REG - Aquila Energy Effcn. - Annual Financial Report
24/06/2022 07:00
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RNS Number : 0335Q Aquila Energy Efficiency Trust PLC 24 June 2022
LEI: 213800AJ3TY3OJCQQC53
AQUILA ENERGY EFFICIENCY TRUST PLC
Final Results
for the period from incorporation on 9 April 2021 to 31 December 2021
The Board of Aquila Energy Efficiency Trust plc ("AEET" or the "Company") is
pleased to announce its audited results for the period from incorporation on 9
April 2021 to 31 December 2021 ("Period").
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.
Financial Highlights
Financial information
As at 31 December 2021
NAV per Ordinary Share (pence) (1) 97.38
Ordinary Share price (pence) 95.75
Ordinary Share price discount to NAV(1) 1.7%
Net assets in GBP million 97.38
Ongoing charges(1) 0.9%
Performance summary
% change
NAV total return per Ordinary Share(1) (0.6%)
Share price total return per Ordinary Share(1) (4.3%)
(1) - These are Alternative Performance Measures for the period from
commencement of operations on 9 April 2021 to 31 December 2021. Share price
total return is based on an opening share price of GBP 1.00 and NAV total
return is based on an opening NAV after launch expenses of GBP 0.98 per
Ordinary Share.
Period End Highlights
· NAV per Ordinary Share of 97.38 pence as at 31 December 2021 and NAV
total return per Ordinary Share of (0.6%) for the Period
· Ordinary Share price at Period end of 95.75 pence versus 100 pence at
IPO, representing an Ordinary Share price total return of (4.3%)
· Pipeline of near - and medium-term investment opportunities
diversified in terms of geography across Europe, technology, ESCO partners and
counterparties
· During the Period, the Company entered into commitments to invest
£14.1 million of which total investments were £12.3 million.
Post Period End Highlights
· Result of investment strategy review published in April 2022, which
included a number of positive measures for Shareholders, including an
adjustment to the advisory fees payable under the Investment Advisory
Agreement
· In April 2022 the Company appointed an additional non-executive
Director and Chair of the Audit and Risk Committee to the Board, David
Fletcher, and a search for a fourth member of the Board is well advanced
· When the Company last updated on investment, on 21 April 2022, it had
made total commitments of approximately £19.1m, and, deployed approximately
£15.1m. As at 31 May 2022, the Company has total commitments of approximately
£19.7m, and, has deployed approximately £15.7m.
· The Investment Adviser expects an acceleration in the pace of
deployment during July 2022 based on current contractual negotiations. The
Board remains actively engaged with the Investment Adviser to support them
reaching their target of full deployment of the remaining IPO proceeds, and,
the Investment Adviser is targeting this by the end of December 2022 or early
2023.
Chair's Statement
Introduction
I am pleased to present my first Chair's statement for Aquila Energy
Efficiency Trust Plc which covers the period from 9 April 2021 (the date of
incorporation) to 31 December 2021 (the "Period"). It has been a very busy
period for your Board for the reasons discussed below.
Strategic review
Despite the optimism at the time of flotation in June last year, deployment of
monies raised proved to be very disappointing over the period and on 31
January 2022, we announced that given the slower investment deployment than
originally anticipated, the Board was undertaking a comprehensive review of
the Company's investment strategy with a view to ascertaining how best to
accelerate deployment, whilst maintaining the Company's prudent credit
criteria and return objectives.
The Board appointed Complete Strategy Ltd, a consultancy firm experienced in
the energy sector, to conduct this review. The review concluded that whilst
certain changes are required to enable the Investment Adviser to execute on
the Company's investment strategy, the market opportunity for Energy
Efficiency Investments located in Europe remains attractive, particularly in
the context of high energy prices. The Board consulted extensively with
Shareholders before undertaking the review and following its conclusion.
Shareholders as a whole were supportive of the continuation of the Company
with the certain changes announced on 21 April 2022 and which are outlined
below.
Changes following the Strategic review
The Initial Continuation Resolution originally intended for 2025 will now be
brought forward and is expected to be voted on by Shareholders during February
2023. Should the Directors determine that the rate of deployment has not
improved in the period from conclusion of the review to the end of July 2022,
they will consider bringing that date forward.
The Investment Adviser has agreed to amend the current Investment Advisory
Agreement such that any advisory fees payable are charged only on committed
capital (being the sum of funds actually invested and funds committed for
investment in Energy Efficiency Investments), this amendment will be applied
retrospectively from the time of the Company's IPO in June 2021. The original
Agreement entitled the Investment Adviser to charge fees on the Company's NAV
which would have included uninvested cash. This resulted to a reduction of the
Investment Adviser fee from £537,331 to £76,698.
In addition, the Investment Adviser has increased the resources allocated to
the investment team to help them meet the full deployment target by the end of
December 2022 or early 2023.
The Board has also engaged Complete Strategy Ltd for an initial period of six
months from April 2022 to provide it with a detailed analysis of monthly
deployment performance against agreed performance milestones with the costs of
this borne by the Investment Adviser.
The Board are of the view that these actions, together with a focus by the
Investment Adviser on larger transactions, partnering arrangements with repeat
introducers of transactions and a smaller number of geographies, should
provide a basis to enable the Investment Adviser to meet its deployment
targets.
Update on deployment & dividends
At the last published update on 21 April 2022, the Company had agreed to invest a total of approximately £19.1 million, of which it had deployed a total of approximately £15.1 million.
As at 31 May 2022, the Company has committed a further £0.5 million and
deployed £0.6 million, taking total commitments to £19.7 million and
deployment approximately £15.7 million.
In light of slower than anticipated deployment and the current expectation
that the IPO proceeds will not be significantly deployed within twelve months
of Admission, the Company does not expect that its stated dividend target of
3.5 pence per Ordinary Share for the financial year ending 31 December 2022
will be covered by earnings. The Board will review the position in respect of
any dividend which may be declared for the financial year ending 31 December
2022 in light of the deployment of the IPO proceeds as the year progresses.
Due to the delay in receiving income for distribution and that the financial
statements are yet to be filed, at the date of this report the Board is not
recommending payment of a dividend for the first quarter of 2022.
Board changes
Following the resignations of two Directors, we have appointed David Fletcher a highly experienced non-executive Director and Chair of the Audit Committee, as our new Chair of the Audit and Risk Committee ("ARC") and as Chair of the Remuneration Committee. I would like to thank my fellow Director Nick Bliss for standing in as interim Chair of the ARC. We are well advanced in our recruitment process to appoint our fourth Board member.
Green Economy Mark
We are pleased to report that the Company was awarded with London Stock Exchange's Green Economy Mark, which recognises companies that derive 50 per cent or more of their total annual revenues from products and services that contribute to the global green economy. We are committed towards reducing CO(2) emissions and improving air quality, while achieving strong returns for our investors and allowing them to contribute to the European Union ("EU") goal of a climate neutral economy.
The need for Energy Efficiency
We believe that energy efficiency is the natural partner to renewable energy if we are to achieve the European goal of net zero by 2050. The more efficient use of energy is one of the main pillars of the energy transition. The reduction of daily energy consumption is Europe's greatest energy resource. We need to make energy efficiency part of our everyday lives, to consume less and consume it better. It protects business 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 and reduces conflicts in distribution.
AEET was launched in recognition of the opportunities, both economic and social, that are available in monetising energy efficiency. In terms of implementation, energy efficiency lags the focus and attention that renewables have received and is an area with significant growth potential and opportunities, both currently and for the foreseeable future.
Foreseeable Future
We understand that the actual scope of energy efficiency remains uncertain to many investors. However, our definition includes all processes and measures that optimise energy consumption to save energy. Energy utilisation is increased, and energy losses resulting from the transport, conversion and storage of energy are reduced. We distinguish energy efficiency by its aim of reducing primary energy consumption differentiating from other areas of efficiency in the power sector, such as generation efficiency from renewables and from enablers of distribution efficiency, such as grid-scale batteries.
Being energy efficient means using and paying for less energy, even as value creation increases, producing more competitively and sustainably. In simple terms: the economies across Europe are more competitive and sustainable the more energy-efficient they are. Energy efficiency drives modernisation and innovation processes in all sectors and opens up new markets for export opportunities. It also has the potential to boost employment as it can stimulate local value creation (e.g., through energy-efficient building renovation). Most importantly, energy efficiency is critical in achieving the EU climate targets.
It is widely recognised that there is a financing gap with energy efficiency investments in both the public and private sectors, often because of scale and complexity, thus capital should be directed to focus where it is not currently invested. AEET aims to be among the important private market conduits to facilitate additional energy efficiency investment on a pan-European basis.
Annual General Meeting
We look forward to welcoming Shareholders to the Company's Annual General
Meeting ("AGM") to be held on 28 June 2022 at Cannon Place, 78 Cannon Street,
London EC4N 6AF. The Company will also hold a General Meeting on 25 July 2022
at 10:00 AM, where this Annual Report will be laid before Shareholders. The
reasons for holding two general meetings are explained in detail in the
Chair's Letter accompanying the Notice of Meeting published on 1(st) June
2022.
Outlook
The Board and the Investment Adviser, have considered the risks posed by the war in Ukraine in the context of the Company and are of the view that these risks are counter-balanced by the recent increase in energy prices which brings with it renewed government focus on energy efficiency. We are, of course, very mindful of the terrible tragedy that conflict produces.
We firmly believe that AEET has a differentiated pan-European investment strategy that offers attractive opportunities now, and, in the future, and has the potential to provide Shareholders with an attractive risk-return profile while achieving a positive environmental impact for the real economy and society. Whilst risks around deployment remain, your Board will be actively engaged with the Investment Adviser to support them to reach deployment targets and grow the Company.
Miriam Greenwood OBE DL
Chair of the Board
23 June 2022
Sustainable Development Goals and the importance of Additionality
What does "additionality" mean and why is it important? To qualify as
additional, capital investments must generate an activity (e.g. related to a
UN sustainable development goal (UN SDG), such as Goal 7: Affordable Energy,
Goal 9: Industries, Innovation and Infrastructure, or Goal: 11 Sustainable
Cities and Communities) that would not have occurred without that capital,
i.e. they must be "in addition to" a baseline scenario that would have
occurred anyway or, in other words, be made knowing that they will make a
real, positive difference. The concept of additionality originated in carbon
offset markets but, more recently, the term additionality has increasingly
appeared in the context of investment, particularly in the case of sustainable
finance (for example, as green bonds) or impact investing.
As with many concepts in the impact investing world, there is no consensus on
additionality as yet. Moreover, measuring additionality remains challenging
because of the need to quantify both the impact of investment and its
longer-term benefits. Nonetheless, we believe that it can facilitate funding
for otherwise lower priority initiatives; help to integrate increased risk
management; encourage more comprehensive project designs; lead to improved
outcomes; and align projects with environmental, social, and governance
standards.
In the AEET context , we believe that investments which financially support
new, expanding, or developing sources of energy efficiency, as opposed to
purchasing those already available, should be able to claim additionality. The
chosen projects will have a significant impact on displacing emissions by
reducing primary energy consumption. Additionality, we would suggest, is new
capital provided to address specific problems or underinvested areas
highlighted by the UN SDGs.
By definition, additionality puts the focus on more innovative financial
arrangements, transactions that tend to be smaller, often more complex, as
well as time intensive. We recognise that additionality can never be
determined with certainty, as it involves a prediction of future outcomes; it
will always require analysis and judgments.
The inclusion of additionality is an important consideration for AEET, as our
investment strategy seeks to provide funding for a high percentage of new
energy efficiency projects, rather than investing in operations and, thus,
existing energy efficiency assets. Therefore, the relevant additionality test
for us is whether a project creates an "incremental" reduction in emissions
which would not have been possible within the same time frame and/or
investment value, without the availability of this funding.
Investment Adviser's Report
Investment Adviser's Background
The Company's AIFM, International Fund Management Limited (part of Sanne
Group), 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 €13.9 billion on behalf of institutional investors
worldwide (as at 31 December 2021). 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. The company 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 PV and hydropower assets
with a generating capacity of more than 15 GW. Additionally, 1.9 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 more than 600 employees from
48 nations, operating in 16 offices in 15 countries worldwide.
Aquila Capital believes in stringent corporate governance. It is licensed as
an alternative investment fund manager (for the avoidance of doubt, it is not
acting as AIFM to the Company) in Germany and is, therefore, subject to high
European regulatory standards.
Investment Activity and Pipeline
Investment activity in the period
Since its IPO in June 2021, the Company has begun executing on its strategy to
invest in energy efficiency projects which are characterised by projects with
(i) a low technology risk through the use of proven technologies; (ii) medium
to long term contracts providing for highly predictable cash flows; and (iii)
counterparties with good creditworthiness. As at the period end, the Company
had entered into commitments to invests £14.1 million of its IPO proceeds of
which total investments were £12.3 million. In the period between 1 January
2022 and 31 May 2022, the Company made additional commitments accounting to
£5.5 million bringing the total income generating capital deployed since IPO
£15.7 million. The Investment Adviser expects the remaining proceeds of the
IPO to be deployed by the end of December 2022 or early 2023.
£14.0 million investment 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 £14.0 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, the energy services company ("ESCO") delivering the measures is
awarded a tax credit equal to 110% of the cost of the measures. These tax
credits can then be sold to banks and, thus, projects can be financed without
the need for a financial contribution from landlords.
The projects which the Company has committed to finance are being managed by
two ESCOs - Enerstreet and Enerqos Energy Solutions and entail commitments of
£8.94 million and £5.15 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.
As at 31 December 2021, £11.9 million had been committed to these projects
and was earning a contractual rate of return. Of this, £0.2 million had been
deployed in cash. The balance of the commitments is forecast to be deployed
before the end of October this year. These projects, which are being delivered
in a series of stages, generate tax credits which exceed the cost of the
Company's investments. Two Italian banks have agreed to purchase these tax
credits, and the proceeds from this will redeem the investments within a
period of up to 15 months from December 2021. The investments are structured
to deliver a contractual return of 8% p.a. 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. The two Italian banks have credit ratings of A and B,
respectively with the lower rated bank majority owned by the Italian state.
£0.4 million investments in Acetificio Galletti & Enofrigo Projects with
project developer, Noleggio Energia
The Company has completed two rooftop solar PV investments developed by
Noleggio Energia, for two Italian industrial businesses, enabling these
companies to reduce their energy expenses and CO2 emissions and avoid grid
losses through the self-consumption of the electricity produced. Noleggio
Energia 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.
The first investment of £0.29 million was completed at the end of June to
finance a rooftop solar PV project located in Lombardy for the Italian food
product manufacturer Galletti di Galletti Aurelio e C. snc ("Acetificio
Galletti"). The project, which is operational, is structured as an operating
lease for Acetificio Galletti, which has agreed to make fixed monthly payments
for a contractual period of seven years. The investment is expected to deliver
a contractual return of 7.2% p.a. 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 credit ratings agency Cerved.
The second investment of £0.11 million was completed at the end of December
2021 to finance a rooftop solar PV project in Veneto for Enofrigo SpA. The
project, which is also operational, has the same seven-year operating lease
structure and contracts similar to those used in the Acetificio Galletti
investment. The investment is expected to deliver a contractual return of 9.4%
p.a. 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. The company nowadays serves
more than 5,000 clients in more than 100 countries. Its Cerved rating is
B2.1/BB+.
£0.3 million investment in lighting as a service project developed by
Lumenstream
In December 2021 the Company, through its wholly owned subsidiary, Attika
Holdings Limited (Attika), invested £0.3 million in a group of four
operational lighting projects developed by a Northern Ireland based lighting
services company, Lumenstream Limited. The Company has purchased receivables
under existing five-year contracts with industrial companies and a leisure
business. The investment is forecast to generate a contractual return of 9.6%
p.a. over the five years. The industrial companies have investment grade
ratings of A1.1-A1.3/ AAA-AA- from Cerved. The leisure business is not rated
but all payments due under its lighting as a service agreement in the two and
a half years up to the time of the investment have been paid. The investment
agreement with Lumenstream Limited also included a framework agreement under
which the Company has an option to finance future projects developed by
Lumenstream, on agreed terms, and under which the Company expects to make
additional investments.
Investments completed after 31 December 2021
We are pleased to report that, since the period end, the Company has completed
the following investments:
£0.7 million investment for the refinancing of the acquisition of an existing
rooftop solar PV plant, with project developer 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
901.6 kWp (kilowatts peak). 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 srl ("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 of
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 is backed by the payments of Gestore dei dervizi 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.
£1.2 million investment in rooftop solar PV plant, developed by Noleggio
Energia.
In April 2022, the Company invested £1.2 million in a rooftop solar PV plant
in self consumption, including the refurbishment of the roof, in Lombardy
(Northern Italy). The plant has a capacity of 1 MWp (Megawatt peak) and is for
the engineering company Tecnocryo s.p.a (Tecnocryo). The investment is based
on the purchase of receivables generated by a 10-year operating lease contract
between Tecnocryo and Noleggio Energia. The investment is forecast to generate
a contractual return of 7.8% p.a. over a 10-year period. Tecnocryo has been
operational 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.
£1.7 million investment in Comgy GmbH & Co KG (Comgy)
In April 2022 the Company, through Attika, purchased a note for £1.7 million
with a tenor of 10 years issued by Comgy. The note provides for a fixed
interest rate of 6.5% p.a. and a variable component and is forecast to
generate a total return in excess of 10% p.a. Comgy is a wholly owned
subsidiary of Comgy GmbH, active in the German sub-metering market. Comgy
provides metering equipment, billing and O&M services mainly to housing
companies with an average rating comparable to S&P BBB+/BBB. The note
purchased by Attika is secured by sub-metering contracts, including equipment
rental and billing as well O&M services with tenors of between five and
ten years. The structure for the investment in Comgy (transfer of assets and
issuing of a note) can be viewed as a framework under which Attika has the
opportunity to purchase a series of notes from Comgy secured by additional
sub-metering contracts.
£0.1 million additional projects with Lumenstream
In January and April 2022 Attika committed to invest £0.1 million in
additional lighting projects developed by Lumenstream for a UK subsidiary of
Siemens, which has an investment grade credit rating of AAA/AA- from Cerved
and Bearmach Limited, respectively. The projects use the same five-year
lighting as a service agreement as the other projects financed by Attika. The
total Lumenstream portfolio of projects is forecast to generate a return of in
excess of 10.0% p.a. over the contractual period of five years.
£1.5 million additional investment in Italian "Superbonus" projects
In April 2022, the Company committed a further £1.5 million to additional
Superbonus projects in Italy. 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 MWp as well as combined heat and power (CHP) plants producing
3.2 MWe (Megawatts electric). Sol Lucet is currently managing solar PV plants
with a generating capacity of 14.0 MWp. The tax credits, which these projects
are expected to generate by the end of 2022, will be acquired by Credit
Agricole, which has a short-term rating of A+ from S&P.
Investment Structures
All the investments in Italy have been made by the Company through directly
purchasing notes issued by an Italian special purpose vehicle (SPV)
established under securitisation laws in Italy. This SPV has made the capital
investments in 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 in the case of the
investments developed by Noleggio Energia and EES. 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.
As with its investments in Italy, the structure of the Company's UK
investments is also based on the purchasing of receivables. In this instance,
Attika has purchased the receivables due under Lumenstream's five-year
lighting as a service contract. Lumenstream has established a special purpose
subsidiary to own the lighting installations financed by Attika and subsidiary
has contracted with Lumenstream's clients to provide energy saving services
through the provision of energy efficient lighting. The receivables from these
contracts have been transferred to Attika.
The structure for the Comgy investment in Germany has elements of both the
Italian investment structure and the Lumenstream investment structure with
Attika, purchasing a note issued by Comgy. This entitles Attika to the
economic return from receivables and is structured to provide a fixed interest
rate amounting to a 6.5% p.a. return of capital and variable interest to
capture the return above 6.5% p.a. As with the Lumenstream structure, Comgy's
parent company has transferred a portfolio of sub-metering and other services
contracts to Comgy, the receivables from which are payable to Attika, the
noteholder.
Investment Pipeline
At the time of the IPO, the Company had access to an advanced pipeline with a
value of £180 million spread across 60 potential projects. As at 31 May 2022,
the Company's pipeline of investment opportunities had increased to an amount
in excess of £282 million across 135 potential projects, many of which were
in the advanced pipeline and remain available to the Company. The pipeline is
well diversified in terms of (i) geography across Europe; (ii) technologies;
(iii) ESCO partners; and (iv) counterparties. Projects with a value of £34
million are in exclusivity and are expected to be completed within five months
of the date of this report.
Some projects in the advanced pipeline have been lost for a combination of
reasons including (i) the projects did not meet the criteria of the Company,
for example, from a return or credit risk perspective; (ii) the projects are
no longer being pursued by either the ESCO or the underlying client; and (iii)
the projects were lost to competing financiers or ESCOs. However, the main
factor affecting planned levels of capital deployment has been delay to
completing new projects. We have found that the Company's focus on investing
in new or newly completed energy efficiency projects that deliver incremental
environmental benefits has led to delays in the expected levels of capital
deployment.
Nevertheless, the Company has been able to complete investments developed by
ESCOs that are expected to develop numerous projects in the future which the
Company is well placed to invest in. Furthermore, the Investment Adviser
believes that capital deployment achieved in the period since end December
2021 is encouraging.
Summary of Deals that have Committed Capital as at 31 May 2022
Galetti Solar PV Italy Noleggio Energia s.r.l. Acetificio Galletti SNC BBB+/BBB- 28/06/2021 293 7 7.2%
Enofrigo Solar PV Italy Noleggio Energia s.r.l. Enofrigo s.p.a. BB+-BB 12/10/2021 116 7 9.4%
Lumenstream 1+2 LED Lighting UK Lumenstream 4 Northern Ireland Corporates AAA 12/10/2021 267 5 9.6%
Superbonus ENERQOS Energy efficient Renovation Italy Enerqos Energy Solution s.r.l. Banca Monte Paschi di Siena or MedioBanca Factoring BBB+/BBB- 29/10/2021 5,154 1 8.0%
Superbonus ENERSTREET Energy efficient Renovation Italy Enerstreet s.r.l. BNL Paribas or Banca Intesa A+/A/A- 29/10/2021 8,940 1 8.0%
Tecnocryo Solar PV Italy Noleggio Energia s.r.l. Tecnocryo s.p.a BB+-BB 06/01/2022 1,247 10 7.8%
COVER Solar PV Italy CO-VER Futura APV srl A- 28/12/2021 690 12 7.0-7.3%
Comgy Sub-Metering Germany Comgy KG Comgy GmbH Not rated 02/02/2022 1,730 9 10.8%
Lumenstream 3 LED Lighting UK Lumenstream 5 UK Corporates AAA/AA- 23/02/2022 121 5 >10%
Superbonus - Sol Lucet Energy efficient Renovation Italy Sol Lucet Credit Agricole AA- 14/03/2022 1,526 1 8.0%
Market Trends
Electricity prices for industrial and residential customers across Europe have
increased significantly since the completion of the Company's IPO. Given this
strong upward pressure on energy prices, we have seen a noticeable increase in
investment opportunities in recent months. From our discussions with ESCOs and
other market participants, it is clear that marked increases in power prices
are accelerating investments in energy efficiency projects and the Company is
well positioned to benefit from this increased demand for funding such
projects.
Market Commentary: Energy Efficiency
1. An introduction to energy efficiency
By definition, energy efficiency aims to reduce primary energy demand. Primary
energy demand is understood to mean the use of energy carriers which, in the
field of conventional energy production, are fuels such as coal and gas.
Energy efficiency refers to measures whose implementation results in the same
or a better performance with less energy consumption. According to the laws of
economics, scarcity of energy makes it necessary to relate the input to the
output to maximise the benefit. This means that, for a fixed energy input, the
aim is to achieve maximum output or, for a fixed output, the energy input is
minimised. An illustrative example of this is the use of energy-saving lamps,
which are now mandatory within the EU. Whereas conventional incandescent lamps
convert electrical energy into desired lighting and undesired heat, the energy
requirement for efficient light sources is reduced due to lower heat losses
for the same amount of lighting. However, this simple, obvious and at the same
time economically sensible change had to be brought about through legislation.
The principle of voluntariness would not have worked here because
energy-saving lamps consume less energy but are more expensive to buy.
This contradiction is often encountered when it comes to energy efficiency,
but the focus should rather be on the "win-win" situation. The savings
potential specific to lighting is up to 70%, which ensures short payback
times. By contracting, i.e. outsourcing financing and installation, immediate
savings can be achieved, as the measures pay for themselves through part of
the savings. Under current conditions, Europe offers a cost-efficient savings
potential of 20% to 40% of primary energy. 1 (#_ftn1)
Energy efficiency is a cornerstone of the energy system transformation. In
addition to the savings needed to achieve climate targets, synergy effects
with renewable energies offer further great potential for the decarbonisation
of the economy. For this reason, the speed of implementation and the
visibility of energy efficiency must be accelerated and increased. Only in
this way can the limitation of global warming to below 1.5°C be achieved. To
achieve this goal, the International Energy Agency ("IEA") estimates that,
from 2035 onwards, almost half of the world's energy investments will have to
be committed to energy efficiency.
2. Energy Efficiency improvements are crucial to make the energy transition
a reality
"The cleanest energy is that which is not consumed at all"
On the path towards a climate-neutral economy and society, a reorganisation of
the energy system is vital. Systems of conventional energy production and
supply are characterised by high inefficiencies. Up to two thirds of the
primary energy used is wasted in the process. The potential for making
efficiency improvements along the value and supply chains is correspondingly
large.
Final energy consumption only covers two thirds of the energy generated in the
EU and the UK, as it does not account for losses during energy production and
transportation. The relationship can be illustrated using the example of a
coal-fired power plant, which has an efficiency of only 30%-40% based on the
primary energy used in the form of coal. This means that, when the thermal
energy is converted into electricity, around 60%-70% of the energy is not
available to the consumer due to heat loss.
Despite the efficiency gains which can be attributed, in particular, to the
use of renewable energies and the use of more efficient gas-fired power plants
(using CCGTs - combined cycle gas turbines), significant energy losses remain
within this process. Not included in this context are grid-related
curtailments of renewable energies, which are caused by the high inflexibility
of thermal power plants.
In addition, the use of energy-efficient technologies in cross-sectional
applications, i.e. applications used across sectors such as IT systems and
lighting, open up a further savings potential of up to 70%.
Synergies between Energy Efficiency and Renewable Energy
There are considerable interactions between renewable energies and energy
efficiency that reinforce each other. On the one hand, renewables are an
energy-efficient measure per se. For example, since wind power and solar PV do
not require the use of fuels, they are 100% efficient from a primary energy
perspective. On the other hand, energy-saving measures on the consumption side
increase the share of renewable energies in the national energy mix.
This correlation can be illustrated by comparing 2019 with 2020, the latter
being characterised by the ramifications of the pandemic.In 2020, the
importance of renewable energies in the energy mix increased significantly as
demand fell. In particular, countries with already high shares of renewable
energies (e.g. Spain, Germany) showed a significant inverse correlation
between demand and the share of renewables.
In view of the EU's goals to increase very significantly the share of
renewable energy, the central importance of establishing energy efficiency as
a quasi independent energy source (first fuel) becomes clear.
3. Energy Efficient measures in Generation, Transmission and Distribution
Efficiency through decentralised in-house energy generation
Based on the advantages of increased decentralised power generation, renewable
energy systems, energy efficiency and small power generators are becoming more
important. System efficiency is increasingly becoming the focus of debate.
Photovoltaic systems can contribute significantly to the decentralised
approach. Existing surfaces, such as roofs, can be used to generate
electricity. This means that there are no additional costs for the area and
additional land consumption is limited. The technological progress achieved in
the recent past and associated cost reductions promise short payback periods
and, thus, favourable access to renewable energy. Any excess capacity that
results can be fed into the grid, which can generate additional income. From
the point of view of efficiency, an additional burden on the grid is avoided
because savings of electricity downstream of the meter compared to the direct
consumption of locally generated, clean energy have the same effect from the
perspective of the public power supply as neither requires grid capacity.
Avoiding transport-related energy losses also contributes to the efficiency of
energy produced and consumed in-house. Corresponding implementations offer
cost-efficient possibilities to increase energy efficiency.
Energy efficiency investments can generate cost savings and income for end
users; for example, through the fitting of solar PV systems to already
built-up areas, such as the roofs of factories, end users can reduce their
energy costs and also generate income through the sale of surplus capacity.
The decisive factor in this orientation is the prevailing level of energy
prices.
Excursus on combined heat and power ("CHP")
Initial situation - separate decentralised heat generation and centralised
supply of electricity
Many EU member states (e.g. Germany) continue to pursue the construction of
flexible gas-fired power plants (gas peakers) in order to close future
electricity gaps or to ensure energy security in hours with low renewable
energy generation. As a result, further inefficiencies in electricity
generation are to be expected (efficiency around 50%). In addition, there are
sometimes loads on the grids that even result in renewable energy
curtailments.
In contrast, CHP plants offer the possibility of companies supplying
themselves with energy while covering their heating needs with otherwise
unused waste heat. This is particularly advantageous for companies that
require process heat, while benefiting overall from lower costs, fewer
emissions and the more effective use of renewable energies.
Smart meter rollout
In addition to the energy transition, we are also in the midst of a digital
transformation. But instead of seeing this as an additional challenge, the
focus should be on synergising both transitions. An accelerated expansion of
smart meters makes it possible to use potential lying in the grid. Smart
meters offer a digital exchange of consumption data and storage capacities in
real time and bring benefits for utilities and consumers. For example, the
bidirectional charging and discharging of batteries of an increasing number of
electric vehicles ('EVs') would increase flexibility on the demand side. While
consumers could benefit from lower prices, there would be additional benefits
in terms of the loads on grids and efficient use of renewable energy.
Effects of decentralisation
The decentralisation of energy generation plus digitalisation could make the
energy supply much more efficient. Increasing demand flexibility in the
context of electrification would significantly improve the integration of
renewable energies. In combination with renewable self-production, such as
through rooftop solar systems, inefficient and emission-heavy fossil fuel
generation would decrease significantly. In addition, excessive grid loads
would be avoided, minimising transport losses and curtailments of renewable
energy sources.
In addition to the positive effects on system efficiency, these effects can
realise competitive cost savings, especially for companies.
4. Consumption side - Spotlight building sector
The building sector is by far the largest energy consumer within the EU.
Accounting for 40% of total energy consumption, buildings are responsible for
more than one third of energy-related greenhouse gas emissions (36%) and are
thus at the centre of the European "efficiency first" approach.
Recent efficiency improvements have made it possible for new buildings to have
an approximately 50% lower energy demand compared to 20 year old buildings.
However, since 220 million buildings - about 80% of the EU's building stock -
were built before 2001, most buildings are not energy efficient. Many of them
are heated with fossil fuels and have technologies and appliances with high
energy consumption.
As 85%-95% of today's buildings are expected to still be in use in 2050,
extensive energy retrofits of buildings are a prerequisite for achieving the
EU's climate targets. The goal of reducing emissions by 55% by 2030 requires
reducing the emissions from buildings by 60%, energy consumption by 14%, and
energy consumption for heating and cooling by 18%. Currently, however, the
annual rate of energy retrofits is only running at about 1%, while
comprehensive renovations, which have the potential to meet the targets, apply
to only 0.2% of the EU's building stock annually.
To achieve the EU's goals, the annual rate of energy renovations must at least
double to 2%. By 2030, about 35 million buildings would have to undergo
energy-efficient refurbishment, which corresponds to an annual investment
requirement of about €275 billion.
Energy efficient measures range from insulation to the electrification of
heating and cooling, which can be supplied by renewable energies in the
future, to digitalisation via smart applications. The EU is pursuing a
strategy that it calls the renovation wave. In view of the ramifications of
the pandemic, this is a "win-win" situation. On the one hand, this approach
contributes to achieving ambitious goals, in particular, the realisation of
electrification via renewable energies; on the other, up to 160,000 additional
green jobs could be created. For these reasons, member states are free to use
the EU's recovery fund, which prescribes a fixed quota of green investments,
to create additional incentives for private investments.
According to plans that recipient states had to submit to the European
Commission for review, there is a strong focus on buildings. Apart from Italy,
which tops the list of the eight largest beneficiary countries in absolute
terms (around €15 billion) an average of 12% of the EU funds are to be used
to boost the renovation wave.
Example Italy: Superbonus 110
With the so-called Superbonus 110, the Italian government creates incentives
for the energy-efficient refurbishment of buildings. Costs incurred for
measures that increase the energy efficiency of buildings can be claimed for
at a rate of 110% against tax. When qualifying measures are completed, the
ESCO⁶ - that carried out the technical installation - is awarded a tax
credit equal to 110% of the costs of the measures. These tax credits can be
sold to banks and, thus, the projects can be financed without the need for a
financial contribution from landlords.
The Superbonus scheme is expected to lead to investments in excess of €
8.75bn, with a net positive contribution for the Italian government of
approximately EUR 800m. As of 1 July 2021, more than 24,500 projects for a
total investment of € 3.5bn have been submitted, of which 11% are related to
condominiums, 43% of the total investment volume. The expectation is that the
Superbonus arrangements will be extended for a number of years past the
current end date of 31 December 2023, thereby creating attractive and
sustainable opportunities for institutional investors in the residential
sector. To achieve its climate targets, the EU aims to ensure that targeted
renovation rates are incorporated into the national legislation of member
countries. The guiding principle in relation to the financing of the
renovation wave strategy is:
Ensuring accessible and well-targeted funding, including through the
'Renovate' and 'Power Up' Flagships in the Recovery and Resilience Facility
under NextGenerationEU, simplified rules for combining different funding
streams, and multiple incentives for private financing" 2
In accordance with EU targets, the already allocated EU funds and the economic
stimulus that is expected to result courtesy of the construction sector,
further incentive programmes for European member states are to be expected,
analogous to the example set by Italy (Superbonus 110). In this context, we
expect a further expansion of sustainable investment opportunities in the area
of energy efficiency within the EU.
In addition to financial incentives, ESCOs, which are responsible for
technical implementation, will also play a key role. Within the EU, however,
the development of this sector is very heterogeneous and requires a
correspondingly selective approach in conjunction with the perspective
development of partnerships.
In Western Europe in particular, structures are already in place that offer
the essential prerequisites for energy-efficient renovations. However, Italy
offers the best overall conditions currently. The triad of EU funding (€
15bn), a national incentives programme (Superbonus 110) and a mature and
institutionalised ESCO market offers an ideal environment for private sector
investors.
Future efforts will primarily be directed towards improvements in thermal
insulation, to reduce energy consumption, and the heating of buildings.
The heating in buildings is responsible for around two thirds of total energy
consumption. As more than 50% of this consumption is based on fossil fuels,
the need for energy renovations is of particular importance. The EU's
ambitious plans, as well as the urgently needed and time-critical
reorganisation of the building sector, will lead to high capital requirements
in the future. In the short to medium term, a steadily improving environment
for private sector investors in search of sustainable impact investments can
therefore be expected. Within the EU, investment opportunities in the field of
energy efficiency will show significant growth.
5. Policy Update
Energy efficiency is a main pillar of the energy transition. In this context,
the European Commission's increased target of reducing GHG emissions by 55% by
2030 has significantly increased the efficiency targets. With the strategy
paper "Fit for 55", the EU Commission published guidelines that must be
anchored in national law by the member states.
However, in view of the current situation and the urgent need for independence
from Russian energy imports, it is clear that even this increase in targets is
not enough. There is an urgent need in particular to substitute the supply of
Russian natural gas or, ideally, to reduce gas demand altogether. Since
energy-efficient measures have the potential to reduce demand in the short
term, they are at the centre of the politically, socially and economically
necessary effort.
With the "REPowerEU" package, the aim of which is to end dependence on Russian
gas supplies as quickly as possible, the EU Commission once again adapted the
goals to the changed, explosive framework conditions.
With the focus on electrification in the areas of buildings, energy supply and
industry, the targets are almost double the already ambitious approach of the
"Fit for 55" package. Energy efficiency has the power to drastically
accelerate the energy transition in accordance with the new requirements. It
is an ongoing responsibility of governments to create efficient and
intelligent framework conditions to optimise the market conditions for energy
efficiency and simultaneously enable sufficient renewable energy capacities.
In this environment, the use of synergies between the private sector and
government subsidy programmes is of central importance. One example is the
Italian "Superbonus 110", which has already given a strong boost to the
implementation of efficiency measures in the residential segment in Italy in
recent years
6. Conclusion and Outlook
Energy efficiency is a cornerstone of energy system transformation. In
addition to the savings needed to achieve climate targets, synergy effects
with renewable energies offer further great potential for the decarbonisation
of the economy. For this reason, the speed of implementation and the
visibility of energy efficiency must be accelerated and increased. Only in
this way can we achieve the goal of keeping global warming below 1.5°C. The
IEA estimates that, from 2035 onwards, almost half of the world's energy
investments will have to be committed to energy efficiency if we are to reach
this target.
Furthermore, it must be emphasised that adaptations and the implementation of
efficiency measures usually create monetary benefits for the consumer. The
negative investment costs of many efficiency measures are significantly lower
than the savings that can be made over time, while the entire supply system
benefits from higher efficiency both through the avoidance of grid related
curtailments and the implementation of smart solutions.
Additional support comes from the governments in Europe. In particular, the
public focus is on the building sector which, on the one hand, is the largest
consuming sector in Europe and, on the other, is a potential source of
enormous economic stimulus that could provide a sustainable and efficient way
out of the recent crisis.
Environmental, Social and Governance ("ESG")
Introduction
AEET'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 CO2 emissions.
This is reflected across the investment philosophy and approach, including the
Company's investment adviser, Aquila Capital Investmentgesellschaft mbH
("Investment Adviser" or "Aquila"), who is dedicated to the green energy
transition. The Company is committed to be 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 improve 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 optimising and improving the assets' PEC.
Technologies typically include:
· LED Lighting System: 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
color); 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 for 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 system, e.g., avoid over-heating/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) in order 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 DNSH (do no significant
harm) principals. Aquila Capital will ensure all required regulations and
corresponding approvals are completed prior to the acquisition of the assets
(planning permission).
Social Impact
Energy efficiency measures not only reduce PEC but typically also increase the
life quality and health aspects for different stakeholder, like 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 in order
to make sure casualties and injuries are voided.
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 is performed (in collaboration with a
third-party rating agency) assessing creditworthiness of the client as well as
a Know Your Client check will be done for the relevant parties involved to
increase transparency of the company's activities.
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
partner need to provide evidence that they adhere to anti bribery and
corruption laws.
Due Diligence
The Investment Advisor 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 International
Fund Management Limited (part of Sanne Group) functioning as the Alternative
Investment Fund Manager ("AIFM"). The Board of Directors supervise the AIFM,
which is responsible for making recommendations in relation to any 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, continuous 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 moni-tored on a
continuous basis 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
environ-ment and ESG relevant developments both at the portfolio and asset
level;
· annual reporting, including ESG aspects, to relevant stakeholders
including ad-hoc reporting of any material and urgent issues identified in the
monitoring process;
· semi-annual ESG risk reporting to the Board.
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.
The Company's investment policy (including defined terms) can be found below
as set out in its IPO prospectus dated 10 May 2021.
Investment policy
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 CO(2) 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 shareholder 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.
The Directors do not currently intend to propose any material changes to the
Company's Investment Policy. As required by the Listing Rules, any material
changes to the Investment Policy of the Company will be made only with the
approval of Shareholders by way of ordinary resolution.
Currency and hedging
The Company does not intend to use hedging or derivatives for investment
purposes but may use derivative instruments such as forwards, options, futures
contracts and swaps to hedge currency, inflation, interest rates, commodity
prices and/or electricity prices.
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
The Directors do not currently intend to propose any material changes to the
Company's investment policy. As required by the Listing Rules any material
changes to the Company's investment policy set 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.
Key Performance Indicators
The Board measures the Company's success in achieving its investment objective
by reference to the following Key Performance Indicators ('KPIs'):
· Deployment of IPO proceeds
In the Company's 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.
As at 31 December 2021 and as at 31 May 2022, £14.1 million and £19.6
million of the total IPO proceeds of £100 million have been deployed,
respectively.
The Board has engaged an independent adviser, Complete Strategy Ltd for an
initial period of six months from the date of the above announcement in April
2022. Complete Strategy will assist the Board in monitoring the deployment of
the IPO proceeds by providing the Board with a detailed analysis of monthly
deployment performance during the period and its costs will be borne by the
Investment Adviser.
· To meet its target total dividend in each financial year
As disclosed in the Company's prospectus published on 10 May 2021, the Company
is targeting a dividend of a minimum of 3.5 pence per Ordinary Share in
relation to the financial year ending 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.
However as announced on 21 April 2022, in light of slower than anticipated
deployment to date and the current expectation that the IPO proceeds will not
be significantly deployed within twelve months of Admission, the Company does
not expect that its stated dividend target of 3.5 pence per Ordinary Share for
the financial year ending 31 December 2022 will be covered by earnings. The
Board will review the position in respect of any dividend which may be
declared for the financial year ending 31 December 2022 in light of the
deployment of the IPO proceeds as the year progresses. The Board recognises
that over the medium to long term dividends form a key component of the total
return to shareholders.
· Premium or 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. As at period end, the share
price has closed at a (1.7%) discount to the NAV as at 31 December 2021.
· Green credentials
The Investment Adviser for every project, considers the potential energy
savings and energy production respectively as well as CO(2) emission savings.
Since the beginning of commercial operations of the first project (solar
plant) in mid-October 2021 and as at 31 December 2022, energy savings of 54.5
MWh were estimated and 25.1 tonnes of reduced CO ₂ emissions were
calculated. The CO(2) avoidance achieved by all the Aquila Capital Funds is in
excess of eight million tonnes, which is equivalent to emissions of 0.5
million European households (https://www.aquila-capital.de/en/
(https://www.aquila-capital.de/en/) ).
· Quality of investments
Investment opportunities are initially analysed by the Investment Adviser. The
goal of this analysis is to determine the key characteristics and value
drivers of the investment opportunity, including: (i) counterparty
creditworthiness; (ii) volume and size of the investment; (iii) duration and
price level of remuneration schemes; (iv) expected life of investment; (v)
stability of regulatory and tax framework; (vi) visibility into future
performance; (vii) other barriers to entry; (viii) correlation of cash flows
to inflation; (ix) resilience within the economic environment; (x) expected
returns; and (xi) the ability to close successfully on the investment. A
portfolio analysis can be found at the Investment Adviser's report .
· Maintenance of a reasonable level of ongoing charges
The expenses of managing the Company are carefully monitored by the Board. The
Board receives and reviews management accounts which contain an analysis of
expenditure which are reviewed at their quarterly Board meetings. The Board
reviews the ongoing charges on a quarterly basis and considers these to be
reasonable in comparison to peers.
Based on the Company's average net assets during the period ended 31 December
2021, the Company's ongoing charges figure calculated in accordance with the
AIC methodology was 0.94%.
Risk Management
Principal risks and uncertainties
During the period 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, who 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 ("AIFM"): 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. AIC: The Company is a member of the Association of Investment Companies
("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 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 Risk
Counterparty / Credit The Company allocates funds to a Counterparty that defaults on its Continued monitoring of the investments and the counterparties/service
obligations. providers, including the use of credit rating data providers, allows the
Investment Adviser to identify and address 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
This would impact the Company's ability to meet dividends and achieve its the grid or other customers. The Investment Adviser also seeks to structure
intended goals and returns for its investors. 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 Concentration of exposure to investments in a limited number of countries, The Investment Adviser and AIFM constantly monitor existing and proposed
counterparties, geographical markets, tenure and currencies can lead to investments/portfolio on a pre trade basis, enabling the effective
default on loans or other obligations resulting in Company underperformance observation of portfolio concentrations and prospectus limits.
and inability to meet targets.
Environmental / Social / Governance (ESG) Not integrating ESG adequately into the investment and monitoring processes The Investment Adviser performs detailed due diligence on ESG for each asset
can lead to reputational risk and exposure to greenwashing claims. prior to recommendation.
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 Risks
Premium/Discount Management Market sentiment moves share price to a discount which may it more difficult The Company's Broker monitors the market for the Company's shares and report
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 making Shareholders unable to realise their investments through the
secondary market at Net Asset Value or at market price.
The Company seeks to maintain engagement with shareholders.
Loss of market confidence in the Board / Investment Manager.
Interest Rates/Inflation Changes to interest rates may impact discount rates applied to the portfolio The Company may use derivative instruments such as futures, options and swaps
valuations and attractiveness of returns. to protect the Company from fluctuations of interest rates.
Can affect the spread between, amongst other things, the income on the
Company's assets and the expense of its interest-bearing liabilities, the
value of its interest-earning assets and its ability to realise gains from the
Aquila's Asset Management team regularly monitor effectiveness of hedging
sale of assets (should this be desirable). together with Risk Management.
Investment Advisor will manage correlation of cash flows to inflation and
resilience to the economic environment.
Investment Advisor seeks to incorporate RPI adjustments in investment
documentation where possible.
In addition, Renewable energies represent an effective protection against
inflation, as renewable energies 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. The Company maintains the majority of uninvested cash in base currency (GBP).
Changes in foreign currency rates may therefore impact the value in sterling
between periods of investments and of the income received.
For any non-base currency assets, the Investment Advisor can use forward
foreign exchange contracts to seek to hedge up to 100% of non-GBP exposure.
Pandemic-(COVID-19) COVID-19 and the response by Governments, has had a significant impact on The Company's response is focused on dealing with the economic impact of
economies across the world over the last two years resulting in market COVID-19.
volatility, uncertainty, supply chain issue and speed of decision making.
All parties to the Company operate effective work from home policies and these
are assessed annually.
Equity Market Volatility The Company's ability to raise equity from investors to repay debt or to The Company's adviser and broker monitors market conditions and reports
support further investments could be impacted by stock market volatility and regularly to the Board. In the event that the Company is unable to raise new
pricing. equity or debt capital, the Company could hold back from making new
investments until the stock market recovered and, in extremis, investments
could be sold to raise liquidity.
Portfolio Management
Investment Performance With investment concentration in energy efficiency space, unquoted The Investment Advisor has a well-defined investment strategy and process in
investments, changes to regulatory framework or poor investment decisions, place which is regularly reviewed and monitored by the AIFM and the
there is a risk that the portfolio underperforms and as a result, the target independent Board of Directors.
returns are not met over the longer term. This could lead to the dividend not
being covered and/or an inability to pay the target dividend.
There is limited regulatory risk exposure due to focus on projects with
authorisation and project business plans with limited or no exposure to
government subsidies.
The Investment Advisor has good experience in renewable sustainability/energy
transition and understands and manages the risks closely.
Pipeline, Investment Deployment and Cash Drag An important part of the Investment Adviser's role is its ability to source As announced on 31 January 2022 and 21 April 2022, the Board undertook a
high quality potential investment opportunities in line with the Company's comprehensive review of the Company's investment strategy, due to slower
investment strategy. investment deployment than originally anticipated. The Board appointed
Complete Strategy Ltd, a consultancy firm experienced in the energy sector, to
conduct this review.
Should suitable opportunities not be forthcoming and cash remains uninvested The Board with the assistance of Complete Strategy Ltd and the AIFM monitor
the portfolio returns could be lower than that required meet the dividend the investment pipeline received from the Investment Adviser.
targets.
The Investment Adviser has a track record in originating potential
Slow deployment of investments and excess cash on deposit. investments.
The Investment Adviser continues to build a diversified pipeline of investment
opportunities for possible acquisition by the Company. In addition, it is
Cash drag can lead to reduced portfolio income and inability to pay dividends developing relationships with energy services companies, project developers
out of income. and technology providers which bring multiple investment opportunities to the
Investment Adviser.
The Investment Adviser continues to originate potential investments and is
Reputational risk of not meeting prospectus targets. actively increasing the value of its pipeline.
As of 30 April, the total investment value of the pipeline has increased from
£178.5 million to £233 million since the time of IPO.
The team has expanded to help the origination activity.
Further, an emphasis on repeat business with existing partners has been
effective in closing transactions and deploying capital.
Competition for Assets With increasing numbers of investors seeking exposure to energy efficiency The Board and AIFM oversee the investment pipeline and monitor its progress in
assets, it is possible that new competitors will enter the market in which the relation to Company targets.
Company operates. This could lead to increased pricing for the Company's
target investments with corresponding lower returns and slower deployment of
uninvested cash.
The Investment Adviser continues to build a diversified pipeline of investment
opportunities for possible acquisition by the Company. In addition, it is
developing relationships with energy services companies, project developers
and technology providers which bring multiple investment opportunities to
the Investment Manager.
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
negatively. Adviser seeks do not rely on subsidies or other support mechanisms.
Inappropriate Investment Advice Lack of resource, experience or depth in the team to source and vet The Investment Adviser has substantial resources and is not required to commit
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 of which Aquila cannot disclose to Board or AIFM. interest at the time of each investment being made.
Conflicts of interest and investment allocation policies are in place agreed
with the Board.
The Investment Adviser is dependent on key people to identify, acquire and
manage the Company's investments.
The strength and depth of the Investment Adviser's resources mitigate the risk
of a key person departure and provides ability to draw skills from other areas
if need be.
Investment focus on proven technologies and standardized technical and
financial suppliers' DD, including an assessment of supplier's reference
projects, reduce the acquisition risks.
Operational Risk
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 the
resulting in reputational damage and possible GDPR concern. AIFM and 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
counter parties.
Financial Risk
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 which rely on projections and
cashflows.
The AIFM and the Board review and interrogate the valuations and underlying
assumptions provided by the Investment Adviser.
There is a risk that these valuations and underlying assumptions such as
discount rates being applied are not a fair reflection of the market meaning
that the investment portfolio could be over or under valued.
Regulatory Risks
Regulatory Risk The Company is required to comply with Section 1158 of the Corporation Tax Act All service providers including the Broker, Administrator, Investment Adviser
to ensure maintenance of investment trust status, UK Listing Authority and AIFM are experienced in these areas and provide comprehensive reporting to
regulations including Listing rules, Foreign Account Tax Compliance Act and the Board and on the compliance of these regulations.
Alternative Investment Fund Managers Directive ("AIFMD").
The Company looks to comply with relevant ESG rules and regulations and
continue to monitor those such as the Sustainable Finance Disclosure The Company complies with article 8 of the SFDR and as noted under "ESG" looks
Regulation ("SFDR"). to comply with local requirements in order to mitigate potential risks.
Failure to comply with the relevant rules and obligations may result in Mitigation measures for post Brexit impact includes inflation and interest
reputational damage to the Company or have a negative financial impact. rate management, currency and cash management, tax and legal advice as
appropriate, and Fund marketing through approved channels and AIFM oversees
Impact of post Brexit on the Company and the portfolio. The Board continues to this reporting accordingly.
review the impact of Brexit in terms of the new trading deal and general
business environment, including possible tax and other issues.
The Board are of the opinion that these are the principal risks, but mindful
of their obligations under the changes made to the AIC Code of Corporate
Governance, the Board has also considered below emerging risks.
Emerging Risk
Act of War / Sanctions As evidenced with the ensuing war in Ukraine and the various sanctions and The invasion of Russia to Ukraine brings uncertainty to the commodities market
restrictions imposed, there is a possibility there could be supply delays for and how price levels of modules and other hardware will be impacted directly
O&M, sanction considerations, volatile markets and general uncertainty. or indirectly. The Company does not have any direct exposure in Ukraine or
More difficult energy markets expected along with inflationary pressures on Russia, there are also no direct business relations with counterparties from
inputs. these countries; therefore, preliminary assessments lead us to the conclusion
that our 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.
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 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 Company and of the profit or loss of the Company for that period. 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 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 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 Company's financial statements, which have
been prepared in accordance with international financial reporting standards
in conformity 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
Company; and
■ the Strategic Report includes a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
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 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 Company's auditors are aware of
that information.
For and on behalf of the Board,
Miriam Greenwood
Chair of the Board
23 June 2022
Financial Statements
AQUILA ENERGY EFFICIENCY TRUST PLC
STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE INCOME
For the period from 9 April 2021 (date of incorporation) to 31 December
2021
Revenue Capital Total
Notes £'000 £'000 £'000
Unrealised losses on investments 4 - (17) (17)
Net foreign exchange losses - (29) (29)
Investment Income 5 91 - 91
Investment Advisory fees 6 (77) - (77)
Other expenses 7 (587) - (587)
Loss on ordinary activities before taxation (573) (46) (619)
Taxation 8 - - -
Loss on ordinary activities after taxation (573) (46) (619)
Return per Ordinary Share 9 (0.01p) (0.00p) (0.01p)
The total column of the Income Statement 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 period
Return on ordinary activities after taxation is also the "Total comprehensive
income/(expense) for the period".
STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
2021
Notes £'000
Fixed assets
Investments at fair value through profit or loss 4
12,307
Current assets
Trade and other receivables 10
5,274
Cash and cash equivalents
80,129
85,403
Creditors: amounts falling due within one year 11
(329)
Net current assets
85,074
Net assets
97,381
Capital and reserves: equity
Share capital 12
1,000
Share premium
-
Special reserve 13
97,000
Capital reserve
(46)
Revenue reserve
(573)
Shareholders' funds
97,381
Net assets per Ordinary Share 14
97.38p
No. of ordinary shares in issue
100,000,000
Approved by the Board of Directors and authorised for issue on 23 June 2022.
Signed on behalf of the Board of Directors
Miriam Greenwood OBE DL
Chair of the Board
STATEMENT OF CHANGES IN EQUITY
Share capital Share premium account Special reserve Capital reserve Revenue reserve Total
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
STATEMENT OF CASH FLOWS
For the period from 9 April 2021 (date of incorporation) to 31 December 2021
2021
Notes £'000
Operating activities
Loss on ordinary activities before taxation
(619)
Adjustment for unrealised losses on investments
17
Increase in trade and other receivables
(5,274)
Increase in creditors
329
Net cash flow used in operating activities
(5,547)
Investing activities
Purchase of investments 4
(12,324)
Net cash flow used in investing activities
(12,324)
Financing activities
Proceeds of share issues 12 100,000
Share issue costs
(2,000)
Net cash flow generated from financing activities
98,000
Increase in cash
80,129
Cash and cash equivalents at start of period
-
Cash and Cash equivalents at end of period
80,129
NOTES TO THE FINANCIAL STATEMENTS
For the period from 9 April 2021 (date of incorporation) to 31 December 2021
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 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.
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 Company's Investment Adviser is Aquila Capital Investmentgesellschaft mbH
authorised and regulated by the German Federal Financial Supervisory
Authority.
Sanne Fund Services (UK) Limited (the "Administrator") provides administrative
and company secretarial services to the Company under the terms of an
administration agreement between the Company and the Administrator.
2. BASIS OF PREPARATION
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.
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 Association of Investment Companies ("AIC") in
April 2021.
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. 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. However,
fluctuations in foreign exchange differences are considered in the sensitivity
analysis, see note 4.
Accounting for Subsidiary
The Company owns 100% of its subsidiary Attika Holdings Limited ("HoldCo"),
the registered office address of the HoldCo is 6th Floor, 125 London Wall,
London, EC2Y 5AS. The Company has acquired Energy Efficiency Investments
through its investment in the HoldCo. The Company will finance the HoldCo
through a mix of SPV investments, equity and direct investments. The Company
meets the definition of an investment entity as described by IFRS 10. Under
IFRS 10 an investment entity is required to hold subsidiaries at fair value
through profit or loss and therefore does not consolidate the subsidiary.
The HoldCo is an investment entity and as described under IFRS 10 Values its
SPVs investments at fair value through profit or loss.
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.
In assessing whether the Company meets the definition of an investment entity
set out in IFRS 10 the Directors note that:
I. the Company has multiple investors and obtains funds from a diverse group
of shareholders who would otherwise not have access individually to investing
in Energy Efficiency Investments due to high barriers to entry and capital
requirements;
II. the Company intends 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 refers to the end point
of the contractual period for all Energy Efficiency investments. The existing
Energy Efficiency Investments that have committed capital are expected to
generate renewable energy output between 1 and 7 years from their relevant
commercial operation date (this has the potential to be longer depending on
the tenor of future investments), the Directors believe the Company is able to
generate returns to the investors during that period; and
III. the Company measures and evaluates the performance of all of its
investments on a fair value basis which is the most relevant for investors in
the Company. Management use fair value information as a primary measurement to
evaluate the performance of all of the investments and in decision making.
The Directors are of the opinion that the Company meets all the typical
characteristics of an investment entity and therefore meets the definition set
out in IFRS 10. The Directors agree that investment entity accounting
treatment appropriately reflects the Company's activities as an investment
trust.
The Directors have also satisfied themselves that Attika Holdings Limited
meets the characteristic of an
investment entity. Attika Holdings Limited has one investor, Aquila Energy
Efficiency Trust Plc, however, in substance Attika Holdings Limited is
investing the funds of the investors of Aquila Energy Efficiency Trust Plc on
its behalf and is effectively performing investment management services on
behalf of many unrelated beneficiary investors.
The Directors believe the treatment outlined above provides the most relevant
information to investors.
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 Company.
The Company continues to meet day-to-day liquidity needs through its cash
resources. The Directors have a reasonable expectation that the 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
Company's cash position, income and expense flows. The Company's net assets at
31 December 2021 were GBP 97.4million. As at 31 December 2021, the Company
held GBP 80million in cash. The total expenses for the period ended 31
December 2021 was GBP 0.6 million, which represented approximately 0.6% of
average net assets during the period. At the date of approval of this
document, based on the aggregate of investments and cash held,
the Company has substantial operating expenses cover.
The major cash outflows of the Company are the payment of dividends and costs
relating to the acquisition of new investments. The Directors are confident
that the Company has sufficient cash balances to fund commitments to
acquisitions should they become payable.
In light of the continuing COVID-19 pandemic and the war in Ukraine, the
Directors have considered each of the Company's investments. The Directors do
not foresee any immediate material risk to the Company's investment portfolio
and income from underlying SPVs. A prolonged and deep market decline could
lead to falling values to the underlying business or interruptions to
cashflow, however the Company currently has more than sufficient liquidity
available to meet any future obligations.
Following the slower than anticipated investment deployment and the
consequential appointment of an independent consultant to review the Company's
investment strategy, the results of this review were announced on 21 April
2022. The review concluded that the market opportunity for the Company remains
attractive and that the actions to be taken in relation to the execution of
the investment strategy and other changes provided an improved
basis for the Company to execute its investment objective, with full
deployment targeted by the end of December 2022 or early 2023. In reaching
this conclusion, the Directors consulted with shareholders who, overall, were
supportive of the continuation of the Company with these changes. An element
of the consultation process was the Directors' proposal to bring forward the
Initial Continuation Resolution to February 2023, or earlier if appropriate. A
further resolution will be put at the February 2023 General Meeting,
conditionally upon the Continuation resolution being passed, to amend the
Articles of Association of the Company so that a Continuation vote will be put
at the AGM of the Company to be held in 2026 and every four years thereafter,
as envisaged in the May 2021 IPO Prospectus. If any Continuation resolution
put to shareholders is not passed, then the Directors shall, within six months
of such Continuation resolution not being passed, put proposals to
shareholders for the reconstruction, reorganisation or liquidation of the
Company. Taking into account the factors above, the Directors have assessed
that the Initial Continuation Resolution will pass, however, the Directors
recognise that the outcome of this is not yet known and therefore creates
material uncertainty around going concern, due to the event falling within
12-month period from the approval of this Annual Report. The Directors note
that these conditions indicate the existence of material uncertainty which may
cast significant doubt about the Company's ability to continue as a going
concern.
Based on the assessment and considerations above, the Directors have concluded
that the financial statements of the Company should be prepared on a going
concern basis.
Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires the application of
estimates and assumptions which may affect the results reported in the
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 as disclosed in note 4 to
the financial statements.
As disclosed above, the Directors have concluded that the Company meets the
definition of an investment entity as defined in IFRS 10. This conclusion
involved a degree of judgement and assessment as to whether the Company met
the criteria outlined in the accounting standards.
The key assumptions that have a significant impact on the carrying value of
the Company's underlying investments in SPVs are contractual period of the
assets, the discount factors, the rate of inflation, the price at which the
power and associated benefits can be sold and the amount of electricity the
assets are expected to produce.
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 annually by the
Investment Adviser to ensure they are at the appropriate level. The Investment
Adviser will take into consideration market transactions, where 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.
Energy Efficiency investments are not sensitive to fluctuations in future
revenues if a fixed indexation clause is applied to its cashflow schedule.
Adoption of new IFRS standards from 1 January 2022
A number of new standards, amendments to standards and interpretations are
effective for the annual periods beginning after 1 January 2022. None of these
are expected to have a significant effect on the measurement of the amounts
recognised in the financial statements of the Company.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that
are not mandatory for 31 December 2021 reporting periods and have not been
early adopted by the Company. These standards are not expected to have a
material impact on the entity in the current or 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.
Reference to the Conceptual Framework - Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations -
Reference to the Conceptual Framework. The amendments are effective for annual
reporting periods beginning on or after 1 January 2022.
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 Company's financial assets principally comprise of cash and cash
equivalents, investments held at fair value through profit and loss, and trade
and other receivables.
The Company's investment in HoldCo is held at fair value through profit or
loss. Gains or losses resulting from the movements in fair value are
recognised in the Company's Statement of Profit or Loss and Comprehensive
Income at each valuation point.
Trade and other receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective interest rate
method.
SPV investments and equity investments in HoldCo are designated at fair value
through profit or loss. Gains or losses resulting from the movements in the
fair value are recognized in the Company's Statement of Profit or Loss and
Comprehensive income at each valuation point.
Financial liabilities
The Company'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.
Recognition, derecognition and measurement
Financial assets and financial liabilities are recognised in the Company's
Statement of Financial Position when the Company becomes a party to the
contractual provisions of the instrument. Financial assets and financial
liabilities are initially measured at fair value. 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 fair
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 derecognised when the Company
has extinguished its contractual obligations, it expires or is cancelled.
Financial assets are derecognised when the rights to receive cash flows from
the investments have expired or the Company has transferred substantially all
risks and rewards of ownership.
Subsequent to initial recognition, financial assets at fair value through
profit or loss are measured at fair value. Gains and losses resulting from the
movement in fair value are recognized in the Statement of Profit or Loss and
Comprehensive Income. Financial liabilities are subsequently measured at
amortised cost using the effective interest rate method.
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 period,
using tax rates that have been enacted or substantively enacted at the date of
the Statement of Financial Position.
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 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 utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited to the 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 Company 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
Company presents the business as a single segment.
Income
Income includes investment income from financial assets at fair value through
profit or loss..
Investment income from financial assets at fair value through profit or loss
is recognised in the Statement of Profit or Loss and Comprehensive Income
within investment income when the Company's right to receive income is
established.
Dividend income is recognised when the right to receive it is established and
is reflected in the Statement of Profit or Loss and Comprehensive Income as
Investment Income.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the Statement of
Profit or Loss and Comprehensive Income, all expenses are presented as revenue
as it is directly attributable to the operations of the Company.
Payment of Investment Advisory fees in shares
The Company issues shares to the Investment Adviser in exchange for receiving
investment advisory services. The fair value of the investment advisory
services received in exchange for shares is recognised as an expense at the
time at which the investment advisory fees are earned, with a corresponding
increase in equity. The fair value of the investment advisory services is
calculated by reference to the definition of investment advisory fees in the
Investment Advisory Agreement.
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 the period end are reported
at the rates of exchange prevailing at the period 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 Statement of Profit or Loss and Comprehensive Income as appropriate.
Foreign exchange movements on investments are included in the Capital account
of the Statement of Profit or Loss and Comprehensive Income.
Cash and cash equivalents
Cash and cash equivalents includes deposits held at call with banks and other
short-term deposits with original maturities of three months or less.
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.
4 Investments
SPV investments Equity Investments Total
(a) Summary of valuation £'000 £'000 £'000
Investments at fair value through profit or loss 12,154 153 12,307
12,154 153 12,307
(b) Movements during the period:
Opening balance of investments, at cost - - -
Additions, at cost 12,324 - 12,324
Cost of investments at 31 December 2021 12,324 - 12,324
Revaluation of investments to fair value:
Unrealised movement in fair value of investments (170) 153 (17)
Balance of capital reserve - investments held at 31 December 2021 (170) 153 (17)
Fair value of investments at 31 December 2021 12,154 153 12,307
(c) Loss on investments in period (per Statement of Profit or Loss and
Comprehensive Income)
Movement on unrealised valuation of investments held (170) 153 (17)
Loss on investments (170) 153 (17)
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 Company's investments held at fair value is detailed
in the table below:
31 December 2021
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments at fair value through profit or loss - - 12,307 12,307
- - 12,307 12,307
Due to the nature of the investments, they are always expected to be
classified as level 3. There have been no transfers between levels during the
period ended 31 December 2021.
The movement on the Level 3 unquoted investments during the period is shown
below:
31 December 2021
£'000
Opening balance -
Additions during the period 12,324
Unrealised loss on investments adjustments (17)
Closing balance 12,307
Valuation Methodology
SPV investments
The Company acquired SPV investments during the period. The SPV investments
have been made by the Company through directly purchasing notes issued by an
Italian SPV established under securitisation laws in Italy. The Investment
Adviser has determined that the fair value as at 31 December 2021 is the
purchase cost, adjusted by any foreign exchange differences. The purchase cost
is deemed to be appropriate basis of fair value due to the timing of
investment acquisition (i.e. close to period end date). The Directors have
satisfied themselves as to the fair value of the SPV investments as at 31
December 2021.
Equity investments
The Company owns 100% of its subsidiary Attika Holdings Limited ("HoldCo").
The Company meets the definition of an investment entity as described by IFRS
10, as such the Company's investment in the HoldCo is valued at fair value.
HoldCo's working capital balances and fair value of investments are included
in calculating fair value of the HoldCo.
Valuation Assumptions
31 December 2021
Foreign exchange rates GBP / EUR 0.84
Foreign Exchange Rate Sensitivity
This sensitivity considers a 10% movement in relevant non-GBP currencies,
which in the case of the Portfolio Valuation at 31 December 2021 is EUR. A 10%
increase in foreign exchange rates would result in a NAV per share reduction
of 1.22p based on the Portfolio Valuation as at 31 December 2021.
A 10% decrease in foreign exchange rates would result in a NAV per share
increase of 1.22p based on the Portfolio Valuation as at 31 December 2021.
5 Investment Income
For the period ended 31 December 2021
£'000
Investment income
36
Bank interest income
55
Total Investment Income
91
6 Investment Advisory fees
For the period ended 31 December 2021
Revenue Capital Total
£'000 £'000 £'000
Investment Advisory fees 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 period ended 31 December 2021
Revenue Capital Total
£'000 £'000 £'000
Secretary and administrator fees 108 - 108
Tax compliance 13 - 13
Directors' fees 111 - 111
Broker fees 30 - 30
Auditor's fees 119 - 119
AIFM fees 51 - 51
Registrar's fees 13 - 13
Marketing fees 58 - 58
FCA and listing fees 12 - 12
Other expenses 72 - 72
Total expenses 587 - 587
Prior to appointment as the Company's Auditor, the auditors received a fee of
£109,200 (including VAT of £18,200) for non-audit reporting accountant
services, which have been treated as a capital expense and included in 'share
issue costs' disclosed in the Statement of Changes in Equity.
8 Taxation
(a) Analysis of charge in the period
For the period ended 31 December 2021
Revenue Capital Total
£'000 £'000 £'000
Corporation tax - - -
Taxation - - -
(b) Factors affecting total tax charge for the period:
The effective UK corporation tax rate applicable to the Company for the period
is 19.00%. 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:
Revenue Capital Total
£'000 £'000 £'000
Loss on ordinary activities before taxation (573) (46) (619)
Corporation tax at 19% (109) (9) (118)
Effects of:
Utilised management expenses 109 - 109
Losses on investments not taxable - 9 9
Total tax charge for the 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
Return per share is based on the loss for the period of £619,000 attributable
to the weighted average number of Ordinary Shares in issue 79,699,248 in the
period to 31 December 2021. Revenue loss and capital losses are £573,000 and
£46,000 respectively.
10. Trade and other receivables
As at 31 December 2021
£'000
Intercompany receivable
5,170
Interest income receivable
36
Prepaid Expenses
68
Total
5,274
11. Trade and other payables
As at 31 December 2021
£'000
Accrued expenses
329
Total
329
12. Share capital
As at 31 December 2021
No. of shares £'000
Allotted, issued and fully paid:
Ordinary Shares of 1p each ('Ordinary Shares') 100,000,000 1,000
Total
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 admission 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 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.
14. Net assets per Ordinary Share
Net assets per ordinary share as at 31 December 2021 is based on £97,381,000
of net assets of the Company attributable to the 100,000,000 Ordinary Shares
in issue as at 31 December 2021.
15. 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 its operations. The Company'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 is 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
Company's financial assets and liabilities are denominated in GBP and
substantially all of its revenues and expenses are in GBP. The Company is not
considered to be materially exposed to foreign currency risk.
(ii) Interest rate risk
The Company's interest rate risk on interest bearing financial assets is
limited to interest earned on cash and investments.
The Company's interest and non-interest bearing assets and liabilities as at
31 December 2021 are summarised below:
Interest bearing Non-interest Total
bearing
Assets £'000 £'000 £'000
Cash and cash equivalents 38,055 42,074 80,129
Trade and other receivables - 5,274 5,274
Investments at fair value through profit or loss 12,154 153 12,307
Total assets 50,209 47,502 97,710
Liabilities
Creditors - (329) (329)
Total liabilities - (329) (329)
(iii) Price risk
Price risk is defined as the risk that the fair value of a financial
instrument held by the Company will fluctuate. Investments are measured at
fair value through profit or loss. As at 31 December 2021 the Company held
investments with an aggregate fair value of £12,307,000. All other things
being equal, the effect of a 10% increase or decrease in the share prices of
the investments held at the period end would have been an increase or decrease
of £1,231,000 in the loss after taxation for the period ended 31 December
2021 and the Company's net assets at 31 December 2021.
The Investment Adviser has determined that the fair value of the investments
as at 31 December 2021 is the purchase cost, adjusted by any foreign exchange
differences. The purchase cost is deemed to be appropriate basis of fair value
due to the timing of investment acquisition (i.e. close to period end date).
The Directors have satisfied themselves as to the fair value of the
investments as at 31 December 2021.
Credit risks
Credit risk is the risk of loss due to the failure of a borrower or
counterparty to fulfil its contractual obligations. The Company is exposed to
credit risk in respect of Trade and other receivables and cash at bank. The
Company's credit risk exposure is minimised by dealing with financial
institutions with investment grade credit ratings. The Company has advanced
share holder loans to Holdco, however it does not consider these loans a risk
as they are intra-Group. No balances are past due or impaired.
As at 31 December 2021
£'000
Investments at fair value through profit or loss 12,154
Trade and other receivables 5, 274
Cash and cash equivalents 80,129
Total 97,557
The table below shows the cash balances of the Company and the credit rating
for each counterparty:
Rating As at 31 December 2021
(£'000)
Goldman Sachs-Liquid reserve fund AAA-S&P Rating 25,000
EFG Deposit account A / F1-Fitch Rating 38,055
Royal Bank of Scotland International A-2 / BBB-S&P Rating 17,074
80,129
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.
Financial assets and liabilities by maturity at the period end are shown
below:
Less than 1 year 1-2 years 2-5 years Total
£'000 £'000 £'000 £'000
Assets
Investments at fair value through profit or loss - - 12,307 12,307
Trade and other receivables 5,274 - - 5,274
Cash and cash equivalents 80,129 - - 80,129
Liabilities
Other creditors (329) - - (329)
85,074 - 12,307 97,381
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 with a combination of current cash
and equity.
16. Related party transactions
Fees payable to the Investment Advisor are shown in the Income Statement. As
at 31 December 2021, the fee outstanding to the Adviser was £77,000. The
Company owns 100% of Attika Holdings Limited, as disclosed in note 2. As at 31
December 2021, the Company has a receivable balance of £5.17 million against
Attika Holdings Limited.
Fees are payable to the directors at an annual rate of £55,000 to the
Chairman, £42,000 to the Chairman of the Audit and Risk Committee and
£37,000 to the other directors. These fees were effective from the date of
appointment of each director being 9 April 2021 for each Board member except
Miriam Greenwood who was appointed on 19 April 2021.
During the period, £36,000 was paid to the Chairman; £27,000 was paid to the
Chairman of the Audit and Risk Committee; and £24,000 was paid to the other
directors. Total payment made during the period is £87,000.
The directors had the following shareholdings in the Company, all of which
were beneficially owned.
Ordinary shares
At 31 December 2021
Miriam Greenwood OBE DL 24,000
Nicholas Bliss 20,000
17. Subsequent events note
The Company entered into £5,476,000 amount of investments post 31 December
2021 through 23 June 2022.
OTHER INFORMATION
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:
ALTERNATIVE PERFORMANCE MEASURES
(Discount)/Premium
The amount, expressed as a percentage, by which the share price is more than
the Net Asset Value per Ordinary Share.
NAV per Ordinary Share (pence) a 97.38
Share price (pence) b 95.75
(Discount)/Premium (b÷a)-1 -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.
Period end NAV a 97,381
Annualised expenses (prorated based on the total number of days per year over b 911
the number of days from date of incorporation: £664,000 x 365 days/ 266 days)
Ongoing charges (b÷a) 0.9%
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 2 June 2021 (pence) a 100.00 98.00
Closing at 31 December 2021 (pence) b 95.75 97.38
Total return (b÷a)-1 -4.3% -0.6%
n/a = not applicable.
Note: There were no dividends paid during the period ended 31 December 2021.
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The
financial information for the period to 31 December 2021 is derived from the
statutory accounts for the Period, which will be delivered to the Registrar of
Companies.
The Annual Report for the period ended 31 December 2021 was approved on 23
June 2022. 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") and GENERAL MEETING ("GM")
The AGM of the Company will be held at the offices of CMS Law, Cannon Place,
78 Cannon St, London EC4N 6AF ON 28 June 2022 at 2.00 p.m.
The GM of the Company will be held at the offices of Sanne Group, 6th Floor,
125 London Wall, London, EC2Y 5AS on 25 July 2022 at 10.00 a.m. The GM will be
held in order to: receive the Company's Annual report and Accounts for the
period ended 31 December 2021, with the reports of the Directors and auditors
thereon; to approve the Directors' remuneration policy report included in the
Annual Report and Accounts for the period ended 31 December 2021; to approve
the Directors' remuneration report included in the Annual Report and Accounts
for the period ended 31 December 2021; to appoint the PricewaterhouseCoopers
("PwC") as auditors to the Company; to authorise the Audit and Risk Committee
to fix the remuneration of the auditors until the conclusion of the next AGM
of the Company; and, to authorise the Directors to declare and pay all
dividends of the Company as interim dividends..
The reasons for holding two general meetings are explained in detail in the
Chair's Letter accompanying the Notice of Meeting published on 1st June 2022.
Even if shareholders intend to attend the above meetings, 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 respective
Notices of Meeting.
Shareholders are invited to send any questions for the Board or the Investment
Adviser in advance by email to ukfundcosec@sannegroup.net.
23 June 2022
For further information please contact:
Sanne Fund Services (UK) Limited +44 (0) 20 3327 9720
Company Secretary
LEI: 213800AJ3TY3OJCQQC53
END
1 IEA (2020)
2 EU Commission (2022)
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AnnouncementREG - Aquila Energy Effcn. - Annual Financial Report
AnnouncementREG - Aquila Energy Effcn. Morgan Stanley - Holding(s) in Company
AnnouncementREG - Aquila Energy Effcn. - Holding(s) in Company
Announcement