.
Concentration Risk The risk that the concentration of investments in a limited number of The AIFM and the Investment Adviser continuously monitor the existing
countries, counterparties, geographical markets, tenure and currencies could portfolio and any proposed investments (in advance of completion) against the
expose the Company to unnecessary fluctuations in a narrow range of markets. Company's portfolio concentration limits and investment policy. This mitigates
This risk could negatively impact the Company's performance and ability to the risk by ensuring that concentration limits and asset diversification
meet strategic targets. limits are observed.
As at 31 March 2023, the Company had no substantial geographic exposure to any
one country (with assets principally in Italy, Spain, Germany and the UK).
Environmental/ Social/ Governance Failure to adequately consider ESG implications when making and monitoring The Investment Adviser performs detailed due diligence on ESG for each asset
("ESG") investments could lead to reputational risk: exposure to greenwashing claims prior to recommendation.
and potentially have an adverse impact on the portfolio's ability to achieve
its targeted returns. General standards including IFS Performance Standards, IFC Environmental
Health and Safety Guidelines ("EHS") and Equator Principles as well as local
health and safety and social laws are reviewed on a regular basis for all
assets depending on the location and development status of each asset.
Economic and Markets
Discount Management Market sentiment moves share price to a discount which would make it more The Company's Broker monitors the market for the Company's shares and reports
difficult for the Company to issue new equity. at quarterly Board meetings. The Company has the authority, if appropriate, to
purchase Ordinary Shares in the market with the result of, amongst other
The Ordinary Shares may trade at a discount to Net Asset Value and not be things, enhancing the Net Asset Value per Ordinary Share.
liquid, resulting in Shareholders being unable to realise their investments
through the secondary market at Net Asset Value or at market price.
Loss of market confidence in the Board /Investment Adviser. The Board and Broker maintains engagement with Shareholders and ensures good
market information is available to investors.
Following the unsuccessful Continuation Vote in February 2023, the Board, with
its advisers, is considering strategic options to maximise value for
Shareholders. For more information following the Continuation Vote not
passing, please see the Chair's Statement
Interest Rates/ Inflation Changes to interest rates may impact the valuation of the investment portfolio The Company's investments, which provide in many cases for fixed returns, are
by impacting the valuation discount rate. This in turn may have an adverse not significantly exposed to inflation and interest rate movements because the
impact on the attractiveness of returns. income streams from investments are not subject to significant deductions for
operating costs associated with the investments. While there may be O&M
In addition, inflation and interest rate movement can affect the spread costs these are not a high percentage of revenues and so any inflationary
between, amongst other things, the income on the Company's assets and the pressures on such costs are not expected to have a significant impact.
value of its interest-earning assets and its ability to realise gains from the Furthermore, the Company has not taken on indebtedness to finance its
sale of assets. investments and so there is no risk of the costs of indebtedness negatively
impacting the revenues from investments. Were the Company to take on
The current energy geopolitical crisis in Europe is driving increasing energy indebtedness it may use derivative instruments such as futures, options and
prices and volatility which is likely to have an impact on performance. swaps to protect the Company from fluctuations in interest rates.
The Investment Adviser manages the correlation of cash flows to inflation and
resilience to the economic environment.
The Investment Adviser seeks to incorporate RPI adjustments in investment
documentation where possible.
In addition, investing in energy efficiency assets can in some cases provide
an effective protection against inflation, as many such assets benefit from
rising electricity prices with no burden on the cost side in relation to the
use of resources.
Exchange Rates The Company holds investments in currencies other than British Pounds. Changes The Company maintains the majority of uninvested cash in its base currency
in foreign currency rates may therefore impact the value in Sterling between (GBP or £).
the time at which the investment is made and the time of receipt of the return
on any such investment. For any non-base currency assets, the Investment Adviser can use forward
foreign exchange contracts to seek to hedge up to 100% of non-GBP exposure.
The implementation of forward foreign exchange contracts can result in a cash
settlement at the maturity of the contract or a margin call from the Company The Company does not intend to use hedging or derivatives for investment
to the bank counterparty for the forward foreign exchange contract and vice purposes but may use derivative instruments such as forwards, options, future
versa with the amount depending on the movement in foreign exchange rates. contracts and swaps to hedge currency, inflation, interest rates, commodity
prices and/or electricity prices.
With many of its investment assets being held in Euros, the Company uses a
series of regular forward foreign exchange contracts to provide a level of
protection against movements in the Euro: Sterling exchange rate. Under these
arrangements the Company is required to provide £5 million in cash as
collateral for such forward foreign exchange contracts.
Following the failure of the Continuation Vote, the Company is currently
reviewing the strategic options for realising value for Shareholders. The
Board will consider the appropriateness of the current hedging arrangements
and the required cash collateral as part of the review of strategic options
and in light of the cash requirements of the Company.
Portfolio Management
Investment Performance With investment concentration in the energy efficiency space, which are The Investment Adviser has a well-defined investment strategy and process in
unquoted investments, changes to regulatory frameworks or poor investment place which is regularly reviewed and monitored by the AIFM and the
decisions could result in portfolio underperformance and as a result, the independent Board of Directors.
target returns not being met over the longer term. This could lead to lack of
dividend coverage and/or an inability to pay the target dividend. There is limited development and regulatory risk exposure due to focus on
projects with authorisation and project business plans with limited exposure
(on an overall portfolio basis) to government subsidies.
The Investment Adviser has good experience in renewable sustainability/energy
transition and understands and manages the risks closely.
Changes to subsidies or other support mechanisms for the Company's investments The value of the Company's investments may be adversely affected if subsidies Diversification of investments by technology and geography mitigates the
or other support mechanisms, on which such investments may depend, are changed impact of any such risks. Many of the investments which the Investment Adviser
negatively. seeks do not rely on subsidies or other support mechanisms.
Inappropriate Investment Advice Potential lack of resource, experience or depth in the Investment Adviser's The Investment Adviser has substantial resources and is not required to commit
team to source and vet appropriate investments. all of its resources to the Company.
Possible conflicts with other private Aquila clients and private investing The Company and AIFM are made aware of and review potential conflicts of
vehicles which Aquila cannot disclose to the Board or the AIFM. interest at the time of each investment being made.
The Investment Adviser is dependent on key people to identify, acquire and Conflicts of interest and investment allocation policies are in place and
manage the Company's investments. agreed with the Board.
The strength and depth of the Investment Adviser's resources mitigate the risk
of a key person departure and provides the ability to draw skills from other
areas if needed.
Investment focus on proven technologies and standardised technical and
financial suppliers' due diligence, including an assessment of each supplier's
reference projects, reduce the acquisition risks.
Operational
IT Security A hacker or third party could obtain access to the Investment Adviser or any Service providers have been carefully selected for their expertise and
other service provider and destroy data or use it for malicious purposes reputation in the sector. Each service provider has provided assurances to
resulting in reputational damage and possible GDPR concern. both the AIFM and the Company on their cyber policies and business continuity
plans along with external audit reviews of their procedures where applicable.
Data records could be destroyed resulting in an inability to make investment
decisions and/or monitor investments. The AIFM, Administrator and Board include Cyber Risk in their reviews of
counterparties.
Service Provider The Company has no employees and is reliant on the performance of third party All service providers have contracts with the Company which clearly set out
service providers (including the Investment Adviser). their responsibilities. The Board meets with the Investment Adviser, the AIFM
and the Administrator on a regular basis to review their work and monitor
their performance. Additionally, through the Management Engagement Committee,
the Board conducts a formal assessment of each key service provider's
performance once a year. To assist its ability to properly oversee the
Company's service providers, the Board requires each service provider to
notify it as soon as reasonably practicable following any material breach of
its contract with the Company.
Financial
Portfolio Valuation The principal component of the Company's balance sheet is its portfolio of The Investment Adviser has experience in undertaking valuations of renewable
energy efficiency assets. The Investment Adviser is responsible for preparing sustainability/energy transition assets.
a fair market value of the investments where such investments have variable
returns. Fair value calculations rely on projections, which involve The AIFM and the Board review and interrogate the valuations and underlying
estimates of the future, which are inherently judgmental. assumptions provided by the Investment Adviser.
There is a risk that these valuations and underlying assumptions such as It should be noted that valuations are held at fair value and at amortised
discount rates being applied are not a fair reflection of an open market cost and not at net realisable value.
valuation, therefore the investment portfolio could be over or under valued.
Investments with fixed returns are measured at amortised cost and subject to
expected credit loss provisions, which are based on numerous assumptions and
judgments.
Act of War/ Sanctions As evidenced with the ensuing war in Ukraine and the various sanctions and The invasion of Ukraine by Russia brings uncertainty to the commodities
restrictions imposed, there is a possibility that there could be supply delays market and how price levels of modules and other hardware will be impacted
for Operations and Maintenance (O&M), sanction considerations, volatile directly or indirectly. The Company does not have any direct exposure in
markets and general uncertainty. More difficult energy markets are expected Ukraine or Russia, there are also no direct business relationships with
along with inflationary pressures on inputs. counterparties from these countries; therefore, preliminary assessments lead
the Company to the conclusion that its investments in Europe are not impacted
directly at this time.
It has also led to short term price increases and more focus on renewable
energy infrastructure.
Possible change to the world order and globalisation.
Emerging Risks
The consequences to shareholder value of the unsuccessful Continuation Vote on In accordance with the Company's Articles of Association, by 28 August 2023, The Directors are fully focused on determining the optimum solution for
28 February 2023 being 6 months following the date of the Continuation Vote, the Directors will Shareholders. They are being actively and constructively supported by the
recommend to Shareholders whether the Company will be reconstructed, Company's advisers and service providers and will engage with Shareholders on
reorganised or placed into liquidation, having explored all options and having the best options for the Company and Shareholders. As set out in the notice
determined the best solution from the perspective of delivering best value to (the "Notice") of the AGM, the Company is seeking Shareholder approval to
Shareholders. In assessing each of these options, the Directors have ceased re-organise the Company and put the Company into Managed Run-Off (as defined
new investment activity, other than honouring contracted investment in the AGM Notice), necessitating a change to the Company's current Investment
commitments, and are focussed on returning or delivering best value to Objective and Investment Policy. In addition, the Board, with its advisers,
Shareholders. While such exercise is being carried out, the outcome for both will continue to consider other strategic solutions in respect of the
the Company and its Shareholders is uncertain both in terms of financial and Company's assets which have the potential to deliver greater Shareholder value
timing consequences. than the Managed Run-Off.
Potential banking sector instability The Company's cash deposits might be adversely affected. The Company does The Company has reviewed its banking arrangements and its portfolio of
not have any borrowings. investments to determine if there was any exposure to this emerging risk. No
direct exposures were identified. Cash deposits are held with highly rated
banks and the Company reviews the credit rating of its deposit holding banks
on a regular basis.
Viability statement
In accordance with the UK Corporate Governance Code ("UK Code") and the
Listing Rules, the Directors have assessed the prospects of the Company over a
longer period than the 12 months required by the 'Going Concern' provision.
In reviewing the Company's viability, the Directors have assessed the
viability of the Company for the period to 31 December 2025 (the "Look-forward
Period").
The Company's Shareholders had the opportunity to vote on an ordinary
resolution on the continuation of the Company at the General Meeting held on
28 February 2023. The Continuation Vote did not pass.
In response to the failed Continuation Vote, the Board is proposing at the AGM
an amendment to the Company's Investment Policy whereby the Company is placed
into a Managed Run-Off. This Continuation Managed Run-Off Resolution seeks to
acknowledge and reflect the views expressed by Shareholders in the February
2023 Continuation Vote whilst the Board continues to consider strategic
solutions in respect of the Company's assets to realise the maximum value for
Shareholders in the shortest possible time, recognising the inherent
difficulties in the construction of the portfolio, including the number of
individual investments, multiple geographies and long tenors. The Continuation
Managed Run-Off Resolution is described in greater detail in the accompanying
Notice of Annual General Meeting. Accordingly, the Directors recognise that
the outcome of Continuation Managed Run-off Resolution is not yet known and
therefore, creates material uncertainty around going concern, and may cast
significant doubt about the Company's viability.
Notwithstanding the above, the Board believes that the Look-forward Period,
being approximately three years, is an appropriate time horizon over which to
assess the viability of the Company, particularly when taking into account the
long-term nature of the maturity of the Company's assets, which is modelled
over three years and the principal risks outlined above. In considering the
prospects of the Company, the Directors looked at the key risks facing the
Company, focusing on the likelihood and impact of each risk as well as any key
contracts, future events or timescales that may be assigned to each key risk.
On the assumption that the resolution in respect of the Continuation Managed
Run-Off (as explained in the Chair's Statement and the Chair's letter
accompanying the AGM Notice, which can be found on the Company's website) is
approved at the Company's AGM in June 2023 and after undertaking prudent and
robust enquiries, and assessing all data relating to the Company's current
liquidity and forecast liquidity based on downside scenarios, the Directors
have a reasonable expectation that the Company has adequate resources to:
continue in operation; realise the Company's assets in an orderly manner; and
meet its liabilities as they fall due, over the Look-forward Period.
Going concern
The Directors have adopted the going concern basis in preparing the financial
statements. The following is a summary of the Directors' assessment of the
going concern status of the Group and Company.
The Group and Company continues to meet day-to-day liquidity needs through its
cash resources. The Directors have a reasonable expectation that the Group and
Company has adequate resources to continue in operational existence for at
least twelve months from the date of this document.
In reaching this conclusion, the Directors have considered the Group's
investment commitments, cash position, income and expense flows. As at 31
March 2023, the latest practicable date before publication of this report, the
total commitments were £98.7 million and income generating capital deployed
since IPO was £62.2 million, after realisations of £0.5 million. As at 31
March 2023, the Group had cash of £33 million (including the £5 million held
as collateral for FX hedging) and no debt as at that date. The Directors are
also satisfied that the Group and Company would continue to remain viable
under downside scenarios, including a delay in realisations of cash from
investments. The Group and Company continues to meet its day-to-day liquidity
needs through its cash resources. Total expenses for the year ended 31
December 2022 were £2.54 million (Period from incorporation to 31 December
2021: £0.92 million annualised), which represented approximately 2.63% of
average net assets during the year ended 31 December 2022 (Period from
incorporation to 31 December 2021: 0.94%). At the date of approval of this
document, based on the aggregate of investments and cash held, the Group and
Company has substantial operating expenses cover.
Since the date of the Continuation Vote, the Group has not entered any new
commitments and its investing activity is solely in respect of funding legal
commitments to existing investments, with the aim of protecting the future
returns from those existing investments and realisations. The Company has
amended its dividend policy and has indicated that it will only pay dividends
which are covered by net income, and after reviewing cash flow forecasts, and
only in respect of 6 month periods not quarterly periods. Therefore the next
dividend declaration will be in respect of the 6 month period ended 30 June
2023. In addition, the Group will review its current policy on hedging its
euro investments, taking into account the consideration of its strategic
options following the failure of the Continuation Vote and cash flow
requirements.
Following consultation with the Company's Shareholders in April 2022, who were
supportive of the continuation of the Company in the context of its plan to
commit and deploy the IPO proceeds by the end of 2022 or early 2023, it was
agreed to hold a continuation vote in February 2023. With the IPO proceeds now
fully committed, Shareholders voted at the meeting on 28 February 2023 against
continuation.
At the general meeting held at the end of February 2023, the resolution to
amend the Articles relating to future continuation votes was not approved by
Shareholders and therefore the next continuation vote will be at the AGM in
June 2023, in accordance with the Articles, prior to the current commitment in
the Articles, following the vote against continuation, to put proposals to
Shareholders for the reconstruction, reorganisation or liquidation of the
Company by 28 August 2023.
As summarised in the Chair's Statement and the Chair's letter accompanying the
AGM Notice, given the private and illiquid nature of the investments, the
duration and the complexities of the Portfolio, the Directors do not believe
it is in the best interests of Shareholders to place the Company into
liquidation at this time. The Board is proposing a resolution at the Company's
AGM in June 2023 that the Company be re-organised and put into Managed Run-Off
whereby assets will be realised at the best value which the Directors consider
can be achieved within a reasonable timeframe.
During the period of managed run-off, the Board will continue to consider all
strategic options in respect of the Group's assets, some, but not all of which
would result in the restructuring and winding up of the Group and Company in
due course. The Directors also recognise that any proposals put to
Shareholders are yet to be approved by the Shareholders. The Directors note
that these conditions indicate the existence of material uncertainty which may
cast significant doubt about the Group and Company's ability to continue as a
going concern.
However, based on the assessment and considerations above the Directors have
concluded that the financial statements of the Group and Company should be
prepared on a going concern basis. The financial statements do not include the
adjustments that would result if the Group and Company was unable to continue
as a going concern.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group's and the
Company's financial statements in accordance with UK adopted international
financial reporting standards in conformity with the requirements of the
Companies Act 2006.
Under company law, Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Group and the Company and of the profit or loss of the Group and the
Company for that year. In preparing the financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable UK adopted international financial
reporting standards in conformity with the requirements of the Companies Act
2006 have been followed, subject to any material departures disclosed and
explained in the financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the Company will
continue in business.
The Directors are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006.
The Directors have delegated responsibility to the Investment Adviser for the
maintenance and integrity of the corporate and financial information included
on the Company's website. Legislation in the UK governing the preparation and
dissemination of Financial Statements may differ from legislation in other
jurisdictions.
Directors' confirmations
The Directors consider that the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for Shareholders to assess the Group's and the Company's position and
performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Corporate
Governance section confirm that, to the best of their knowledge:
• the Group's and the Company's financial statements, which have
been prepared in accordance with UK adopted international financial reporting
standards in conformity with the requirements of the Companies Act 2006, give
a true and fair view of the assets, liabilities, financial position and loss
of the Group and the Company; and
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the Group and the Company,
together with a description of the principal risks and uncertainties that it
faces.
In the case of each Director in office at the date the Directors' report is
approved:
• so far as the Director is aware, there is no relevant audit
information of which the Group's and Company's auditors are unaware; and
• they have taken all the steps that they ought to have taken as
a Director in order to make themselves aware of any relevant audit information
and to establish that the Group's and the Company's auditors are aware of that
information.
For and on behalf of the Board,
Miriam Greenwood OBE DL
Chair of the Board
30 April 2023
Financial Statements
AQUILA ENERGY EFFICIENCY TRUST PLC
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
For the year ended 31 December 2022
For the period from 9 April 2021 (Date of Incorporation) to
31 December 2021
For the year ended
31 December 2022
Revenue Capital Total Revenue Total
Capital
Notes £'000 £'000 £'000 £'000 £'000 £'000
Unrealised gain/(loss) on investments 4
- 1,211 1,211 - (17) (17)
Unrealised loss on derivatives - (1,016) (1,016) - - -
Net foreign exchange gain/(loss) - 282 282 - (29) (29)
Investment Income 5 2,197 - 2,197 91 - 91
Investment Advisory fees 6 (615) - (615) (77) - (77)
Impairment loss 4 (136) - (136) - - -
Other expenses 7 (1,786) - (1,786) (587) - (587)
Profit/(Loss) on ordinary activities before taxation (340) 477 137 (573) (46) (619)
Taxation 8 - - - - - -
Profit/(Loss) on ordinary activities after taxation (340) 477 137 (573) (46) (619)
Return per Ordinary Share 9 (0.34p) 0.48p 0.14p (0.72p) (0.06p) (0.78p)
The total column of the Consolidated Statement of Profit or Loss and
Comprehensive Income is the profit and loss account of the Group.
All revenue and capital items in the above consolidated statement derive from
continuing operations. The acquisition of Attika Holdings Limited and SPV
Project 2013 S.r.l. effective 1 January 2022 has been reflected in the above
statement for the year ended 31 December 2022. No operations were discontinued
during the year.
Profit/(loss) on ordinary activities after taxation is also the "Total
comprehensive income/(expense) for the year".
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
COMPANY STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
For the year ended 31 December 2022
For the year ended For the period from 9 April 2021 (Date of Incorporation)
31 December 2022 to 31 December 2021
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
4
Unrealised gain/(loss) on investments - 2,144 2,144 - (17) (17)
Net foreign exchange losses - (99) (99) - (29) (29)
Investment income 5 697 - 697 91 - 91
Investment Advisory fees 6 (615) - (615) (77) - (77)
Other expenses 7 (1,375) - (1,375) (587) - (587)
Profit/(Loss) on ordinary activities before taxation (1,293) 2,045 752 (573) (46) (619)
Taxation 8 - - - - - -
Profit/(Loss) on ordinary activities after taxation (1,293) 2,045 752 (573) (46) (619)
Return per Ordinary Share 9 (1.29p) 2.05p 0.75p (0.72p) (0.06p) (0.78p)
The total column of the Company Statement of Profit or Loss and Comprehensive
Income is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year.
Profit/(loss) on ordinary activities after taxation is also the "Total
comprehensive income/(expense) for the year".
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
Notes £'000 £'000
Fixed assets
Investments at fair value through profit or loss 4 11,742 12,307
Investments at amortised cost 4 38,550 -
50,292 12,307
Current assets
Trade and other receivables 10 70 5,274
Cash and cash equivalents 46,625 80,129
46,695 85,403
Creditors: amounts falling due within one year 11
(904) (329)
Derivative financial instrument (856) -
Net current assets
44,935 85,074
Net assets
95,227 97,381
Capital and reserves: equity
Share capital 12 1,000 1,000
Special reserve 13 94,750 97,000
Capital reserve 431 (46)
Revenue reserve (954) (573)
Shareholders' funds
95,227
97,381
Net assets per Ordinary Share 14
95.23p
97.38p
No. of ordinary shares in issue
100,000,000
100,000,000
Approved by the Board of directors and authorised for issue on 30 April 2023.
Signed on behalf of the Board of Directors
Miriam Greenwood OBD DL
Aquila Energy Efficiency Trust PLC is incorporated in England and Wales with
Company number 13324616.
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2022
2022 2021
Notes £'000 £'000
Fixed assets
Investment in subsidiaries 4 31,220 12,307
Current assets
Cash and cash equivalents 32,714 80,129
Intercompany receivable 10 32,966 5,170
Trade and other receivables 10 33 104
65,713 85,403
Creditors: amounts falling due within one year 11 (1,050)
(329)
Net current assets 64,663
85,074
Net assets 95,883
97,381
Capital and reserves: equity
Share capital 12 1,000 1,000
Special reserve 13 94,750 97,000
Capital reserve 1,999 (46)
Revenue reserve (1,866) (573)
Shareholders' funds 95,883 97,381
Approved by the Board of directors and authorised for issue on 30 April 2023.
Signed on behalf of the Board of Directors
Miriam Greenwood OBE DL
Aquila Energy Efficiency Trust PLC is incorporated in England and Wales with
Company number 13324616.
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Share capital Share premium account Special reserve Capital reserve Revenue reserve Total
For the year ended 31 December 2022 Notes £'000 £'000 £'000 £'000 £'000 £'000
Opening equity as at 1 January 2022 1,000 - 97,000 (46) (573) 97,381
Impact of the acquisition of subsidiaries on 1 January 2022
- - - - (41) (41)
Dividends paid 15 - - (2,250) - - (2,250)
Profit/(loss) for the year - - - 477 (340) 137
Closing equity as at 31 December 2022 1,000 - 94,750 431 (954) 95,227
Share capital Share premium account Special reserve Capital reserve Revenue reserve Total
For the period from 9 April 2021 (date of incorporation) to 31 December 2021 Notes £'000 £'000 £'000 £'000 £'000 £'000
Opening equity as at 9 April 2021 - - - - - -
Shares issued in period 12 1,000 99,000 - - - 100,000
Share issue costs - (2,000) - - - (2,000)
Transfer to special reserve 13 - (97,000) 97,000 - - -
Loss for the period - - - (46) (573) (619)
Closing equity as at 31 December 2021 1,000 - 97,000 (46) (573) 97,381
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
Share capital Share premium account Special reserve Capital reserve Revenue reserve Total
For the year ended 31 December 2022 Notes £'000 £'000 £'000 £'000 £'000 £'000
Opening equity as at 1 January 2022 1,000 - 97,000 (46) (573) 97,381
Dividends paid 12 - - (2,250) - - (2,250)
Profit/(loss) for the year - - - 2,045 (1,293) 752
Closing equity as at 31 December 2022 1,000 - 94,750 1,999 (1,866) 95,883
Share capital Share premium account Special reserve Capital reserve Revenue reserve Total
For the period from 9 April 2021 (date of incorporation) to 31 December 2021 Notes £'000 £'000 £'000 £'000 £'000 £'000
Opening equity as at 9 April 2021 - - - - - -
Shares issued in period 12 1,000 99,000 - - - 100,000
Share issue costs - (2,000) - - - (2,000)
Transfer to special reserve 13 - (97,000) 97,000 - - -
Loss for the period - - - (46) (573) (619)
Closing equity as at 31 December 2021 1,000 - 97,000 (46) (573) 97,381
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
For the year ended 31 December 2022 For the period from 9 April 2021 (date of incorporation) to 31 December 2021
Notes £'000 £'000
Operating activities
Profit/(loss) on ordinary activities before taxation 137 (619)
Adjustments for:
Unrealised (gain)/loss on investments 4 (1,211) 17
Unrealised loss on derivative instruments 1,016 -
Impairment loss 136 -
Decrease/(increase) in trade and other receivables 34 (5,274)
Increase in creditors: amounts falling due within one year 570 329
Interest receivable from amortised cost investments (1,349) -
Net cash flow used in operating activities (667) (5,547)
Investing activities
Purchase of investments 4 (47,602) (12,324)
Repayment of investments 4 264 -
Net cash received on acquisition of Attika Holdings Ltd. 5,000 -
Net cash received on acquisition of SPV Project 2013 S.r.l. 11,751 -
Net cash flow used in investing activities (30,587) (12,324)
Financing activities
Proceeds of share issues 12 - 100,000
Share issue costs - (2,000)
Dividends paid 15 (2,250) -
Net cash flow (used in)/from financing activities (2,250) 98,000
(Decrease)/Increase in cash and cash equivalents (33,504) 80,129
Cash and cash equivalents at start of year/period 80,129 -
Cash and Cash equivalents at end of year/period 46,625 80,129
The notes are an integral part of these financial statements.
AQUILA ENERGY EFFICIENCY TRUST PLC
COMPANY STATEMENT OF CASH FLOWS
For the year ended 31 December 2022
For the year ended 31 December 2022 For the period from 9 April 2021 (date of incorporation) to 31 December 2021
Notes £'000 £'000
Operating activities
Profit/(loss) on ordinary activities before taxation 752 (619)
Adjustments for:
Unrealised (gain)/loss on investments 4 (2,144) 17
Increase in intercompany receivables (27,796) (5,170)
Decrease/(increase) in trade and other receivables 71 (104)
Increase in creditors: amounts falling due within one year 544 329
Net cash flow used in operating activities (28,573) (5,547)
Investing activities
Purchase of investments 4 (16,592) (12,324)
Net cash flow used in investing activities (16,592) (12,324)
Financing activities
Proceeds of share issues 12 - 100,000
Share issue costs - (2,000)
Dividends paid 15 (2,250) -
Net cash flow (used in)/from financing activities (2,250) 98,000
(Decrease)/Increase in cash and cash equivalents (47,415) 80,129
Cash and cash equivalents at start of year/period 80,129 -
Cash and cash equivalents at end of year/period 32,714 80,129
The notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2022
1. GENERAL INFORMATION
Aquila Energy Efficiency Trust Plc (the "Company") is a public Company limited
by shares incorporated in England and Wales on 9 April 2021 with registered
number 13324616. The Company is domiciled in England and Wales. The Company is
a closed-ended investment company with an indefinite life. The Company
commenced its operations on 2 June 2021 when the Company's Ordinary Shares
were admitted to trading on the London Stock Exchange. The Directors intend,
at all times, to conduct the affairs of the Company as to enable it to qualify
as an investment trust for the purposes of section 1158 of the Corporation Tax
Act 2010, as amended.
The Company owns 100% of its subsidiary, Attika Holdings Limited (the "HoldCo"
or ''AHL'') and 100% of the notes issued by one compartment of SPV Project
2013 S.r.l. (the ''SPV'' or ''Italian SPV'') issued to the Company, which
entitles the Company to a 100% economic interest in the receivables purchased
through the proceeds of these notes, together the ''Group''.
The registered office address of the Company is 6th Floor, 125 London Wall,
London, EC2Y 5AS.
The Company's investment objective is to generate attractive returns,
principally in the form of income distributions, by investing in a diversified
portfolio of Energy Efficiency Investments.
FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management
(Guernsey) Limited) acts as the Company's Alternative Investment Fund Manager
(the "AIFM") for the purposes of Directive 2011/61/EU on alternative
investment fund managers ("AIFMD").
The Group's Investment Adviser is Aquila Capital Investmentgesellschaft mbH
authorised and regulated by the German Federal Financial Supervisory
Authority.
Apex Listed Companies Services (UK) Limited (the "Administrator") (formerly
Sanne Fund Services (UK) Limited) provides administrative and company
secretarial services to the Group under the terms of an administration
agreement between the Company and the Administrator. The Italian SPV is
administered by Zenith Service S.p.A.
2. BASIS OF PREPARATION
Group Financial Statements
The consolidated financial statements have been prepared in accordance with UK
adopted international accounting standards in conformity with the requirements
of the Companies Act 2006 as applicable to companies reporting under those
standards.
The consolidated financial statements have also been prepared as far as is
relevant and applicable to the Group in accordance with the Statement of
Recommended Practice ("SORP") issued by the Association of Investment
Companies ("AIC") in July 2022.
The consolidated financial statements are prepared on the historical cost
basis, except for the revaluation of certain financial instruments at fair
value through profit or loss. The principal accounting policies adopted are
set out below. These policies are consistently applied.
The financial statements are presented in Sterling rounded to the nearest
thousand. They have been prepared on the basis of the accounting policies,
significant judgements, key assumptions and estimates as set out below.
Company Financial Statements
The financial statements have been prepared in accordance with the UK adopted
international accounting standards in conformity with the requirements of the
Companies Act 2006 as applicable to companies reporting under those standards.
The financial statements have also been prepared as far as is relevant and
applicable to the Company in accordance with the Statement of Recommended
Practice ("SORP") issued by the AIC in July 2022.
The financial statements are prepared on the historical cost basis, except for
the revaluation of certain financial instruments at fair value through profit
or loss. The principal accounting policies adopted are set out below. These
policies are consistently applied.
The functional currency of the Company is Sterling. The capital of the Company
was raised in Sterling and majority of its expenses are in Sterling. The
liquidity of the Company is managed in Sterling as the Company's performance
is evaluated in that currency. Accordingly, the financial statements are
presented in Sterling rounded to the nearest thousand. They have been prepared
on the basis of the accounting policies, significant judgements, key
assumptions and estimates as set out below.
Basis of consolidation
The Group's financial statements consolidate those of the Company and of its
subsidiaries at 31 December 2022. The subsidiaries have a reporting date of 31
December. AHL's functional currency is Sterling. The Italian SPV's functional
currency is Euro. However, to align with the Group's functional currency,
the balances of Italian SPV have been converted to Sterling at a year-end rate
for the Statement of Financial Position accounts and at an average rate during
the year for the Statement of Profit or Loss and Comprehensive Income
accounts.
All transactions and balances between Group companies are eliminated on
consolidation. The accounting policies adopted by the Group are consistent
with those adopted by the Company and the subsidiaries.
Characteristics of an investment entity
Under the definition of an investment entity, the Company should satisfy all
three of the following tests:
I. Company obtains funds from one or more investors for the purpose of
providing those investors with investment management services;
II. Company commits to its investors that its business purpose is to invest
funds solely for returns from capital appreciation, investment income, or
both; and
III. Company measures and evaluates the performance of substantially all of
its investments on a fair value basis.
Investment entity status
From inception and in the prior period, the Directors were of the opinion that
the Company met all the typical characteristics of an investment entity and
therefore met the definition set out in IFRS 10. The Directors agreed that
investment entity accounting treatment appropriately reflected the Company's
activities as an investment trust. In the prior year, the Directors assessed
that:
I. The Company had multiple investors and obtained funds from a diverse
group of shareholders who would otherwise not have had access individually to
investing in Energy Efficiency Investments due to high barriers to entry and
capital requirements;
II. The Company intended to hold these Energy Efficiency Investments over
the contractual period of the asset for the purpose of capital appreciation
and investment income. Thereby, the exit strategy for AEET referred to the end
point of the contractual period for all Energy Efficiency investments. The
Energy Efficiency Investments that had committed capital were expected to
generate renewable energy output between 1 and 7 years from their relevant
commercial operation date (with the potential to be longer depending on the
tenor of future investments), the Directors believed the Company was able to
generate returns to the investors during that period; and
III. The Company measured and evaluated the performance of all of its
investments on a fair value basis which is the most relevant for investors in
the Company. Management used fair value information as a primary measurement
to evaluate the performance of all of the investments and in decision making.
Changes in the current year
During the current year, as a result of the development of the portfolio of
investments, the actual investments made and the structure of those
investments, many of which were receivables purchase investments with fixed
rates of return, the Directors determined that this required judgement and
re-assessment of the Company's investment entity status for the current
year. As a result of this re-assessment, which identified that fixed rate of
return investments constituted a substantial proportion of the pipeline of
investments and resultant actual investments, the Directors determined that as
from 1 January 2022 the Company does not meet the characteristic of an
investment entity for the following reasons:
I. The Company is in full control of its subsidiary AHL and the notes in
the Italian SPV;
II. The majority of the investments held and added to during the year for
the Italian SPV are valued at amortised cost rather than on a fair value
basis; and
III. The majority of the investments held and purchased during the year in AHL
are valued at amortised cost rather than on a fair value basis.
For the year ended 31 December 2022, the financial statements are presented on
a consolidated basis of the Company, AHL and the Italian SPV. The prior year
comparative figures for the consolidated financial statements are the
Company's prior year figures. There is no adjustment to the prior year Net
Asset Value due to the consolidation of the Company, AHL and the Italian
SPV. The current year financial statements also present both the year ended
31 December 2022 and the period ended 31 December 2021 at the Company level.
Acquisition of Subsidiary and wholly owned entity
The Directors are of the opinion that the Company has full control of its
subsidiary AHL and one compartment of the loan notes in the Italian SPV. The
Company has full control of these entities for the following reasons:
1. the Company has the power over these entities;
2. the Company is exposed, or has rights, to variable returns from its
involvement with the entities; and
3. the Company has the ability to use its power to affect its returns.
Acquisition of AHL
In the period from 9 April 2021 to 31 December 2021, the subsidiary has been
valued by the Company and included in its financial statements as investment
at fair value through profit or loss which equated to cost given the
investments were made close to period end date. The valuation and assumptions
used in the prior year remained appropriate. The Net Assets acquired by the
Company from AHL on 1 January 2022 amounted to £153,000. The amount of assets
and liabilities as at 1 January 2022 of AHL have been consolidated by the
Company at the acquisition date. The opening assets, liabilities, equity and
reserves of the Company remained the same due to the acquisition of the
subsidiary.
The cost of acquisition of AHL is the deemed valuation at 1 January 2022 which
was £153,000. No additional consideration was paid and since the acquisition
of the subsidiary is not considered to constitute a business under IFRS 3, no
goodwill arises. The assets and liabilities acquired are as follows:
Assets £'000
Investments at amortised cost 170
Cash 5,000
Derivative financial instrument 159
Liabilities
Intercompany payable to parent (5,170)
Other creditors (6)
Net Assets 153
Acquisition of the Italian SPV
In the period from 9 April 2021 to 31 December 2021, the Italian SPV has been
valued by the Company at investment at fair value through profit or loss which
equated to cost given the investments were made close to period end date. The
valuation and assumptions used in the prior year remained appropriate. The
amount of assets and liabilities as at 1 January 2022 of the Italian SPV have
been consolidated by the Company at the acquisition date. The opening assets,
liabilities, equity and reserves of the Company remained the same due to the
acquisition of this wholly owned compartment.
The cost of acquisition of the Italian SPV is the deemed valuation at 1
January 2022 which was (£170,000). No additional consideration was paid and
since the acquisition of the subsidiary is not considered to constitute a
business under IFRS 3, no goodwill arises. The assets and liabilities acquired
are as follows:
Assets £'000
Investments at amortised cost 570
Cash 11,751
Liabilities
Liabilities including note owned by the Company (12,491)
Net Liabilities (170)
Accounting for wholly owned entities
AHL
The Company owns 100% of its subsidiary, AHL. The registered office address of
AHL is Leaf B(,) 20th Floor, Tower 42, Old Broad Street, London, England, EC2N
1HQ. The Company has acquired Energy Efficiency Investments through its
investment in the subsidiary. The Company will finance the subsidiary through
a mix of equity and debt instruments. The Company consolidates the subsidiary.
Italian SPV
The Italian SPV is a Company established under the laws of Italy to hold
securitised receivables. The Company does not hold any equity in the SPV.
However, it does own 100% of the notes issued by one compartment of the SPV
which entitles the Company to an 100% economic interest in the receivables
purchased through the proceeds of this notes. The Company does not have an
economic interest in any of the other securities receivables issuances by the
Italian SPV. The notes subscribed by the Company, issued by the Italian SPV,
and the receivables purchased from the proceeds of these notes, together with
all associated assets and liabilities and income and costs, are ring-fenced
from other assets and liabilities of the Italian SPV and thus the Company's
holdings have been deemed a silo under IFRS 10 paragraph b 77. The Company
consolidates the results of the Italian SPV in respect of the performance of
the receivables in the silo.
Going concern
The Directors have adopted the going concern basis in preparing the financial
statements. The following is a summary of the Directors' assessment of the
going concern status of the Group and Company.
The Group and Company continues to meet day-to-day liquidity needs through its
cash resources. The Directors have a reasonable expectation that the Group and
Company has adequate resources to continue in operational existence for at
least twelve months from the date of this document.
In reaching this conclusion, the Directors have considered the Group's
investment commitments, cash position, income and expense flows. As at 31
March 2023, the latest practicable date before publication of this report, the
total commitments were £98.7 million and income generating capital deployed
since IPO was £62.2 million, after realisations of £0.5 million. As at 31
March 2023, the Group had cash of £33 million (including the £5 million held
as collateral for FX hedging) and no debt as at that date. The Directors are
also satisfied that the Group and Company would continue to remain viable
under downside scenarios, including a delay in realisations of cash from
investments. The Group and Company continues to meet its day-to-day liquidity
needs through its cash resources. Total expenses for the year ended 31
December 2022 were £2.54 million (Period from incorporation to 31 December
2021: £0.92 million annualised), which represented approximately 2.63% of
average net assets during the year (Period from incorporation to 31 December
2021: 0.94%). At the date of approval of this document, based on the
aggregate of investments and cash held, the Group and Company has substantial
operating expenses cover.
Since the date of the Continuation Vote, the Group has not entered any new
commitments and its investing activity is solely in respect of funding legal
commitments to existing investments, with the aim of protecting the future
returns from those existing investments and realisations. The Company has
amended its dividend policy and has indicated that it will only pay dividends
which are covered by net income, and after reviewing cash flow forecasts, and
only in respect of 6 month periods not quarterly periods. Therefore the next
dividend declaration will be in respect of the 6 month period ended 30 June
2023. In addition, the Group will review its current policy on hedging its
euro investments, taking into account the consideration of its strategic
options following the failure of the Continuation Vote and cash flow
requirements.
Following consultation with the Company's Shareholders in April 2022, who were
supportive of the continuation of the Company in the context of its plan to
commit and deploy the IPO proceeds by the end of 2022 or early 2023, it was
agreed to hold a continuation vote in February 2023. With the IPO proceeds now
fully committed, Shareholders voted at the meeting on 28 February 2023 against
continuation.
At the general meeting held at the end of February 2023, the resolution to
amend the Articles relating to future continuation votes was not approved by
Shareholders and therefore the next continuation vote will be at the AGM in
June 2023, in accordance with the Articles, prior to the current commitment in
the Articles, following the vote against continuation, to put proposals to
Shareholders for the reconstruction, reorganisation or liquidation of the
Company by 28 August 2023.
As summarised in the Chair's Statement and the Chair's letter accompanying the
AGM Notice, given the private and illiquid nature of the investments, the
duration and the complexities of the Portfolio, the Directors do not believe
it is in the best interests of Shareholders to place the Company into
liquidation at this time. The Board is proposing a resolution at the Company's
AGM in June 2023 that the Company be re-organised and put into Managed Run-Off
whereby assets will be realised at the best value which the Directors consider
can be achieved within a reasonable timeframe.
During the period of managed run-off, the Board will continue to consider all
strategic options in respect of the Group's assets, some, but not all of which
would result in the restructuring and winding up of the Group and Company in
due course. The Directors also recognise that any proposals put to
Shareholders are yet to be approved by the Shareholders. The Directors note
that these conditions indicate the existence of material uncertainty which may
cast significant doubt about the Group and Company's ability to continue as a
going concern.
However, based on the assessment and considerations above the Directors have
concluded that the financial statements of the Group and Company should be
prepared on a going concern basis. The financial statements do not include the
adjustments that would result if the Group and Company was unable to continue
as a going concern.
Critical accounting judgements, estimates and assumptions
The preparation of the consolidated financial statements requires the
application of estimates and assumptions which may affect the results reported
in the consolidated financial statements. Estimates, by their nature, are
based on judgement and available information.
The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying value of assets and liabilities are those
used to determine the fair value of the investments and expected credit loss
as disclosed in note 4 to the consolidated financial statements.
Investment fair value
The key assumptions that have a significant impact on the value of the Group's
investments are discount rates, energy yield, power prices and capital
expenditure factors, the price at which the power and associated benefits can
be sold and the energy yield are expected to produce. The impact of risks
associated with climate change is assessed on an investment by investment
basis and factored into the underlying cash flows where relevant.
The discount factors are subjective and therefore it is feasible that a
reasonable alternative assumption may be used resulting in a different value.
The discount factors applied to the cashflows are reviewed semi-annually by
the Investment Adviser to ensure they are at the appropriate level. The
Investment Adviser will take into consideration market transactions, where
they are of similar nature, when considering changes to the discount factors
used.
The operating costs of the operating companies are frequently partly or wholly
subject to indexation and an assumption is made that inflation will increase
at a long-term rate.
The values of Energy Efficiency investments are not significantly sensitive to
fluctuations in future revenues if a fixed indexation clause is applied to its
cash flow schedule.
Expected Credit loss (''ECL'') allowance for financial assets measured at
amortised cost
The calculation of the Group's ECL allowances and provisions against
receivable purchase agreements under IFRS 9 is complex and involves the use of
significant judgement and estimation. Fixed interest investment provisions
represent an estimate of the losses incurred in the loan portfolios at the
balance sheet date. Individual impairment losses are determined as the
difference between the carrying value and the present value of estimated
future cash flows, discounted at the loans' original effective interest rate
(''EIR''). The calculation involves the formulation and incorporation of
multiple conditions into ECL to meet the measurement objective of IFRS 9.
Refer to Note 4 for more details.
Investment entity status assessment
Refer to the assessment in the previous sections of this note.
Adoption of new IFRS standards from 1 January 2022
A number of new standards and amendments to standards are effective for the
annual periods beginning after 1 January 2022. None of these have a
significant effect on the measurement of the amounts recognised in the
financial statements of the Group.
New standards and amendments issued but not yet effective
The relevant new and amended standards and interpretations that are issued,
but not yet effective, up to the date of issuance of the Group's financial
statements are disclosed below. These standards are not expected to have a
material impact on the entity in future reporting periods and on foreseeable
future transactions.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to
specify the requirements for classifying liabilities as current or
non-current. The amendments are effective for annual reporting periods
beginning on or after 1 January 2023.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces
a definition of 'accounting estimates'. The amendments are effective for
annual reporting periods beginning on or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2 Making Materiality Judgements. The amendments to IAS 1 are
applicable for annual periods beginning on or after 1 January 2023.
3. SIGNIFICANT ACCOUNTING POLICIES
Financial Instruments
Financial assets
The Group's financial assets principally comprise of cash and cash
equivalents, investments held at fair value through profit and loss,
investments held at amortised cost, derivative financial instruments, interest
income receivables and prepayments and other receivables.
Interest income receivables, prepayments and other receivables are initially
recognised at fair value and subsequently measured at amortised cost using the
effective interest rate method.
The Group's investments are debt instruments held at fair value through profit
or loss and debt instruments at amortised cost. Gains or losses resulting from
the movements in the fair value are recognised in the Group's Consolidated
Statement of Profit or Loss and Comprehensive income under capital column.
Debt instruments at amortised cost are revalued with the functional currency
exchange rate at each valuation point and recognised in the Group's
Consolidated Statement of Profit or Loss and Comprehensive income and are
subject to ECL.
Derivatives comprise of currency forward transactions used to hedge the
Group's foreign currency exposure. The fair value of the currency forward
transactions is the difference between the spot rate and the forward rate at
the date of the Consolidated Statement of Financial Position.
Investment in subsidiaries
The Company's investment in its subsidiary, AHL, is held at cost less
impairment in the Company's Statement of Financial Position. The Company's
investment in its subsidiary, SPV, is held at fair value through profit or
loss. The fair value of SPV as at 31 December 2022 has been determined through
an aggregation of the fair value of SPV's individual investments adjusted for
the cash and liabilities of SPV as at 31 December 2022. The fair values of
SPV's individual investments take account of forecast power production, power
price curves provided by independent research companies, discounts rates which
seek to take account of the risk profile of the counterparty, and other areas
of judgment.
Financial liabilities
The Group's financial liabilities include trade and other payables and other
short-term monetary liabilities which are initially recognised at fair value
and subsequently measured at amortised cost using the effective interest rate
method. The Group's financial liabilities also include derivative financial
instruments.
Recognition and derecognition
Financial assets and financial liabilities are recognised in the Group's
Consolidated Statement of Financial Position when the Group becomes a party to
the contractual provisions of the instrument. Financial assets and financial
liabilities are initially measured at fair value.
At initial recognition, financial instruments classified at fair value through
profit or loss are measured at fair value which is normally the transaction
price. Other financial instruments not classified at fair value through profit
or loss are measured initially at fair value but are adjusted for incremental
and directly attributable transaction costs.
Transaction costs that are directly attributable to the acquisition or issue
of financial assets and financial liabilities (other than financial assets and
financial liabilities at fair value through profit or loss) are added to or
deducted from the value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities at fair value
through profit or loss are recognised immediately in profit or loss.
A Financial liability (in whole or in part) is recognised when the Group has
extinguished its contractual obligations, it expires or is cancelled.
Financial assets are recognised when the rights to receive cash flows from the
investments have expired or the Group has transferred substantially all risks
and rewards of ownership.
Classification and measurement of financial assets
IFRS 9 contains a classification and measurement approach for debt instruments
that reflects the business model in which assets are managed and their cash
flow characteristics. For debt instruments two criteria are used to determine
how financial assets should be classified and measured:
· The entity's business model (i.e. how an entity manages its debt
Instruments in order to generate cash flows by collecting contractual cash
flows, selling financial assets or both); and
· The contractual cash flow characteristics of the financial asset
(i.e. whether the contractual cash flows are solely payments of principal and
interest).
A debt instrument is measured at amortised cost if it meets both of the
following conditions and is not designated as at fair value through profit and
loss ("FVTPL"): (a) it is held within a business model whose objective is to
hold assets to collect contractual cash flows; and (b) its contractual terms
give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
A debt instrument is measured at fair value through other comprehensive income
("FVOCI") if it meets both of the following conditions and is not designated
as at FVTPL:
(a) it is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets; and
(b) its contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
In assessing whether the contractual cash flows are solely payments of
principal and interest, the contractual terms of the instrument are
considered. This includes assessing whether the financial asset contains a
contractual term that could change the timing or amount of contractual cash
flows such that it would not meet this condition.
Subsequent to initial recognition, financial assets that are classified as
measured at fair value through profit or loss are measured at fair value in
the Consolidated Statement of Financial Position (with no deduction for sale
or disposal costs). Gains and losses resulting from the movement in fair value
are recognised in the Consolidated Statement of Profit or Loss and
Comprehensive Income.
Subsequent to initial recognition, financial assets that are measured at
amortised cost require the use of the effective interest method and are
subject to expected credit loss.
Taxation
Investment trusts which have approval under Section 1158 of the Corporation
Tax Act 2010 are not liable for taxation on capital gains. Shortly after
listing the Company received approval as an Investment Trust by HMRC.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates that have been enacted or substantively enacted at the date of
the Consolidated Statement of Financial Position.
Taxation of subsidiary entities
Income tax expense represents the sum of the tax currently payable and
deferred tax.
The tax payable is based on taxable profit for the year. There is no tax
payable at 31 December 2022. Taxable profit differs from profit as reported in
the Statement of Profit or Loss and Comprehensive Income because of items of
income or expense that are taxable or deductible in other years and items that
are never taxable or deductible. The Company's liability for current taxes is
calculated using tax rates that have been enacted or substantively enacted by
the end of the reporting period.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in the computation
of taxable profit and is accounted for using the statement of financial
position liability method. Deferred tax liabilities are recognised for all
taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against
which deductible temporary differences can be recognised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is recognised. Deferred tax
is charged or credited to the Consolidated Statement of Profit or Loss and
Comprehensive Income except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt with in
equity.
Segmental reporting
The Chief Operating Decision Maker ("CODM"), which is the Board, is of the
opinion that the Group is engaged in a single segment of business, being
investment in energy efficiency assets to generate investment returns whilst
preserving capital. The financial information used by the CODM to manage the
Group presents the business as a single segment.
Income
Income includes investment interest income from financial assets at amortised
cost, dividend income and bank interest income.
Investment interest income for the year is recognised in the Consolidated
Statement of Profit or Loss and Comprehensive income using effective interest
method calculation.
Dividend income is recognised when the right to receive it is established and
is reflected in the Consolidated Statement of Profit or Loss and Comprehensive
Income as Investment Income.
Bank interest income is recognised for the year in the Consolidated Statement
of Profit or Loss and Comprehensive income on an accrual basis.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the Consolidated
Statement of Profit or Loss and Comprehensive Income, all expenses are
presented as revenue as it is directly attributable to the operations of the
Group.
Details of the Group's fee payments to the Investment Adviser are disclosed in
note 6 to the consolidated financial statements. Details of the Group's other
expenses are disclosed in note 7 to the consolidated financial statements.
These fees are presented under the revenue column in Consolidated Statement of
Profit or Loss and Comprehensive Income.
Foreign currency
Transactions denominated in foreign currencies are translated into Sterling at
actual exchange rates as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at year-end are reported at the
rates of exchange prevailing at the year-end. Any gain or loss arising from a
change in exchange rates subsequent to the date of the transaction is included
as an exchange gain or loss to capital or revenue in the Consolidated
Statement of Profit or Loss and Comprehensive Income as appropriate. Foreign
exchange movements on investments are included in the Capital account of the
Consolidated Statement of Profit or Loss and Comprehensive Income.
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.
Trade and other payables
Trade and other payables are initially recognised at fair value, and
subsequently re-measured at amortised cost using the effective interest method
where necessary.
Share capital and share premium
Ordinary Shares are classified as equity. Costs directly attributable to the
issue of new shares (that would have been avoided if there had not been a new
issue of new shares) are recognised against the value of the ordinary share
premium account.
Repurchase of the Company's own shares are recognised and deducted directly in
equity. No gain or loss is recognised in profit or loss on the purchase, sale,
issue or cancellation of the Company's own equity instruments.
Expected credit loss allowance for financial assets measured at amortised cost
Many of the Group's investments are financial assets measured at amortised
cost. These investments are structured as purchases of receivables or
purchases of notes which have the right to receivables. The purchased
receivables derive from energy services agreements for the provision of energy
efficiency and/or renewable energy solutions provided by ESCOs to their
corporate clients and these receivables provide a fixed return for the Group.
The receivables are due to be received over a range of maturities from less
than 12 months to more than fifteen years. Individual agreements provide for
the receivables to be paid mostly on a monthly or quarterly basis.
Under the IFRS 9 expected credit loss model, expected credit losses are
recognised at each reporting period, even if no actual loss events have taken
place. In addition to past events and current conditions, reasonable and
supportable forward-looking information that is available without undue cost
or effort is considered in determining impairment, with the model applied to
all financial instruments subject to impairment testing.
At initial recognition, allowance is made for expected credit losses resulting
from default events that are possible within the next 12 months (12-month
expected credit losses). In the event of a significant increase in credit
risk, allowance (or provision) is made for expected credit losses resulting
from all possible default events over the expected life of the financial
instrument (lifetime expected credit losses).
Financial assets where 12-month expected credit losses are recognised are
Stage 1; financial assets which are considered to have experienced a
significant increase in credit risk are in Stage 2; and financial assets which
have defaulted or are otherwise considered to be credit-impaired are allocated
to Stage 3. Stage 2 and Stage 3 are based on lifetime expected credit losses.
The measurement of expected credit loss, referred to as "ECL", is primarily
based on the product of the instrument's probability of default ("PD"), loss
given default ("LGD"), and exposure at default ("EAD"), taking into account
the value of any collateral held or other mitigants of loss and including the
impact of discounting using the EIR.
• The PD represents the likelihood of a borrower defaulting on its financial
obligation, either over the next 12 months ("12M PD"), or over the remaining
lifetime ("Lifetime PD") of the obligation. This has been calculated by an
external third-party credit rating agency using a wide range of parameters
such as the company's financial statements and the macroeconomic environment.
The external credit rating company have also designed a downside scenario
based on historic data. Company financials are modified to reflect various
factors leading to a deterioration in performance. An example of these factors
is a significant decrease in GDP and profitability of the counterparty.
• The EAD represents the amounts the Group expects to be owed at the time of
default.
• LGD represents the Group's expectation of the extent of loss on a
defaulted exposure. LGD varies by type of counterparty, type and seniority of
claim and availability of collateral or other credit support. LGD is expressed
as a percentage loss per unit of EAD. LGD is calculated on a 12-month or
lifetime basis, where 12-month LGD is the percentage of loss expected to be
made if the default occurs in the next 12 months and lifetime LGD is the
percentage of loss expected to be made if the default occurs over the
remaining expected lifetime of the loan ("Lifetime LGD").
LGD in the base case has been calculated based on the following assumptions:
1. For contracts, other than Superbonus investments, the Group has assumed
that there is 90% probability that the business gets sold as a going concern
if it were to enter into administration. If this happens, the Group has
assumed that it would lose 3 months of revenue, representing the estimated
number of months of missed payments before the Group take action before an
administration commences. In such circumstances the Group do not assume any
recovery from the administration proceeds. However, the Group assumed that the
business continues to use and pay for the energy efficient solution for the
remaining life of the investment but the Group would not recover the 3 months
of lost payments. The Group assumed that there is a 10% probability that the
business is not sold as a going concern and the asset is redeployed. If this
happens, the Group assumed that it would take a 10% discount on the asset.
2. For the Superbonus projects, the Group has assumed that there is a 90%
probability of the project completing and, if this happens, the Group can sell
the tax credit asset at a 5% discount. If the project does not complete, the
Group assume that there is a 10% discount. This reflects an assumption that
the Group may have to pay for additional works which are not fully
recoverable.
LGD in the downside case has been calculated based on the following
assumptions:
1. For the contracts, other than Superbonus investments, the Group assumed
that there is a 75% probability (versus 90% in the base case) that the
business gets sold as a going concern. In this circumstance the Group assume
that the lost revenue is the same as in the base case, i.e. 3 months of
revenues. The Group assumed that there is a 25% probability that the business
is not sold as a going concern and the asset is redeployed. If this happens,
the Group has assumed that it will take a 20% discount on the asset as opposed
to 10% in the base case.
2. For the Superbonus projects, the Group has assumed that there is an 80%
probability of the project completing (versus 90% in the base case) and if
this happens the Group will sell the asset at a 10% discount (the same as the
base case). If the project does not complete, the Group assume that there is
a 20% discount versus 10% in the base case.
These assumptions are judgemental, given the investments are relatively new.
However, the Group expects that credit losses are likely to be less than in
more conventional credit investments because the investments provide for
"mission critical" energy related services at a lower cost than would be
available from other sources were the equipment installed through our
investments be withdrawn. In addition, rooftop Solar PV investments can in
most circumstances export power to the grid if the onsite demand is not there
or if there are payment issues. In these circumstances, which the Group
would expect to be temporary in most cases, the achievable revenues may be
lower than the contracted price (although in the current market conditions
wholesale market prices for electricity may exceed prices negotiated with
corporate clients. The other consideration is that the useful life of the
assets financed by the Group's investments is longer than the contracted term
of its investments. This means that there is the opportunity to recover
investments over a longer period than the initial term.
The ECL is determined by estimating the PD, LGD, and EAD for each individual
exposure or collective segment. These three components are multiplied together
and adjusted for the likelihood of survival (i.e., the exposure has not
prepaid or defaulted in an earlier month). This effectively calculates an ECL.
Management is aware that there is a high level of judgement in calculating the
scenarios and the inputs given the assets are relatively recent with minimal
historic data.
The main difference between Stage 1 and Stage 2 is the respective PD horizon.
Stage 1 estimates use a maximum of a 12-month PD, while Stage 2 estimates use
a lifetime PD. The main difference between Stage 2 and Stage 3 is that Stage 3
is effectively the point at which there has been a default event. For
financial assets in Stage 3, entities continue to recognise lifetime ECL but
now recognise interest income on a net basis.
Movements between Stage 1 and Stage 2 are based on whether an instrument's
credit risk as at the reporting date has increased significantly relative to
the date it was initially recognised. Where the credit risk subsequently
improves such that it no longer represents a significant increase in credit
risk since origination, the asset is transferred back to Stage 1.
In assessing whether a counterparty has had a significant increase in credit
risk the following indicators are considered:
1. Early signs of cashflow/liquidity problems such as delay in servicing
of payables;
2. Significant increase in PD.
3. Actual or expected late payments or restructuring of payments due;
4. Actual or expected significant adverse change in operating results of
the borrower, where this information is available; and
5. Significant adverse changes in business, financial and/or economic
conditions in which the counterparty operates.
However, as a backstop, unless identified at an earlier stage, the credit risk
of financial assets is deemed to have increased significantly when repayments
are more than 30 days past due. Movements between Stage 2 and Stage 3 are
based on whether financial assets are credit-impaired as at the reporting
date. IFRS 9 contains a rebuttable presumption that default occurs no later
than when a payment is 90 days past due. The Group uses this 90-day backstop
for all its assets. Assets can move in both directions through the stages of
the impairment model.
The Group recognise that individual credit exposures, which define the Group's
investments, are different from, for example, consumer mortgage or consumer
car loan portfolios. Late payments can arise due to the corporate
counterparties refusing to utilise direct debit or standing order payment
processes with the result that payment chasing can be required for relatively
small amounts, e.g. lighting service contracts. Accordingly, the Group does
expect that in certain cases late payments may not lead to movements through
the ECL stages.
4 INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
Fair value measurements
IFRS 13 requires disclosure of fair value measurement by level. The level of
fair value hierarchy within the financial assets or financial liabilities is
determined on the basis of the lowest level input that is significant to the
fair value measurement. Financial assets and financial liabilities are
classified in their entirety into only one of the following 3 levels:
Level 1
The unadjusted quoted price in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are observable
(i.e. developed using market data) for the asset or liability, either directly
or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for the
asset or liability.
The classification of the Group's investments held is detailed in the table
below:
Group
31 December 2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments at fair value through profit and loss - -
11,742 11,742
Derivative financial instrument - (856) - (856)
- (856)
11,742 10,886
There are no transfers between investment levels for the Group during the
year.
The classification of the Company's investments held is detailed in the table
below:
Company
31 December 2022 31 December 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investments in subsidiaries - - - - 12,307 12,307
31,220 31,220
- - - -
31,220 31,220 12,307 12,307
There are no transfers between investment levels for the Company during the
year.
The movement on the Level 3 unquoted investments of the Group during the year
is shown below:
31 December 2022
£'000
Opening balance -
Additions during the year 10,926
Disposals during the year (43)
Unrealised gain on investments 859
Closing balance
11,742
The movement on the Level 3 unquoted investments of the Company during the
year is shown below:
31 December 2021
31 December 2022
Company Company
£'000 £'000
Opening balance 12,307 -
Additions during the year/period 16,769 12,324
Unrealised gain/(loss) on investments 2,144 (17)
Closing balance 31,220 12,307
Assets and liabilities not carried at fair value but for which are fair value
is disclosed
The following table presents the fair value of the Group's assets and
liabilities not measured at fair value through profit and loss at 31 December
2022 but for which fair value is disclosed:
Carrying Value Fair Market Value
£'000 £'000
Assets
Investments at amortised cost 38,550 38,755
Total 38,550 38,755
For all other assets and liabilities not carried at fair value, the carrying
value is a reasonable approximation of fair value.
Valuation Methodology
Debt instruments at fair value through profit or loss
The Group through its subsidiary (AHL) and its notes in the Italian SPV has
continued to acquire debt instruments at fair value through profit or loss.
The Investment Adviser has determined the fair value of debt investments as at
31 December 2022. The Directors have satisfied themselves as to the fair value
of the debt instrument investments as at 31 December 2022.
Valuation Assumptions
The Investment Adviser has carried out fair market valuations on some of the
Debt instruments held by the subsidiaries as at 31 December 2022 and the
Directors have satisfied themselves as to the methodology used, the discount
rates and key assumptions applied, and the valuation. Investments that are
valued at fair value through profit or loss are valued using the IFRS 13
framework for fair value measurement. The following economic assumptions were
used in the valuation of the investments.
Valuation Assumptions
Discount rates The discount rate
used in the valuations is derived according to internationally recognised
methods. Typical components of the discount rate are risk free rates,
country-specific and asset-specific risk premia.
The latter comprise the risks inherent to the respective asset class as well
as specific premia for other risks such as development and construction.
Power price Power
prices are based on power price forecasts from leading market analysts. The
forecasts are independently sourced from a provider with coverage in almost
all European markets as well as providers with regional expertise.
Energy yield Estimated
based on third party energy yield assessments campaigns as well as operational
performance data (where applicable) by taking into account regional expertise
of a second analyst.
Inflation rates Long-term
inflation is based on central bank targets for the respective jurisdiction.
Capital expenditure Based on the contractual
position (e.g. engineering, procurement and construction agreement), where
applicable.
Valuation 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 remains static throughout the modelled
life.
The Net Asset Value impacts from each sensitivity is shown below.
Discount rates
The Discounted Cash Flow ("DCF") valuation of the investments which are held
at fair value represents one component of the Net Asset Value of the Group and
the key sensitivities are considered to be the discount rate used in the DCF
valuation and assumptions.
The weighted average valuation discount rate applied to calculate the
investment valuation is 8.3% at 31 December 2022. An increase or decrease in
this rate by 0.5% at investment level has the following effect on valuation.
-0.5% +0.5%
Change Change
Discount rate (£'000) (£'000)
Valuation as of 31 December 2022 (488) 512
Power price
Long term power price forecasts are provided by leading market consultants and
are updated quarterly. The sensitivity below assumes a 10% increase or
decrease in merchant power prices relative to the base case for every year of
the asset life. The sensitivity considers a flat 10% movement in power prices
for all years, i.e. the effect of adjusting the forecast electricity price
assumptions in each of the jurisdictions applicable to the investments down by
10% and up by 10% from the base case assumptions for each year throughout the
operating life of the investment.
A change in the forecast electricity price assumptions by plus or minus 10%
has the following effect on valuation, as shown below.
-10.0% +10.0%
Change Change
Power price (£'000) (£'000)
Valuation as of 31 December 2022 (542) 547
Energy yield
The base case assumes a "P50" level of output. The P50 output is the estimated
annual amount of electricity generation (in MWh) that has a 50% probability of
being exceeded both in any single year and over the long term and a 50%
probability of being under achieved. Hence the P50 is the expected level of
generation over the long term. The sensitivity illustrates the effect of a 10%
lower annual production (a downside case) and a 10% higher annual production
(upside case). The sensitivity is applied throughout the whole term of the
projects.
The table below shows the sensitivity of the project values to changes in the
energy yield applied to cash flows from project as explained above.
-10.0% +10.0%
Change Change
Energy yield (£'000) (£'000)
Valuation as of 31 December 2022 (1,570) 1,866
Inflation rates
As most payments are fixed and not linked to the inflation rate, a sensitivity
of the inflation rate has only a negligible impact on the NAV.
Capital expenditure
The Company has contractual protections if capex is delayed (i.e. reduce the
capex or increase receivables due) and the Company is not obliged to fund the
overrun costs. Therefore, capex sensitivities are not appropriate for the
Company's type of investments.
Investments at Amortised Cost
a) Investments at amortised cost
The disclosure below presents the gross carrying value of financial
instruments to which the impairment requirements in IFRS 9 are applied and the
associated allowance for ECL. Please see Note 3 for more detail on the
allowance for Expected Credit Loss (''ECL'') where the Group has classified
the investment portfolio according to stages.
The following table analyses loans by staging for the Group as at 31 December
2022:
31 December 2022
Gross Carrying Allowance Net Carrying
Group Amount for ECL Amount
£'000 £'000 £'000
Fixed Value Investments at amortised cost
Stage 1 37,735 (77) 37,658
Stage 2 951 (59) 892
Total Assets 38,686 (136) 38,550
b) Expected Credit Loss allowance for IFRS 9
Impairment Provisions are driven by changes in credit risk of instruments,
with a provision for lifetime expected credit losses recognised where the risk
of default of an instrument has increased significantly since initial
recognition.
The following table analyses Group ECL by stage.
Group 2022
£'000
At 1 January 2022 -
Charge for the period - Stage 1 77
Charge for the period - Stage 2 59
Allowance for ECL at 31 December 2022 136
Measurement uncertainty and sensitivity analysis of ECL
The recognition and measurement of ECL is complex and involves the use of
judgement and estimation. This includes the formulation and incorporation of
multiple forward- looking economic conditions into ECL to meet the measurement
objective of IFRS 9.
The ECL recognised in the financial statements reflect the effect on expected
credit losses of two possible outcomes, calculated on a probability- weighted
basis, based on the economic scenarios described in Note 3 to the financial
statements, including management overlays where required. The
probability-weighted amount is typically a higher number than would result
from using only the Base (most likely) case scenario. ECLs typically have a
non-linear relationship to the many factors which influence credit losses,
such that more favourable macroeconomic factors do not reduce defaults as much
as less favourable macroeconomic factors increase defaults. The ECL calculated
for each of the Base and Downside scenarios represent the two outcomes that
have been evaluated to estimate ECL. As a result, the ECL calculated for the
Base and Downside scenarios should not be taken to represent the upper and
lower limits of possible actual ECL outcomes. There is a high degree of
estimation uncertainty in numbers representing tail risk scenarios when
assigned a 100 per cent% weight. A wider range of possible ECL outcomes
reflects uncertainty about the distribution of economic conditions and does
not necessarily mean that credit risk on the associated loans is higher than
for loans where the distribution of possible future economic conditions is
narrower.
In the Base case scenario, the ECL at year end is £91,790. In the Downside
case scenario the ECL increases to £268,110. Giving the Base case scenario
a 75% weighting and the Downside case scenario a 25% weighting, this results
in an ECL provision in the accounts of £135,874.
Furthermore, if the Group assumes that in the Downside case scenario LGD
increased to 100%, this would increase the provision to £486,341. Finally
using an LGD of 100% in both the Base case and Downside case scenario, the
maximum ECL would total £2,646,060.
5 INVESTMENT INCOME
For the year ended For the period from 9 April 2021 (date of incorporation) to 31 December 2021
31 December 2022
Group
£'000
£'000
Investment interest income
36
1,646
Bank interest income
55
551
Total Investment Income
91
2,197
Company For the year ended
31 December 2022 For the period from 9 April 2021 (date of incorporation) to 31 December 2021
£'000 £'000
Investment interest income
235 36
Bank interest income
462 55
Total Investment Income
697 91
6 INVESTMENT ADVISORY FEES
For the period from 9 April 2021 (date of incorporation) to 31 December 2021
For the year ended
31 December 2022
Revenue Capital Total Revenue Capital Total
Group £'000 £'000 £'000 £'000 £'000 £'000
Investment Advisory fees 615 - 615 77 - 77
For the year ended 31 December 2022 For the period from 9 April 2021 (date of incorporation) to 31 December 2021
Revenue Capital Total Revenue Capital Total
Company £'000 £'000 £'000 £'000 £'000 £'000
Investment Advisory fees 615 - 615 77 - 77
Under the Investment Advisory Agreement, the following fee is payable to the
Investment Adviser:
(i) 0.95 per cent. per annum of Committed Capital of the Company up to and
including £500 million; and
(ii) 0.75 per cent. per annum of Committed Capital of the Company above £500
million.
7 OTHER EXPENSES
For the year ended 31 December 2022 For the period from 9 April 2021 (date of incorporation) to 31 December 2021
Revenue Capital Total Revenue Capital Total
Group £'000 £'000 £'000 £'000 £'000 £'000
Secretary and administrator fees 319 - 319 108 - 108
Tax compliance 37 - 37 13 - 13
Directors' fees 143 - 143 111 - 111
Broker's fees 61 - 61 30 - 30
Auditors' fees 227 - 227 119 - 119
AIFM fees 98 - 98 51 - 51
Registrar's fees 16 - 16 13 - 13
Marketing fees 107 - 107 58 - 58
FCA and listing fees 17 - 17 12 - 12
Investment expenses 222 - 222 - - -
Legal fees 365 - 365 - - -
Other expenses 174 - 174 72 - 72
Total other expenses 1,786 - 1,786 587 - 587
For the year ended 31 December 2022 For the period from 9 April 2021 (date of incorporation) to 31 December 2021
Revenue Capital Total Revenue Capital Total
Company £'000 £'000 £'000 £'000 £'000 £'000
Secretary and administrator fees 233 - 233 108 - 108
Tax compliance 37 - 37 13 - 13
Directors' fees 108 - 108 111 - 111
Broker's fees 61 - 61 30 - 30
Auditor's fees 227 - 227 119 - 119
AIFM fees 98 - 98 51 - 51
Registrar's fees 16 - 16 13 - 13
Marketing fees 107 - 107 58 - 58
FCA and listing fees 17 - 17 12 - 12
Legal fees 351 - 351 - - -
Other expenses 120 - 120 72 - 72
Total other expenses 1,375 - 1,375 587 - 587
For the year to 31 December 2022, the statutory audit fees to the Company's
auditors and its associates for the audit of the Company and consolidated
financial statements was £187,000 (2021: £99,000) excluding VAT. The audit
fees payable to the Company's auditors and its associates for the audit of the
Company's subsidiaries is £16,000 (2021: £10,000) excluding VAT.
For the period from 9 April 2021 (date of incorporation) to 31 December 2021,
the auditors received a fee of £109,200 (including VAT of £18,200) for
non-audit reporting accountant services in relation to the Company's IPO,
which have been treated as a capital expense and included in 'share issue
costs' disclosed in the Statement of Changes in Equity. There are no non-audit
services in relation to the current year.
8 TAXATION
(a) Analysis of charge in the year/period
For the year ended 31 December 2022 For the period from 9 April 2021 (date of incorporation) to 31 December 2021
Revenue Capital Total Revenue Capital Total
Group £'000 £'000 £'000 £'000 £'000 £'000
Corporation tax - - - - - -
Taxation - - - - - -
For the year ended 31 December 2022 For the period from 9 April 2021 (date of incorporation) to 31 December 2021
Company £'000 £'000 £'000 £'000 £'000 £'000
Corporation tax - - - - - -
Taxation - - - - - -
(b) Factors affecting total tax charge for the year/period
The effective UK corporation tax rate applicable to the Group for the year is
19% (2021: 19%). The tax charge differs from the charge resulting from
applying the standard rate of UK corporation tax for an investment trust
company.
The differences are explained below:
For the year ended 31 December 2022 For the period ended 31 December 2021
Revenue Capital Total Revenue Capital Total
Group £'000 £'000 £'000 £'000 £'000 £'000
Profit/(Loss) on ordinary activities before taxation (340) 477 137 (573) (46) (619)
Corporation tax at 19% (65) 91 26 (109) (9) (118)
Effects of:
Unutilised management expenses 65 - 65 109 - 109
(Gain)/loss on investments not taxable - (91) (91) - 9 9
Total tax charge for the year/period - - - - - -
For the year ended 31 December 2022 For the period ended 31 December 2021
Revenue Capital Total Revenue Capital Total
Company £'000 £'000 £'000 £'000 £'000 £'000
Loss on ordinary activities before taxation (1,293) 2,045 752 (573) (46) (619)
Corporation tax at 19% (246) 389 143 (109) (9) (118)
Effects of:
Unutilised management expenses 246 - 246 109 - 109
Gain on investments not taxable - (389) (389) - 9 9
Total tax charge for the year/period - - - - - -
Investment companies which have been approved by the HM Revenue & Customs
under section 1158 of the Corporation Tax Act 2010 are exempt from tax on
capital gains. Due to the Company's status as an investment trust, and the
intention to continue meeting the conditions required to obtain approval in
the foreseeable future, the Company has not provided for deferred tax on any
capital gains or losses arising on the revaluation of investments.
9. RETURN PER ORDINARY SHARE
Group
Return per share is based on the consolidated profit for the year of £137,000
attributable to the weighted average number of Ordinary Shares in issue
100,000,000 in the year to 31 December 2022 (2021: Company loss of £619,000;
weighted average number of Ordinary Shares in issue 79,699,248).
Consolidated revenue loss and capital gains are £340,000 (2021: Company
revenue loss of £573,000) and £477,000 (2021: Company capital loss of
£46,000) respectively.
Company
Return per share is based on the gain for the year of £752,000 attributable
to the weighted average number of Ordinary Shares in issue 100,000,000 in the
year to 31 December 2022 (2021: Company loss of £619,000; weighted average
number of Ordinary Shares in issue 79,699,248).
Company revenue loss and capital gain are £1,293,000 (2021: Company revenue
loss of £573,000) and £2,045,000 (2021: Company capital loss of £46,000)
respectively.
10. TRADE AND OTHER RECEIVABLES
As at 31 December 2022 As at 31 December 2021
Company Group Company Group
£'000 £'000 £'000 £'000
Intercompany receivable 32,966 - 5,170 5,170
Trade and other receivables 33 70 104 104
Total 32,999 70 5,274 5,274
The intercompany balances are receivables from the Company's subsidiary, AHL.
The amount is non-interest bearing and payable on demand.
11. CREDITORS: AMOUNTS FALLING DUE IN ONE YEAR
As at 31 December 2022 As at 31 December 2021
Company Group Company Group
£'000 £'000 £'000 £'000
Accrued expenses 867 892 329 329
Unsettled payment of notes purchased 177 - - -
Other creditors 6 12 - -
Total 1,050 904 329 329
12. SHARE CAPITAL
As at 31 December 2022 As at 31 December 2021
No. of shares £'000 No. of shares £'000
Allotted, issued and fully paid:
Ordinary Shares of 1p each ('Ordinary Shares') 100,000,000 1,000 100,000,000 1,000
Total 100,000,000 1,000 100,000,000 1,000
On incorporation, the issued share capital of the Company was 1 ordinary share
of £0.01 issued to the subscriber to the Company's memorandum. The Company's
issued share capital was increased by £50,000 represented by 50,000
Management Shares of nominal value £1.00 each, which were subscribed for by
the Investment Adviser. Following admission, the Management Shares were
redeemed by the holder.
On incorporation 2 June 2021, 99,999,999 Ordinary Shares were allotted and
issued to Shareholders as part of the placing and offer for subscription in
accordance with the Company's prospectus dated 10 May 2021.
For the year ended 31 Dec 2022 Shares is issue at the beginning of the year Shares subscribed Shares in issue at the end of the year
Management shares -
- -
Ordinary shares 100,000,000 100,000,000
-
For the period from 9 April 2021 to 31 December 2021 Shares is issue at the beginning of the period Shares subscribed Shares in issue at the end of the period
Management shares - -
-
Ordinary shares 100,000,000 100,000,000
-
For the period from 9 April 2021 to 31 December 2021
Shares is issue at the beginning of the period
Shares subscribed
Shares in issue at the end of the period
Management shares
-
-
-
Ordinary shares
-
100,000,000
100,000,000
13. SPECIAL RESERVE
As indicated in the Company's prospectus dated 10 May 2021, following
admission of the Company's Ordinary Shares to trading on the London Stock
Exchange, the Directors applied to the Court and obtained a judgement on 12
August 2021 to cancel the amount standing to the credit of the share premium
account of the Company. The amount of the share premium account cancelled and
credited to a special reserve was £97,000,000. As at 31 December 2022 the
total special reserves were £94,750,000 (2021: £97,000,000).
14. NET ASSETS PER ORDINARY SHARE
The Group's net assets per ordinary share as at 31 December 2022 is based on
£95,227,000 (2021: £97,381,000) of net assets of the Group attributable to
the 100,000,000 Ordinary Shares in issue as at 31 December 2022 (2021:
100,000,000).
The Company's net assets per ordinary share as at 31 December 2022 is based on
£95,883,000 (2021: £97,381,000) of net assets of the Company attributable to
the 100,000,000 Ordinary Shares in issue as at 31 December 2022 (2021:
100,000,000).
15. DIVIDEND
The Company has paid the following interim dividends in respect of the year
under review:
Total dividends paid in the year For the year ended 31 December 2022 For the period from 9 April 2021 to 31 December 2021
Pence per Ordinary Share Total Pence per Ordinary Share Total
£'000 £'000
30 June 2022 interim - Paid 31 October 2022 1.00p 1,000 - -
30 September 2022 interim - Paid 9 December 2022 1.25p 1,250 - -
Total 2.25p 2,250 - -
The dividend relating to the year ended 31 December 2022, which is the basis
on which the requirements of Section 1159 of the Corporation Tax Act 2010 are
considered is detailed below:
Total dividends declared in the year/period For the year ended 31 December 2022 For the period from 9 April 2021 to 31 December 2021
Pence per Ordinary Share Total Pence per Ordinary Share Total
£'000 £'000
30 June 2022 interim - Paid 31 October 2022 1.00p 1,000 - -
30 September 2022 interim - Paid 9 December 2022 1.25p 1,250 - -
31 December 2022 interim - Paid 20 March 2023* 1.25p 1,250 - -
Total 3.50p 3,500 - -
*Not included as a liability in the year ended 31 December 2022 financial
statements.
16. FINANCIAL RISK MANAGEMENT
The Investment Adviser, AIFM and the Administrator report to the Board on a
quarterly basis and provide information to the Board which allows it to
monitor and manage financial risks relating to the Group's operations. The
Group's activities expose it to a variety of financial risks: market risk
(including price risk, interest rate risk and foreign currency risk), credit
risk and liquidity risk. These risks are monitored by the AIFM. Each risk and
its management are summarised below.
(i) Currency risk
Foreign currency risk is defined as the risk that the fair values of future
cashflows will fluctuate because of changes in foreign exchange rates. The
Group's and the Company's financial assets and liabilities are denominated in
GBP and EUR and substantially all of its revenues and expenses are in GBP and
EUR. The Group's and the Company is therefore exposed to foreign currency
risk.
For any non-base currency assets, the Investment Adviser can use forward
foreign exchange contracts to seek to hedge up to 100% of non-GBP exposure.
The Company does not intend to use hedging or derivatives for investment
purposes but may use derivative instruments such as forwards, options, future
contracts and swaps to hedge currency, inflation, interest rates, commodity
prices and/or electricity prices.
With many of its investment assets held in euros, the Group uses a series of
regular forward foreign exchange contracts to provide a level of protection
against movement in the sterling exchange rate. Under these arrangements the
Group is required to provide £5 million in cash as collateral for these
forward foreign exchange contracts. Following the failure of the Continuation
vote the Group is currently reviewing the strategic options for realising
value for Shareholders. The Board will consider the appropriateness of the
current hedging arrangements and the cash collateral as part of the review of
strategic options and in light of the cash requirements of the Group.
The currency profile of the Group as at 31 December 2022 is as follows:
31 December 2022
31 December 2021
GBP EUR Total GBP EUR Total
Assets £'000 £'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 37,444 9,181 46,625 79,743 386 80,129
Trade and other receivables 33 37 70 5,238 36 5,274
Investments 4,306 45,986 50,292 - 12,307 12,307
Total assets
41,783 55,204 96,987 84,981 12,729 97,710
Liabilities
Creditors (900) (4) (904) (329) - (329)
Derivative financial instruments (856) - (856) - - -
Total liabilities
(1,756) (4) (1,760) (329) - (329)
If the value of Sterling against Euro increased or decreased by 10% (2021:
10%), if all other variables remained constant, the NAV of the Group would
increase or decrease by £5,520,000 (2021: £1,279,000).
The currency profile of the Company as at 31 December 2022 is as follows:
31 December 2022 31 December 2021
GBP EUR Total GBP EUR Total
Assets £'000 £'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 32,169 545 32,714 79,743 386 80,129
Interest income receivable 16,371 16,595 32,966 5,170 - 5,170
Prepayments and other receivables 33 - 33 68 36 104
Investments - 31,220 31,220 - 12,307 12,307
Total assets 48,573 48,360 96,933 84,981 12,729 97,710
Liabilities
Creditors (1,050) - (1,050) (329) - (329)
Total liabilities (1,050) - (1,050) (329) - (329)
If the value of the Sterling against Euro increased or decreased by 10% (2021:
10%), if all other variables remained constant, the NAV of the Group would
increase or decrease by £4,836,000 (2021: £1,279,000).
(ii) Interest rate risk
The Group's interest rate risk on interest bearing financial assets is limited
to interest earned on cash and investments. The interest rates of investments
held at amortised cost are fixed therefore the interest rate risk is
minimal. Investments held at fair value through profit or loss have variable
returns based on e.g. power production levels and not on variability in
interest rates.
The Group's interest rate risk on interest bearing financial assets is limited
to interest earned on cash and investments. The interest rates of investments
are fixed therefore the interest rate risk is minimal.
The Group's interest and non-interest bearing assets and liabilities as at 31
December 2022 are summarised below:
31 December 2022 31 December 2021
Interest bearing Non-interest bearing Total Interest bearing Non-interest bearing Total
Assets £'000 £'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 44,854 1,771 46,625 38,055 42,074 80,129
Trade and other receivables - 70 70 - 5,274 5,274
Investments 38,550 11,742 50,292 12,154 153 12,307
Total assets 50,209 47,501
83,404 13,583 96,987 97,710
Liabilities
Creditors - -
(904) (904) (329) (329)
Derivative financial instruments - -
(856) (856) - -
Total liabilities - -
(1,760) (1,760) (329) (329)
The Company's interest and non-interest bearing assets and liabilities as at
31 December in each reporting period are summarised below:
31 December 2022 31 December 2021
Interest bearing Non-interest Total Interest bearing Non-interest Total
bearing
bearing
Assets £'000 £'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 31,174 1,540 32,714 38,055 42,074 80,129
Trade and other receivables - 33 33 - - -
Intercompany receivable - 32,966 32,966 - 5,274 5,274
Investments 31,220 - 31,220 12,154 153 12,307
Total assets 62,394 34,539 96,933 50,209 47,501 97,710
Liabilities
Creditors - (1,050) (1,050) - (329) (329)
Total liabilities - (1,050) (1,050) - (329) (329)
(iii) Price risk
Price risk is defined as the risk that the fair value of a financial
instrument held by the Group will fluctuate. As of 31 December 2022 the Group
held investments at fair value through profit or loss with an aggregate fair
value of £11,742,000 (2021: £12,307,000). All other things being equal, the
effect of a 10% increase or decrease in the prices of the investments held at
the year-end would have been an increase or decrease of £1,174,000 (2021:
£1,231,000) in the profit after taxation for the year ended 31 December 2022
and the Group's net assets at 31 December 2022.
As of 31 December 2022 the Company held investments at fair value through
profit or loss with an aggregate fair value of £31,220,000 (2021:
£12,307,000). All other things being equal, the effect of a 10% increase or
decrease in the prices of the investments held at the year-end would have been
an increase or decrease of £3,122,000 (2021: £1,231,000) in the profit after
taxation for the year ended 31 December 2022 and the Company's net assets at
31 December 2022.
(iv) Credit risk
Credit risk is the risk of loss due to the failure of a borrower or
counterparty to fulfil its contractual obligations. The Group and the Company
is exposed to credit risk in respect of the investments valued at amortised
cost, interest income receivable and other receivables and cash at bank. The
Group and the Company's credit risk exposure is minimised by dealing with
financial institutions with investment grade credit ratings.
Continued monitoring of the investments and the counterparties/ service
providers, including the use of credit rating data providers, allows the
Investment Adviser to identify and address these risks early. Where possible,
the Investment Adviser seeks to mitigate credit risks by the counterparty
having the opportunity to sell electricity to the grid or other customers.
The Investment Adviser also seeks to structure investments whereby contracts
can be adapted/extended to accommodate periods of payment defaults.
Diversification of counterparties and service providers ensures any impact is
limited. In addition, a diversified portfolio provides further mitigation.
The table below shows the cash balances of the Group and the Company as well
as the credit rating for each counterparty:
As at 31 December 2022 As at 31 December 2021
Company Group Company Group
Rating £'000 £'000 £'000 £'000
Goldman Sachs-Liquid reserve fund AAA-S&P Rating 7,752 7,752 25,000 25,000
EFG Deposit account A / F1-Fitch Rating 23,904 23,957 38,055 38,055
Royal Bank of Scotland International A- S&P Rating 1,058 6,314 17,074 17,074
Bank of New York Mellon AA- Fitch Rating - 8,602 - -
32,714 46,625 80,129 80,129
The table below shows the investment balances of the Group as well as the
credit rating for each counterparty:
Group As at 31 December 2022
A 4,138
B 33,521
C 891
D -
38,550
The Group and the Company classified each project using a certain credit risk
band. Listed below are the conversion methodology used:
Credit risk band Corresponding S&P rating range
A AAA to A-
B BBB+ to B
C CCC to CC
D Default
(v) Liquidity risks
Liquidity risk is the risk that the Company may not be able to meet a demand
for cash or fund an obligation when due. The Investment Adviser, AIFM and the
Board continuously monitor forecast and actual cashflows from operating,
financing and investing activities to consider payment of dividends or further
investing activities.
The financial liabilities by maturity of the Group at the year-end are shown
below:
31 December 2022 31 December 2021
Less than 1 year 1-2 years 2-5 years Total Less than 1 year 1-2 years 2-5 years Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Liabilities
Creditors (904) - - (904) (329) - - (329)
Derivative financial instruments (856) - - (856) - - - -
(1,760) - - (1,760) (329) - - (329)
The financial liabilities by maturity of the Company at the year-end are shown
below:
31 December 2021
31 December 2022
Less than 1 year 1-2 years 2-5 years Total Less than 1 year 1-2 years 2-5 years Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Liabilities
Creditors (1,050) - - (1,050) (329) - - (329)
(1,050) - - (1,050) (329) - - (329)
As at 31 December 2022, the Group has total commitments of £35.45 million to
its investments which are unfunded.
Capital management
The Company considers its capital to comprise ordinary share capital,
distributable reserves and retained earnings. The Company is not subject to
any externally imposed capital requirements.
The Company's primary capital management objectives are to ensure the
sustainability of its capital to support continuing operations, meet its
financial obligations and allow for growth opportunities. Generally,
acquisitions are anticipated to be funded by a combination of current cash and
equity.
17. RELATED PARTY TRANSACTIONS
Fees payable to the Investment Adviser are shown in the Consolidated Statement
of Profit or Loss and Comprehensive Income. As at 31 December 2022, the fee
outstanding to the Investment Adviser was £463,000 (2021: £77,000).
On 1 January 2022, the Company acquired the Net Assets of £153,000 of its
wholly owned subsidiary AHL. On the same date, the Company also acquired the
Net Liabilities of £170,000 of its wholly owned entity, Italian SPV. Both AHL
and Italian SPV assets and liabilities are consolidated by the Company
effective 1 January 2022. All intercompany transactions between the
subsidiaries and the Company are eliminated at the consolidation level.
Total Directors' fees paid during the year are as follows:
Date of appointment to the Board Fees for the year ended 31 December 2022(1) Fees from IPO on 7 May 2021 to 31 December 2021(1)
(£) (£)
19 April 2021 57,585 35,679
Miriam Greenwood
Nicholas Bliss 9 April 2021 42,226 24,003
Lisa Arnold(2) 9 April 2021 3,231 27,246
Laura Sandys(2) 9 April 2021 3,231 24,003
David Fletcher 29 April 2022 30,557 n/a
Janine Freeman 2 November 2022 6,642 n/a
Total 143,472 110,931
There are no outstanding Directors' fees at year end.
(1) Including fees in respect of directorships in AHL.
(2) Resigned on 28 January 2022.
Directors' holdings
At 31 December 2022 and at the date of this report the Directors had the
following holdings in the Company. There is no requirement for Directors to
hold shares in the Company. All holdings were beneficially owned.
As At 31 December 2022 As At 31 December 2021
Shares Connected Person Total Shares Connected Person Total
Miriam Greenwood 24,000 - 24,000 24,000 - 24,000
David Fletcher 41,785 13,951 55,736* N/A N/A N/A
Nicholas Bliss 20,000 - 20,000 20,000 - 20,000
Janine Freeman - - - N/A N/A N/A
Lisa Arnold N/A N/A N/A 20,100 - 20,100
Laura Sandys N/A N/A N/A 15,000 - 15,000
*Following the year-end, Mr Fletcher' shareholding (directly and indirectly
through a connected person) was increased to 56,606, following the dividend
re-investment scheme of Mr Fletcher and his wife's respective investment
plans.
The following table shows the subsidiaries of the Company. Please refer to
note 2; these subsidiaries have been consolidated in the preparation of the
financial statements.
Subsidiary entity name and registered address Effective ownership Investment Country of incorporation
Attika Holdings Limited 100% HoldCo Subsidiary entity, owns underlying investments United Kingdom
Leaf B, 20th Floor, Tower 42, Old Broad Street, London, England, EC2N 1HQ
SPV Project 2013 S.r.l. 100% of the notes of one compartment Special purpose entity, owns underlying investments Italy
Via Vittorio Betteloni, 2 20131, Milan, Italy
Company related party transactions
As at 31 December 2022, the Company has an intercompany receivable from AHL in
the amount of £32,966,000 (2021: £5,170,000). The amount is non-interest
bearing and payable on demand.
As at 31 December 2022, the Company has a total of £31,220,000 (2021:
£12,307,000) notes at fair value through profit or loss in the Italian SPV.
18. DISTRIBUTABLE RESERVES
The Company's distributable reserves consist of the special reserve and
revenue reserve. Capital reserve represents unrealised investments as such is
not distributable.
The revenue reserve is distributable. The amount of the revenue reserve that
is distributable is not necessarily the full amount of the reserve as
disclosed within these financial statements. As at 31 December 2022, the
Company has no distributable revenue reserves as the Company is in a loss
position of £1,866,000 (2021: Loss of £573,000).
The Company's special reserve, which is also distributable, was £94,750,000
as at 31 December 2022 (2021: £97,000,000).
19. SUBSEQUENT EVENTS
On 28 February 2023 at a meeting of shareholders the resolution regarding the
continuation of the Company was not approved.
ALTERNATIVE PERFORMANCE MEASURES OF THE GROUP
OTHER INFORMATION (UNAUDITED)
In reporting financial information, the Company presents alternative
performance measures, "APMs", which are not defined or specified under the
requirements of IFRS. The Company believes that these APMs, which are not
considered to be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance of the
Company. The APMs presented in this report are shown below:
(Discount)/Premium
The amount, expressed as a percentage, by which the share price is more than
the Net Asset Value per Ordinary Share.
As at 31 December 2022 As at 31 December 2021
NAV per Ordinary Share (pence) a 95.23 97.38
Share price (pence) b 71.00 95.75
Discount (b÷a)-1 (25.4%) (1.7%)
Ongoing charges
A measure, expressed as a percentage of average net assets, of the regular,
recurring annual costs of running an investment company.
Average NAV a 97,381
96,561
Annualised expenses b 911(1,2)
2,537(1)
Ongoing charges (b÷a) 2.6% 0.9%
( )
(1) figure includes Investment Advisory fees and Other expenses as disclosed
in the Consolidated Statement of Profit or Loss and Comprehensive Income.
(2) pro-rated based on the total number of days per year over the number of
days from date of incorporation: £664,000 x 365 days/266 days.
Total return
A measure of performance that includes both income and capital returns. This
takes into account capital gains and reinvestment of dividends paid out by the
Company into the Ordinary Shares of the Company on the ex-dividend date.
Opening at 1 January 2022 (pence) a 95.75
97.38
Dividend adjustment b 2.25
2.25
Closing at 31 December 2022 (pence) c 71.00
95.23
Total return ((c+b)÷a)-1 (23.5%)
0.1%
Opening at 2 June 2021 (cents) a 100.00 98.00
Closing at 31 December 2021 (cents) b 95.75 97.38
Total return (b÷a)-1 (4.3%) (0.6%)
n/a = not applicable
FINANCIAL INFORMATION
Year ended 31 December 2022
The figures and financial information for the year ended 31 December 2022 are
extracted from the Company's Annual Financial Statements for that period and
do not constitute statutory financial statements for that year. The Company's
Annual Financial Statements for the year ended 31 December 2022 have been
audited but have not yet been delivered to the Registrar of Companies. The
Independent Auditor's Report on the 2022 Financial Statements was unqualified,
did not include a reference to any matter to which the Auditors drew attention
without qualifying the report, and did not contain any statements under
sections 498(2) and 498(3) of the Companies Act 2006.
Period ended 31 December 2021
The figures and financial information for the period ended 31 December 2021
are extracted from the Company's Financial Statements for that period and do
not constitute statutory financial statements for that period. The Company's
Annual Financial Statements for the period ended 31 December 2021 have been
audited and delivered to the Registrar of Companies. The Independent Auditor's
Report on the 2021 Financial Statements was unqualified, did not include a
reference to any matter to which the Auditors drew attention without
qualifying the report, and did not contain any statements under sections
498(2) and 498(3) of the Companies Act 2006.
ANNUAL REPORT
The Annual Report for the year ended 31 December 2022 was approved on 30 April
2023. The full Annual Report can be accessed via the Company's website at:
https://www.aquila-energy-efficiency-trust.com/
(https://www.aquila-energy-efficiency-trust.com/) .
The Annual Report will be submitted to the National Storage Mechanism and will
shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
This announcement contains regulated information under the Disclosure Guidance
and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING ("AGM")
The Company's AGM will be held on 14 June 2023 at 2.00pm at the offices of
Apex Listed Companies Services (UK) Limited located at 6th Floor, 125 London
Wall, London, England, EC2Y 5AS. Further details can be found at the AGM
Notice. Shareholders are encouraged to attend the AGM. Proxy voting figures
will be made available shortly after the AGM on the Company's website where
Shareholders can also find the Company's AGM Notice, Annual Report, factsheets
and other relevant information.
Even if shareholders intend to attend the AGM, all shareholders are encouraged
to cast their vote by proxy and to appoint the "Chair of the Meeting" as their
proxy. Details of how to vote, either electronically, by proxy form or through
CREST, can be found in the Notes to the Notice of AGM in the Annual Report.
Shareholders are invited to send any questions for the Board or the Investment
Manager in advance by email to aeetcosecmbx@apexfs.group by close of business
on 11 June 2023.
30 April 2023
For further information contact:
Company Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
END
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