Downing Renew& Infra - Annual Financial Report
03/04/2023 07:00
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RNS Number : 0338V Downing Renewables & Infrastructure 03 April 2023
Downing Renewables & Infrastructure Trust PLC
("DORE" or the "Company")
Annual Report and Accounts
Downing Renewables & Infrastructure Trust plc (LSE: DORE) announces its
Annual Report and Accounts for the financial year ending 31 December 2022 (the
"Annual Report").
The Annual Report is available to view on the Company's website at
www.doretrust.com/investor-relations
(http://www.doretrust.com/investor-relations) .
Highlights
· Net asset value ("NAV") as at 31 December 2022 was 118.6 pence per
ordinary share (£219 million), an increase of 15.1 (14.5%) pence per ordinary
share compared with the NAV as at 31 December 2021 of 103.5 pence per ordinary
share (£142 million).
· NAV total return(1) of 19.5% for the year to 31 December 2022 and
28.5% since IPO in December 2020.
· Interim dividends of 5 pence per ordinary share paid during the year
and a further 1.25 pence per ordinary share declared (but not accrued)
relating to the quarter to 31 December 2022. Cash dividend cover of 1.26x 1
(#_ftn1) for dividends paid during the year.
· The target dividend for the year from 1 January 2023 has been
increased by 7.6% to 5.38 pence per ordinary share.
· The Company's portfolio has generated 326GWh, avoided 153,457 tonnes
of CO2e and powered the equivalent of 112,523 UK homes. The Company now has a
portfolio that is expected to generate 391 GWh of renewable electricity per
year, an increase of 96.4% from 31 December 2021. Further deployment through
the completion of five investments, costing in aggregate at £72.6 million and
comprising:
o Two operational hydropower plant portfolios, generating 12GWh p.a. and
36GWh p.a. respectively and located in central Sweden, for £20.1 million in
January 2022;
o An operational 46 MW (108GWh p.a.) onshore wind farm located in
north-eastern Sweden for £19.8 million in February 2022;
o A portfolio of operational run-of-river hydropower plants in Sweden (17GWh
p.a.) for £16.8 million in May 2022;
o A further investment into the UK solar portfolio during October 2022 of
£10 million, used to repay the mezzanine debt that was present when the
portfolio was acquired;
o A 14GWh hydropower portfolio of seven assets with significant reservoir
capacity in Sweden for £5.9 million in November 2022; and
o Post year end, completed the acquisition of two operational hydropower
plants with expected annual generation of 8.3GWh, located in Sweden for £5.1
million.
· Successfully raised gross proceeds of £52.9 million through a
placing, an open offer, an offer for subscription and an intermediaries offer
at an issue price of 111.0 pence per ordinary share in June 2022, exceeding
the target size of the issue.
Key Metrics
As at or for period ending 31 December 2022 As at or for the period ending 31 December 2021
Market capitalisation £210m £142m
Share price 113.5 pence 103.5 pence
Dividends with respect to the year £8.0m £2.9m
Dividends with respect to the year per ordinary share 5.0 pence 3.5 pence
GAV(1, 2 (#_ftn2) ) £311m £221m
NAV £219m £142m
NAV per share 118.6 pence 103.5 pence
NAV total return with respect to the year(1,2,4) 19.5% 8.0%
Total Shareholder Return with respect to the year(1, 3 (#_ftn3) ) 15.1% 5.%
NAV total return since inception(1,2, 4 (#_ftn4) ) 28.5% 7.9%
Total Shareholder Return since inception(1,3) 21.1% 5.3%
Weighted average discount rate 7.7% 7.3%
Environmental Performance Assets avoided 153,457 tonnes of CO2 and powered the equivalent of 112,523 Assets avoided 80,942 tonnes of CO2 and powered the equivalent of 59,432 homes
homes
Hugh Little, Chair, Downing Renewables & Infrastructure Trust PLC,
commented:
"We are very pleased to present DORE's annual results for its second year of
operation. The Investment Manager has successfully continued its mandate of
strategic diversification and growth, deploying £62.6 million in five new
portfolio investments over the period, complemented by an equity raise of
£52.9 million in June 2022, exceeding the target size. The Investment
Manager's active management and clear insight has delivered a strong
performance from owned-assets which has contributed to a cash dividend cover
of 1.26x for the dividends of 5 pence per share paid during the year. I am
confident that our Investment Manager will continue to take a perceptive
approach to pursuing investment opportunities that will deliver the greatest
value to shareholders during 2023."
Tom Williams, Partner, Head of Energy and Infrastructure at Downing LLP,
commented:
"We are extremely pleased with the progress made by DORE following a strong
maiden year. Alongside the strengthening of its hydropower portfolio, DORE
acquired its first wind assets as part of a continued commitment to a strategy
of diversification by technology and geography, which is proving its
credentials through NAV accretion and strong dividend cover. Given the
positive operational and financial results in the face of a challenging
macroeconomic period, we believe that the Company is well-positioned for
future growth and continued strong performance.
About DORE
Downing Renewables & Infrastructure Trust PLC is a closed ended investment
company incorporated in England and Wales. The Company aims to provide
investors with an attractive and sustainable level of income, with an element
of capital growth, by investing in a diversified portfolio of renewable energy
and infrastructure assets in the UK, Ireland and Northern Europe.
The Company's strategy, which focuses on diversification by geography,
technology, revenue and project stage, is designed to deliver the stability of
revenues and the consistency of income to shareholders.
The Company is an Article 9 fund pursuant to the EU Sustainable Finance
Disclosure Regulations ("SFDR"). The core sustainable Investment Objective of
the Company is to accelerate the transition to net zero through its
investments, compiling and operating a diversified portfolio of renewable
energy and infrastructure assets to help facilitate the transition to a more
sustainable future. This directly contributes to climate change mitigation.
DORE is a Green Economy Mark (London Stock Exchange) accredited company with
an ESG framework that aims to provide investors with attractive returns while
contributing to the successful transition to a net-zero carbon economy -
resulting in a cleaner, greener future.
As at 31 December 2022, the Company had 184,622,487 ordinary shares in issue
which are listed on the premium segment of the FCA's Official List and traded
on the London Stock Exchange's Main Market.
DORE is managed by Downing LLP (the "Investment Manager" or "Downing").
Strategic Report
Chairman's Statement
On behalf of the Board, I am pleased to present the annual report of Downing
Renewables & Infrastructure Trust PLC covering the year to 31 December
2022 (the "Annual Report"). After another successful year of strategic
diversification and growth, we continue to execute our business plan and
benefit from the expanding Nordic and UK renewables markets.
Additional Equity Issuance
Following the £137.4 million raised during the Company's first financial
period the Company established a share issuance programme to enable the
issuance of up to a further 250 million ordinary shares over a 12-month
period. In order to aid our continuing growth plans and to enable us to pursue
value creating opportunities, we issued a further 47.6 million new ordinary
shares on 7 June 2022 at a price of 111 pence per share, raising gross
proceeds of £52.9 million, exceeding the target size of the issue and
increasing the market capitalisation by 25.2%. As at the reporting date, the
Company's market capitalisation exceeded £200 million.
An element of the proceeds of the fundraising was immediately used to repay
the revolving credit facility ("RCF"), with the remainder earmarked to invest
in an attractive pipeline of opportunities to further diversify the portfolio.
The fundraise represented c.35% of the Company's Ordinary Share capital
immediately prior to the Issue.
Acquisitions
During the period, the Company and its wholly owned subsidiaries (together,
the "Group") have successfully invested £72.6 million in five new portfolio
investments and a further £5.1 million after the year end. The Company now
has a portfolio that is expected to generate 391 GWh of renewable electricity
per year, double that as at 31 December 2021.
Diversification remains central to the strategy of the fund. During the period
we have added wind power, an additional technology to our portfolio as well as
acquiring our first hydropower assets in Sweden's SE4 pricing zone. Investing
in different technologies in different locations reduces the Company's
reliance on any given natural resource, provides exposure to assets with
different economic lives and reduces our exposure to any single power market.
Each acquisition made since IPO has been accretive to DORE's NAV. During the
year a £9 million increase in NAV was recognised as new investments were
revalued throughout the year.
I am very pleased to report that the Investment Manager has made attractive
acquisitions since the year end by completing the acquisition of two
additional operational hydropower plants in Sweden (with annual generation of
8.3GWh), located on the Gillerån and Moälven rivers in the SE2 electricity
pricing zone, for £5.1 million.
Debt Facilities
In the interests of capital efficiency and to enhance income returns,
long-term capital growth and capital flexibility, the Company is permitted to
maintain a conservative level of gearing. To allow flexibility with making new
investments, the Group has access to two separate loan facility agreements: a
£40 million RCF with Santander UK plc at a holding company level and a
seven-year EUR 43.5 million limited recourse debt facility with SEB at Downing
Hydro AB. The RCF was increased from £25 million to £40 million on 26
January 2023. Further information on these facilities can be found in the
Investment Manager's Review.
During the period, the RCF allowed the Group the flexibility to capitalise on
its investment pipeline. In May 2022 the Group utilised the facility to fund a
c.£17 million acquisition of a portfolio of hydropower plants. As mentioned
above, the RCF was repaid in full during the period using the proceeds from
the subsequent fundraising.
Portfolio Performance
Operating profit for the portfolio of generating assets was 14.7% above our
expectations.
The 3,260 operating assets generated 326 GWh of clean electricity during the
reporting period. The operational performance of the Swedish wind and UK solar
assets was in line with expectations and the dry summer we experienced in
Northern Europe, including Sweden, impacted the hydropower portfolio, leading
to generation across the hydropower portfolio being 10.8% below long term
expectations. This contributed to higher power prices in the region, driving a
significant increase in revenue and cashflows, which more than outweighed the
generation shortfall caused by the dry conditions.
Financial Results
During the period the NAV per ordinary share increased from 103.5 pence at 31
December 2021 to 118.6 pence at 31 December 2022, an increase of 14.5%.
Including dividends paid of 5 pence per ordinary share in the year results in
a NAV total return since 31 December 2022 of 19.5%. This increase reflects the
net earnings and the valuation uplift across all three technologies following
strong operational performance and a favourable economic environment.
The NAV reflects the fair market valuation of the Company's portfolio based on
a discounted cash flow analysis over the life of each of the Group's assets
plus the value of the Company's other assets and liabilities. The assumptions
which underpin the valuation are provided by the Investment Manager and the
Board has satisfied itself with the calculation methodology and underlying
assumptions.
The portfolio companies distributed £12.3 million to the Company by way of
shareholder loan repayments and interest during the period. An element of this
cash, £3.8 million, was retained in the Company's subsidiary DORE Hold Co and
forms part of the valuation.
The Company made a profit for the year to 31 December 2022 of £33.2 million,
resulting in earnings per ordinary share of 20.6 pence. This includes
unrealised returns of £28.1 million.
Dividends
The Company has paid interim dividends to Shareholders of 1.25 pence per share
for the first three quarters of 2022. I am pleased that a further dividend of
1.25 pence per share has been announced and will be paid on or around 31 March
2023 in respect of the quarter to 31 December 2022.
The Company achieved a cash dividend cover of 1.26x for the dividends of 5
pence per share paid during the period (including the dividend paid during the
period in respect of the quarter ending 31 December 2021). Dividend cover is
presented excluding dividends paid immediately following the issuance of new
shares. If these are included, the dividend cover would be 1.17x. Cash
dividend cover has been calculated on a cash basis of income received by the
Company and its immediate subsidiary.
The Company will target a dividend of 5.38pps relating to the year to 31
December 2023, a 7.6% increase from 2022. The increased dividend is forecast
to be fully covered by the current portfolio. When near term pipeline assets
that are under exclusivity are taken into account, the dividend cover against
the increased dividend is forecast to be in excess of 1.4x.
This is the second increase in dividend since DORE's IPO in December 2020. As
a result of the Company bringing forward the 5 pence per share dividend
payment by six months from 1 July 2021, DORE has paid out 1.5 pence per share
more in dividends than outlined at the time of the IPO.
Investment Policy
During the period, shareholders approved amendments to the Company's
investment policy, including to: (i) increase the geographic and technology
investment restrictions until the Company first surpasses a Net Asset Value of
£300 million; (ii) increase the limit on short-term borrowings; and (iii)
simplify the definition of Gross Asset Value in the Company's investment
policy. The new limits are set out on the Company's website and the full
investment policy is available in the shareholder circular dated 7 June 2022,
also available on the website.
Outlook
2022 was dominated by the ongoing war in Ukraine and rising inflation. The
Ukraine crisis has forced governments, companies, and citizens across the
world to take a hard look at how energy is sourced and utilised. Over recent
years renewables has been a key growth sector for investment companies,
however, since the crisis began there have been accelerated commitments to
renewables and governments have now realised that the energy transition is not
only important for the planet, but also for energy security. We believe that
DORE can play an active part in this.
The Board is very satisfied with the £72.6 million deployed in the five
high-quality investments made in the year. At a portfolio level, the
Investment Manager's in-house asset management team will continue its focus on
delivering continued positive operational performance, along with optimisation
initiatives where appropriate. The Company will continue to leverage the
expertise of the Investment Manager to deliver strong operational performance
whilst placing its sustainability goals at the centre of its operational
objectives.
In order to increase the Company's diversification, drive efficiencies of
scale at the portfolio level, spread the fixed costs over a wider asset base
and increase liquidity for current and future shareholders, the Board intends
over time to increase the size of the Company through the issue of further
shares. Any such issuance will be priced at a premium to the prevailing net
asset value and will be dependent on demand from investors as well as the
availability of pipeline investments.
The Board looks forward to bringing shareholders further updates on the
excellent progress made to date.
Share Buybacks
The Board intends to commence buying back shares in the market where it
believes this to be in shareholders' interests, noting that share buybacks
represent an attractive opportunity to increase the Company's investment
exposure to the existing portfolio at rates of return well in excess of the
relevant discount rates.
Hugh W M Little
Chair
31 March 2023
Downing Renewables & Infrastructure Trust PLC
Strategy and Business Model
The Board is responsible for the Company's Investment Objective and Investment
Policy and has overall responsibility for ensuring the Company's activities
are in line with such overall strategy. The Group's Investment Objective and
Investment Policy are published below.
Corporate Summary
The Company is a closed ended investment company incorporated in England and
Wales with registration number 12938740. The Company aims to provide investors
with an attractive and sustainable level of income, with an element of capital
growth, by investing in a diversified portfolio of renewable energy and
infrastructure assets in the UK, Ireland and Northern Europe.
As at 31 December 2022, the Company had 184,622,487 ordinary shares in issue
which are listed on the premium segment of the Official List and admitted to
trading on the London Stock Exchange's Main Market.
Investment Objective
The Company's Investment Objective is to provide investors with an attractive
and sustainable level of income returns, with an element of capital growth, by
investing in a diversified portfolio of renewable energy and infrastructure
assets in the UK, Ireland and Northern Europe.
The core sustainable investment objective of the Company is to accelerate the
transition to net zero through its investments, compiling and operating a
diversified portfolio of renewable energy and infrastructure assets to help
facilitate the transition to a more sustainable future. The Company believes
that this directly contributes to climate change mitigation.
The Company has made disclosures under the EU's Sustainable Finance Disclosure
Regulation ("SFDR") as part of its commitment to sustainability. The Company
is an Article 9 fund under SFDR.
Investment Policy
The Company seeks to achieve its investment objective through investment in a
diversified portfolio of renewable energy and infrastructure assets in the UK,
Ireland and Northern Europe, comprising (i) pre-dominantly assets which
generate electricity from renewable energy sources; and (ii) other
infrastructure assets and investments in businesses whose principal revenues
are not derived from the generation and sale of electricity on the wholesale
electricity markets ("Other Infrastructure") (together "Assets" and each
project being an "Asset"). Assets may be operational, in construction or
construction-ready, at the time of purchase. In-construction or
construction-ready Assets are assets which have in place the required grid
access rights, land consents, planning, permitting and regulatory consents in
order to commence construction. For the avoidance of doubt, the Company does
not acquire or fund Assets that are at an earlier stage of development than
construction-ready.
The Company invests in a portfolio of Assets that is diversified by: (i) the
principal technology utilised to generate energy from renewable sources, for
example solar photovoltaic, wind, hydro-electric or geo-thermal
("Technology"); (ii) geography; and (iii) the stage of development of a
project, being one of operational, construction-ready or in-construction (each
a "Project Stage").
Whilst the Company intends primarily to take controlling interests, it may
acquire a mix of controlling and non-controlling interests in Assets and the
Company may use a range of investment instruments in the pursuit of its
investment objective, including but not limited to equity and debt
investments.
In circumstances where the Company does not hold a controlling interest in the
relevant investment, the Company will seek to secure its shareholder rights
through contractual and other arrangements, inter alia, to ensure that the
Asset is operated and managed in a manner that is consistent with the
Company's investment policy.
Investment Restrictions
The Company will observe the following restrictions when making investments:
· the Company may invest no more than 60% of Gross Asset Value in
Assets located in the UK, save that until the Net Asset Value of the Company
first exceeds £300 million, the Company may invest no more than 75% of Gross
Asset Value in Assets located in the UK;
· the Company may invest no more than 60% of Gross Asset Value in
Assets located in Ireland and Northern Europe (combined), save that until the
Net Asset Value of the Company first exceeds £300 million, the Company may
invest no more than 75% of Gross Asset Value in Assets located in Ireland and
Northern Europe (combined);
· the Company may invest no more than 50% of Gross Asset Value in any
single Technology, save that until the Net Asset Value of the Company first
exceeds £300 million, the Company may invest no more than 60% of Gross Asset
Value in any single Technology;
· the Company may invest no more than 25% of Gross Asset Value in Other
Infrastructure;
· the Company may invest no more than 35% of Gross Asset Value in
Assets that are in construction or construction ready;
· the Company may invest no more than 30% of Gross Asset Value in any
one single Asset, and the Company's investment in any other single Asset shall
not exceed 25% of Gross Asset Value;
· at the time of an investment or entry into an agreement with an
Offtaker, the aggregate value of the Company's investments in Assets under
contract to any single Offtaker will not exceed 40% of Gross Asset Value;
· no more than 25% of Gross Asset Value will be invested in Assets in
relation to which the Company does not have a controlling interest;
· no investments will be made in companies which generate electricity
through the combustion of fossil fuels or derive a significant portion of
their revenues from the use or sale of fossil fuels unless the purpose of the
investment is to transition those companies away from the use of fossil fuels
and toward sustainable sources;
· the Company's portfolio will comprise no fewer than six Assets; and
· the Company will not invest in other UK listed closed-ended
investment companies. 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 the Assets following investment will not be considered as a
breach of the investment restrictions. The Company will hold its investments
through one or more SPVs and the investment restrictions will be applied on a
look through basis to the Asset owning SPV.
Borrowing Policy
Long-term limited recourse debt at the SPV level may be used to facilitate the
acquisition, refinancing or construction of Assets. Where utilised, the
Company will seek to adopt a prudent approach to financial leverage with the
aim that each Asset will be financed appropriately for the nature of the
underlying cashflows and their expected volatility. Total long-term structural
debt will not exceed 50% of the prevailing Gross Asset Value at the time of
drawing down (or acquiring) such debt.
In addition, the Company and/or its subsidiaries may make use of short-term
debt, such as a revolving credit facility, to assist with the acquisition of
suitable opportunities as and when they become available. Such short-term debt
will be subject to a separate gearing limit so as not to exceed 20% of the
prevailing Gross Asset Value at the time of drawing down (or acquiring) any
such short-term debt.
The Company may employ gearing at the level of an SPV, any intermediate
subsidiary of the Company or the Company itself, and the limits on total
long-term structural debt and short-term debt shall apply on a consolidated
basis across the Company, the SPVs and any such intermediate holding entities
(disregarding for this purpose any intra-Group debt (i.e. borrowings and debt
instruments between members of the Group)).
In circumstances where these aforementioned limits are exceeded as a result of
gearing of one or more Assets 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.
For general purposes the Company defines "Gross Asset Value" as the aggregate
of: (i) the fair value of the Group's underlying investments (whether or not
subsidiaries), valued on a discounted cash flow basis as described in the
International Private Equity and Venture Capital Valuation Guidelines (latest
edition December 2018); (ii) the Group's proportionate share of the cash
balances and cash equivalents of Group companies and non-subsidiary companies
in which the Group holds an interest; and (iii) the Group's proportionate
share of other relevant assets or liabilities of the Group valued at fair
value (other than third party borrowings) to the extent not included in (i) or
(ii) above. For the purposes of the investment policy only, the definition of
Gross Asset Value is adjusted such that the Group's proportionate share of the
cash balances and cash equivalents of Group companies and non-subsidiary
companies in which the Group holds an interest are multiplied by two to
reflect the gearing that the Group could obtain upon investment of such
balances.
Currency and Hedging Policy
The Company adopts a structured risk management approach in seeking to deliver
stable cash flows and dividend yield. This may include entering into hedging
transactions for the purpose of efficient portfolio management. This could
include:
· foreign currency hedging on a portion of equity distributions and net
asset value(s);
· foreign currency hedging on construction budgets;
· interest and/or inflation rate hedging through swaps or other market
instruments and/or derivative transactions; and
· power and commodity price hedging through power purchase arrangements
or other market instruments and/or derivative transactions. Any such
transactions are not undertaken for speculative purposes.
Cash management
The Company may hold cash on deposit and may invest in cash equivalent
investments, which may include short-term investments in money market type
funds ("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.
Holding and Exit Strategy
It is intended that Assets will be held for the long-term. However, if an
attractive offer is received or likely to be available, consideration will be
given to the sale of the relevant Asset and reinvestment of the proceeds.
Changes to and Compliance with the Investment Policy
Any material change to the Company's investment policy set out above will
require the approval of Shareholders by way of an ordinary resolution at a
general meeting and the approval of the FCA.
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.
Business Model
The Company was incorporated on 8 October 2020 as a public company limited by
shares. The Company carries on business as an investment trust within the
meaning of section 1158 of the Corporation Tax Act 2010 and was listed on the
premium segment of the main market of the London Stock Exchange on 10 December
2020.
The Company holds and manages its investments through a parent holding
company, DORE Hold Co Limited, of which it is the sole shareholder. DORE Hold
Co in turn holds investments via a number of intermediate holding companies
and SPVs. The jurisdictions in which the SPVs are incorporated is typically
determined by the location of the assets, and further portfolio-level holding
companies may be used to facilitate debt financings.
As at 31 December 2022, the Company owns a portfolio of 3,260 Renewable Energy
Assets totalling 186 MW of operational capacity.
Short term debt financing is available through a £40 million RCF which may be
drawn on by DORE Hold Co Limited to facilitate future growth plans.
The Company has a 31 December financial year end and announces half-year
results in or around September and full-year results in or around March. The
Company intends to pay dividends quarterly, targeting payments in or around
March, June, September and December each year.
The Company has an independent board of non-executive directors and has
appointed Gallium Fund Solutions Limited as its AIFM to provide portfolio and
risk management services to the Company. The AIFM has delegated the provision
of portfolio management services to the Investment Manager, Downing LLP.
Further information on the Investment Manager is provided in the Investment
Manager's Report.
As an investment trust, the Company does not have any employees and is reliant
on third party service providers for its operational requirements. Likewise,
the SPVs do not have any employees and services are also provided through
third party providers. Each service provider has an established track record
and has in place suitable policies and procedures to ensure they maintain high
standards of business conduct and corporate governance.
Financial Objectives
Objective KPI and Definition Relevance to Strategy Performance Explanation
Attractive and sustainable level of income Dividends per share (pence) The dividend reflects the Company's ability to deliver a low risk but growing The Company has paid dividends of 3.75 pence per share in respect of the The Company successfully met the increased dividend guidance of 5 pps for the
income stream from the portfolio. year ending 31 December 2022. The company has declared a further 1.25 pence year to 31 December 2022. The Company's annual dividend target will increase
per share to be paid in respect of the period to 31 December 2022. by 7.6% for the year ended 31 December 2023 to 5.38 pence per share.
Cash dividend cover 5 (#_ftn5) Reflects the Company's ability to cover its dividends from the income received 1.26x - excluding dividends paid immediately following the issuance of new The Company, through DORE Hold Co received distributions of £12.3m from the
from its portfolio. shares underlying projects enabling the Company to pay full covered dividends. £8.5
million was paid up via loan interest from DORE Hold Co in the period.
1.17x - including dividends paid immediately following the issuance of new
shares
Capital preservation with an element of capital growth NAV per share (pence)(12) The NAV per share reflects our ability to preserve capital value and also 118.6 pence per share 118.6 pence per share as at 31 December 2022. NAV has increased since 31
provide an element of capital growth throughout the life cycle of our assets. December 2021 from 103.5 pence per share after taking into account dividends
paid and further equity issuance during the year.
Total NAV return (%)(12) The total NAV return measure highlights the gross return to investors 19.5% The Company's NAV has increased due to the upward revaluation of the Company's
including dividends paid. Investment in Hold Co, and its investments in a portfolio of renewable energy
assets.
Total Shareholder return since IPO(12) The share price appreciation plus reinvested dividends over a period, is a 20.8% The Company's closing share price as at 31 December 2022 was 113.5 pence per
measure of a company's capital growth over the long term. share.
Ongoing charges ratio(12) Ongoing charges shows the drag on performance caused by the operational 1.5% Company level budgets are approved annually by the Board and actual spend is
expenses incurred by the Company. reviewed quarterly. Transaction budgets are approved by the Board and
potential abort exposure is carefully monitored.
Objectives and Key Performance Indicators
The Company sets out above its KPIs which it uses to track the performance of
the Company over time against the objectives, as described in the Strategic
Report on page 30. The Board is of the opinion that the KPIs detailed in the
table above, alongside the environmental, social and governance objectives set
out on page 19 provide shareholders with sufficient information to assess how
effectively the Company is meeting its objectives. The Board will continue to
monitor these KPIs on an ongoing basis.
The Investment Manager
About Downing
The Company is managed by Downing LLP, an established investment manager with
over 30 years' experience and a considerable track record in the core
renewables space. Downing is authorised and regulated by the FCA and, as at 31
December 2022, had over £1.8 billion of assets under management.
The Investment Manager has over 200 staff and partners. The team of 51
investment and asset management specialists who focus exclusively on energy
and infrastructure transactions are supported by business operations, IT
systems specialists, legal, HR and regulatory and compliance professionals.
The Investment Manager is responsible for the day-to-day management of the
Company's investment portfolio in accordance with the Company's Investment
Objective and policy, subject to the overall supervision of the Board.
The Investment Manager has managed investments across various sectors in the
UK and internationally and identified the Energy & Infrastructure sector
as a core area of focus from as early as 2010. Since then, to date it has made
180 investments in renewable energy infrastructure projects and currently
oversees 459 MWp of electricity generating capacity, covering five
technologies across c.7,350 installations.
Portfolio Summary
At the year end, through its main subsidiary, the Company owned 185 MW of
hydropower, wind and solar assets with expected annual generation of around
382GWh. The portfolio is diversified across 3,260 individual installations and
across five different energy markets.
Following the period end the Group has added an additional 1.1 MW of
hydropower assets with an additional annual generation of 8.3 GWh. The entire
portfolio now stands at 186MW with an aggregate expected annual generation of
391GWh.
The Group currently has no exposure to any assets under construction.
Portfolio composition by valuation, as at 31 December 2022
Technology by Generation %
Hydro 49%
Wind 28%
Solar 23%
Geographic Exposure by GAV %
Sweden 50.3%
Great Britain 33.3%
Northern Ireland 9.8%
Cash 6.7%
Power Market Exposure by GAV %
Sweden - SE2 16.5%
Sweden - SE3 26.1%
Sweden - SE4 7.6%
Great Britain 33.3%
Northern Ireland 9.8%
Cash 6.7%
Investment Technology Date Acquired Location Power Market / Subsidy Installed capacity (MW) Expected annual generation (GWh)
Ugsi Hydro Feb-21 Sweden SE3 1.8 9.9
Båthusströmmen Hydro Feb-21 Sweden SE3 3.5 10.3
Åsteby Hydro Feb-21 Sweden SE3 0.7 2.8
Fensbol Hydro Feb-21 Sweden SE3 3.0 14.0
Rödbjörke Hydro Feb-21 Sweden SE3 3.3 14.9
Väls Hydro Feb-21 Sweden SE3 0.8 3.2
Torsby Hydro Feb-21 Sweden SE3 3.1 13.7
Tvärforsen Hydro Feb-21 Sweden SE2 9.5 37.0
Sutton Bridge Solar Mar-21 Great Britain Great Britain 6.7 6.7
Andover Airfield Solar Mar-21 Great Britain Great Britain 4.3 4.2
Kingsland Barton Solar Mar-21 Great Britain Great Britain 6.0 5.9
Bourne Park Solar Mar-21 Great Britain Great Britain 6.0 6.0
Laughton Levels Solar Mar-21 Great Britain Great Britain 8.3 8.8
Deeside Solar Mar-21 Great Britain Great Britain 3.8 3.4
Redbridge Farm Solar Mar-21 Great Britain Great Britain 4.3 4.2
Iwood Solar Mar-21 Great Britain Great Britain 9.6 9.3
New Rendy Solar Mar-21 Great Britain Great Britain 4.8 4.7
Redcourt Solar Mar-21 Great Britain Great Britain 3.2 3.2
Oakfield Solar Mar-21 Great Britain Great Britain 5.0 4.7
Kerriers Solar Mar-21 Great Britain Great Britain 10.0 9.7
RSPCA Llys Nini Solar Mar-21 Great Britain Great Britain 0.9 0.8
Commercial portfolio Solar Mar-21 Great Britain Great Britain 5.5 4.3
Commercial portfolio Solar Mar-21 N. Ireland N. Ireland 0.7 0.5
Bombardier Solar Mar-21 N. Ireland N. Ireland 3.6 2.8
Residential portfolio Solar Mar-21 N. Ireland N. Ireland 13.1 10.1
Lemmån Hydro Jan-22 Sweden SE3 0.6 2.5
Ryssa Övre Hydro Jan-22 Sweden SE3 0.7 2.6
Ryssa Nedre Hydro Jan-22 Sweden SE3 0.6 2.4
Rots Hydro Jan-22 Sweden SE3 1.0 4.2
Gabrielsberget Syd Vind AB Wind Jan-22 Sweden SE2 46.0 107.9
Vallhaga Hydro Jan-22 Sweden SE2 2.1 12.8
Österforsens Kraftstation Hydro Jan-22 Sweden SE2 1.9 11.5
Bornforsen 1 Hydro Jan-22 Sweden SE2 0.5 2.9
Bornforsen 2 Hydro Jan-22 Sweden SE2 1.5 9.3
Fridafors Hydro May-22 Sweden SE4 4.4 17.0
Summit Hydro Oct-22 Sweden SE3 3.1 13.4
Summit Hydro Oct-22 Sweden SE2 0.3 1.2
TOTAL AS AT THE REPORTING DATE: 184.5 382.5
Post balance sheet date acquisitions
Investment Technology Date Acquired Location Power Market / Subsidy Installed capacity (MW) Expected annual generation (GWh)
Högforsen Hydro Feb-22 Sweden SE2 0.4 2.5
Gottne Hydro Feb-22 Sweden SE2 0.7 5.8
TOTAL AS AT THE DATE OF THIS REPORT: 185.6 390.8
Investment Manager's Report
Introduction
We are delighted with the progress made during the year. During the reporting
period, the Company announced five acquisitions, all of which were accretive
to NAV as their fair value throughout the year exceeded cost at acquisition.
The acquisitions strengthen the diversification of technology, geography and
power market exposure that is central to the aims of the Company. During the
year the GAV grew by 40% from £221.1 million to £310.4 million, and the
expected annual generation of the portfolio grew by 93% from 199 GWh to 382
GWh.
Acquisitions and Capital Deployment
We have continued to expand the portfolio completing five acquisitions in the
wind and hydropower sectors totaling £53 million, and deploying a further
£10 million in the UK solar portfolio.
The Group's first wind acquisition was a 46 MWp operational wind farm in
north‑eastern Sweden. In addition, four additional Swedish hydropower
portfolios were acquired, including the Group's first investment in the SE4
pricing zone in Sweden. All acquisitions are 100% owned by the Group.
During the year, a £9 million increase was recognised as new investments were
revalued throughout the year.
Hydro - Downing Hydro AB
The Company has a significant exposure to hydropower investments, which offer
additional benefits to other renewable generation technologies. The capacity
factor of hydropower assets is much higher than a wind or solar asset, it is
generating for a much higher proportion of the year, sometimes in excess of
70% of the time. The assets have very long lives and, all things remaining
equal, should be worth the same in 30 years as they are today. That underpins
NAV resilience and means the cash flows being generated by the assets are
wholly income yield and not a return of capital.
Hydropower also enables the storage of water in reservoirs, which provides an
ability to control timing of generation and align it to periods of higher
power prices. This complements traditional battery technology storage
facilities, which have faster reaction times but can only provide power for a
shorter period of time.
DHAB is the vehicle through which the Group acquires and owns its portfolio of
hydropower plants. In January 2022, the Group acquired two operational
portfolios of hydropower plants located in central Sweden for £20.1 million.
The acquisition comprised a c. 12 GWh per annum portfolio of hydropower plants
and a c. 36 GWh per annum portfolio. These acquisitions were largely funded
through a drawdown on the DHAB Swedish hydropower portfolio debt facility
signed in November 2021 with Skandinaviska Enskilda Banken AB ("SEB").
The first portfolio comprises five hydropower plants located on three
different rivers in central Sweden. The sites benefit from a long operational
history and are located in the county of Dalarna, which is in the attractive
SE3 price area. The second of the two new portfolios include four run-of-river
hydropower plants situated on a single river in central Sweden. The sites also
benefit from a long operational history and were refurbished between 2010 and
2013. The hydropower plants are located in and around the Swedish town Edsbyn
in the SE2 pricing zone.
In May 2022, the Company acquired, through DHAB, a 100% interest in an
additional portfolio of operational
run-of-river hydropower plants in Sweden for a total consideration of
approximately £17 million. The
acquisition was funded by drawing down on the RCF. This was subsequently
repaid in full using part of the net proceeds of the June 2022 capital raise.
The portfolio acquired in May 2022 comprises two hydropower plants located in
Sweden's southern SE4 pricing region. The plants were comprehensively
renovated between May 2014 and September 2019 and have an aggregate forecast
annual production of 17 GWh p.a. The newly acquired hydropower plants will be
fully integrated into DORE's existing hydropower operational organisation.
The acquisition in May 2022 represented DORE's first assets located in the
attractive southern SE4 pricing region, which has the highest wholesale power
prices in Sweden and benefits from export cables to continental Europe. The
acquisitions in a new price zone further supports DORE's strategy of focusing
on diversification by geography, technology, revenue and project stage,
designed to increase the stability of revenues and the
consistency of income to shareholders.
In November 2022, DHAB acquired six further hydropower plants in the SE3
pricing region (13GWh) and one hydropower plant in the SE2 region (1 GWh) for
a total investment amount of c. £6m. The hydropower plants are a combination
of run-of-river and storage assets. This acquisition increased the number of
DHAB hydropower plants to 26 and the total forecast annual production of the
hydropower portfolio to c.189 GWh, a c.75% increase since 31 December 2021.
The fair value uplift of acquisitions has increased the NAV due to operational
and capital efficiencies resulting from the integration of the assets into the
Company's platform, and also the more attractive pricing available for
individual sites or small portfolios when compared to larger facilities.
A framework agreement is in place with Axpo (a leading Swiss energy company)
which allows DHAB to hedge power prices through baseload products. DHAB has
hedged positions in line with DORE's risk management strategy. The hydropower
assets do not attract material government subsidy payments.
Wind - Gabrielsberget
On 2 February 2022 the Group completed its first onshore wind investment. The
Company acquired an
operational 46 MW onshore wind project located in Nordmaling, north-eastern
Sweden for £19.8 million. The project has been operational for c. 10 years
and comprises 20 Enercon turbines with an expected total annual production of
108 GWh. Gabrielsberget has a power purchase agreement with Centrica.
Solar - Further Investment
In line with the original investment case, on 7 October 2022 the Company
repaid the mezzanine debt that was present in the UK solar portfolio when
acquired in 2021. This has further de-risked the Company's investment and
increased the Company's NAV exposure to this attractive portfolio by c.£10
million.
Portfolio Performance
For the period of operations between 1 January 2022 and 31 December 2022, the
3,260 operating assets produced approximately 326GWh of renewable electricity.
From a financial perspective, the combined portfolio performed extremely well
with an operating profit of £19.5 million, 14.7% above expectations. Where we
report variances against expectations, those expectations and budgets are set
with reference to the underlying valuation models. Operating profit was driven
primarily by high power prices across the UK and the Nordics, allowing the
assets to capture strong wholesale energy revenues. The average power price
achieved in the UK and Sweden was £65.54/MWh and EUR 53.27/MWh respectively,
reflecting fixed price contracts and hedging activity previously put in place.
Operating profits across the hydropower portfolio were c.£6m, 18.5% higher
than expected, despite generation being below expectations at 128 GWh. This
was due to precipitation in Sweden falling 19% below the long term yearly
average resulting in less water flow through the power plants. The plants were
able to maintain their high operating profits despite an unusually dry year in
Sweden as a result of high power prices and its ability to utilise its storage
capacity enabling it to shift generation to higher pricing periods, further
increasing power prices achieved.
The wind portfolio also exceeded financial targets, with an operating profit
68.1% higher than budget. As the operational performance was in line with
expectations, generating 108 GWh of electricity during the period, the strong
financial performance was due to high power prices in the SE2 region of
Sweden.
Operating profit across the solar portfolio was 6.4% higher than expected at
£12.6 million as a result of achieving high power prices and higher than
expected ROC recycle payments. Generation from the solar portfolio was in line
with expectations, generating 90 GWh across the year.
The solar assets experienced strong irradiation levels throughout the year, 8%
above expectations. The deviation between irradiation and generation was
primarily due to faults in some of the older electrical equipment in the solar
fleet and delays in the supply chain resulting in longer than normal waiting
times for replacement parts. Throughout the course of the year the Asset
Manager has implemented a dynamic spare parts strategy which involves
completing various modification works on site to increase the compatibility
with available spares and allow for more flexibility across the portfolio.
Once complete, this strategy will mitigate against the increased risks of
downtime given the current challenges in the supply chain.
In addition, several DNO outages impacted the Ground Mount portfolio
throughout the year. The Asset Manager was able to work alongside the network
operators to adjust the timing of these to the winter months where the outages
would have a lower impact on production or to coincide with planned intrusive
preventative maintenance that would otherwise have caused downtime.
2022 2021
Hydro Wind Solar Total Hydro Wind Solar Total
GWh generated 128.3 108.0 89.9 326.3 108.1 nil 87.0 195.1
Average price per MWh €72.92 €29.93 £65.54 £50.95 €40.84 n/a £52.42 £42.83
Revenues (£m) 8.2 3.1 15.4 26.7 3.7 nil 13.1 16.8
Operating profit (£m) 6.0 1.0 12.5 19.5 2.9 nil 10.2 13.1
Portfolio and Asset Management
Downing has invested significantly in an in-house asset management team
capable of providing a full scope service to a wide range of generation and
storage technologies. Established in 2019, the team totals 24 people, four of
whom are based in an office in Stockholm which opened in 2021. There is a
broad range of skills and expertise across the asset management team including
power markets, engineering, data analytics, finance, and commercial
management.
The asset management team works in parallel to the investment team and ensures
work is started long before an asset is acquired. Prior to acquisition,
Downing carries out a comprehensive onboarding process to ensure that new
assets are transitioned smoothly into the wider energy portfolio.
The plan captures all key milestones that need to be completed as part of the
transition, including the collection of key documents such as project
contracts and design documents. The onboarding process also ensures that the
assets are embedded into existing processes, such as contract management and
compliance, incident tracking, monitoring, and reporting. Assets are fully
incorporated within the asset management team's portfolio reporting systems
within 60 days of completion.
This dynamic onboarding process not only enables a smooth transition of new
assets but is also critical in supporting the team's data led approach to
asset management. By focussing on the collection and quality of the portfolio
data set, the team of data analysts have been able to deploy the latest
technologies and tools to optimise strategies such as preventative maintenance
or water dispatch to increase power generation and therefore returns to
investors.
Health and Safety
The health and safety of contractors and the public is a fundamental part of
management processes. Throughout the period, a range of workstreams were
carried out by the Asset Manager in line with the Company's approach to Health
and Safety management.
Following the investment into Gabrielsberget, a 46MW wind site in northern
Sweden, the Asset Manager ensured that the appropriate safety procedures are
applied on site reflecting the seasonal conditions at the site. During icy
conditions and risk of ice falling from turbine blades, all turbines are
oriented North to standardise the danger area. In addition, during an icing
event and when the blade heating system is activated, technicians must
visually inspect the blades and make sure that the work can be performed under
safe conditions.
Downing further increased its operational expertise with the appointment of
Magnus Hopstadius in January 2023. Magnus has over 14 years' experience in
technical asset management, with particular focus on global wind assets.
Magnus brings knowledge of global health and safety practises and procedures.
A rolling programme of Health and Safety audits continues across the
portfolio. These audits are based on a two-tier approach, where risks and
procedures are audited at the site level and also the operator level. Downing
has a process of continuous assessment and feedback of site and operator
practices, ensuring effective management systems are in place and adhered to.
Finally, IT systems are used to thoroughly track all incidents. As well as
these systems enabling performance measurement and trend analysis, they also
ensure the effective communication, escalation, and management of incidents.
Optimisation
During the period, the Asset Manager continued to develop and implement
performance and proprietary data optimisation strategies, the latter enhancing
Downing's data driven approach to asset management.
A digitalisation pilot is underway enabling all hydropower sites in remote
areas of Sweden to deliver data such as dam and water flow level to one
central hub. This data can be used in real time to automate production
planning, enhance maintenance strategies and enable effective monitoring
through sensors and detection equipment. The first site was successfully
connected in December 2022, with the others to follow in 2023.
In the meantime, the Asset Manager has produced a temporary Optimal Price
Analysis tool for the flexible hydropower assets, enabling enhanced commercial
monitoring of production planning arrangements.
Work has continued to integrate Green Power Monitor (GPM) across the
portfolio. This system allows the Asset Manager to monitor performance and
weather conditions in real time. The integration of Gabrielsberget wind farm
has required significant hardware development on site in November 2022,
including a new system to increase connection speed and allow for extra ports
to connect to the GPM. Integration was completed in February 2023. In early
2023, the hydropower sites will also be integrated with GPM.
A co-development project is underway with WinJi AG to create an interface that
produces predictive component failure analysis and identification of likely
short and long term maintenance costs for ground mounted solar sites. WinJi
will use algorithms that consider performance, equipment, incident and
meteorological data. WinJi released two iterations of the project during Q4
2022. This included a Mean Time To Failure report to display inverters at
portfolio and installation level. Development has continued with mapping GPM
error codes to operational faults so that the data can be used to identify
anomalies and future faults. In January 2023, Downing appointed Moji
Ghorbanali to architect and implement a database for the energy portfolio.
This will initially support the automation and efficiency of data processes
and will play a key role in driving optimisation through data across the
portfolio.
The Asset Manager continues to improve and implement a dynamic spare parts
strategy across the portfolio, aimed at reducing downtime and maintaining
asset performance. Equipment and technical characteristics of all sites are
being reviewed to understand the degree to which there is equipment
intercompatibility and an assessment of all parts (i) criticality and (ii)
likelihood of failure is underway.
Significant progress has been made on the solar portfolio spare part
optimisation process with ground mounted solar assets grouped where they can
share key components. A number of initiatives are planned to maximize
availability of spare parts, including, for two assets, a wider equipment
replacement exercise which will allow for improved performance and also
release of parts that can be kept in stock for use across compatible assets
with similar characteristics. Key component orders have now been issued and
contractual arrangements are underway to allow use of equipment across
different assets with multiple changeable settings.
Several new and optimised contracts were placed during the period. With the
acquisition of several new hydropower assets during the period, the Asset
Manager has incorporated these new sites into the optimised O&M contracts
strategy.
Ongoing active power price management ensures that performance optimisations
can deliver a strong financial performance for the portfolio.
Financing and Capital Structure
The Group adopts a prudent approach to leverage. Its objective is that each
asset will be financed appropriately for the nature of its underlying
cashflows and their expected volatility. Long-term debt may be used where
appropriate at the SPV level to facilitate acquisitions, refinancing, capital
expenditure or construction of assets.
Total long-term structural debt will not exceed 50% of the prevailing Gross
Asset Value. At 31 December 2022, including project level financing, the
Group's leverage stood at 30%.
In addition, the Company and/or its subsidiaries may also make use of
short-term debt, such as a revolving credit facility, to assist with the
acquisition of suitable opportunities as and when they become available.
Revolving Credit Facility
As at 31 December 2022, the Group had entered into a loan agreement through
its main subsidiary DORE Hold Co Limited for a £25 million RCF with Santander
UK plc. The RCF is available until December 2025, with the possibility to be
extended for a further year. On 26 January 2023, the Company announced that
the RCF had been increased to £40m further facilitating the execution
capabilities of the Company's pipeline.
The terms of the RCF now includes a 'Green Projects' initiative, operating
under the Loan Market Association's (LMA) Green Loan Principles, a framework
of market standards and guidelines that provides a consistent methodology for
use across the green loan market.
Under the 'Green Projects' criteria, the RCF can only be used in connection
with assets that present environmental benefits and appropriate green
credentials. Additional monitoring and reporting obligations on the
environmental benefits delivered by such assets will be required, which
comfortably aligns with DORE's current investment strategy as an Article 9
fund.
The RCF has the additional benefit of being able to be drawn in both GBP and
EUR (with the ability to also able to make use of funds in other currencies)
and is priced at the Sterling Overnight Index Average ("SONIA") plus 2.25%
per annum. The Group will make use of the RCF mainly to fund the acquisition
of additional assets.
Refinancing of Hydropower Assets
The Group initially acquired DHAB, its Swedish hydropower portfolio, on an
unlevered basis in February 2021, shortly after the Company's IPO. In light
of the strong transaction pipeline and ongoing capital expenditure
requirements, DHAB has entered into a seven-year bullet repay EUR 43.5 million
debt facility with SEB, a leading corporate bank in the Nordics. As of 31
December 2022, DHAB had utilised EUR 27.4m of the facilities, predominately as
source of funding for acquiring further hydropower plants in Sweden during
2022. The remainder of the undrawn facility is predominately to fund future
capital expenditure requirements and further acquisitions. The total cost of
the drawn debt is 2.3%, benefitting from swaps until end of 2032.
UK Solar Portfolio
Medium term amortising debt (September 2034 maturity) is in place for the
United Kingdom solar portfolio and, as at 31 December 2022, comprised
outstanding principal amounts of £68.5 million lent by Aviva.
c. 12% of this debt is fixed at an interest rate of 3.37%. The interest rate
is fixed in real terms on the remaining balance at 0.5%. The debt service of
this larger debt tranche is inflation-adjusted, with indexation tracking UK
RPI.
A summary of the debt across the portfolio can be found in the table below:
2022 2021
Hydro Wind Solar Working capital Total Hydro Wind Solar Working capital Total
Equity value (£'m) 103 26.4 62.6 26.9 218.9 65.9 0.0 44.4 31.5 141.8
Debt (£'m) 23.0 0.0 68.5 0.0 91.5 0.0 0.0 79.3 0.0 79.3
GAV (£'m) 126 26.4 131.1 26.9 310.4 65.9 0.0 123.7 31.5 221.1
Foreign Exchange
The Group's assets in Sweden earn revenues in EUR and incur some operational
cost in SEK. Assets in UK operate entirely in sterling.
The Group, together with its foreign exchange advisor, has developed and
implemented its foreign exchange risk management policy in line with the
Prospectus. The policy targets hedging the short to medium-term distributions
(up to five years) from the portfolio of assets, that are not denominated in
GBP on a "linear reducing basis", whereby a high proportion of expected
distributions in year one are hedged and the proportion of expected
distributions that are hedged reduces in a linear fashion over the following
four years. This is a rolling programme and each year further hedges are
expected to be put in place to maintain the profile.
In total, 28% of the Group's EUR dividend receipts from SPVs out to March 2026
were hedged as at the reporting date. In addition, 51% of the Group's EUR
denominated NAV is hedged.
Power markets and exposure
Through its portfolio companies, the Group adopts a medium to long-term power
price hedging policy for its generation assets, providing an extra degree of
certainty over the cash flows over the hedged periods. The fixed price
generation position for the portfolio as of 31 December 2022 is set out in the
chart below, showing the impact of the combination of subsidy and fixed income
from power sales. The hedging positions are continuously reviewed to ensure an
appropriate position is maintained and new hedges are taken out as
appropriate.
The Ukraine war will continue to have a major impact on power prices in Europe
and the UK as gas supply is dominated by Russia. Consequently, the UK gas and
UK power markets are likely to stay volatile as long as the uncertainty about
the Russian gas supply continues. The Company is well protected from this
volatility, due its high level of fixed pricing over the short to medium term,
which can be seen on the chart below.
United Kingdom
The energy markets continued to be dominated by the Ukraine conflict. Forward
natural gas prices started to fall towards the end of the year, especially for
Summer and Winter 2023, mostly on the back of warmer weather. There is a
belief in the market that Winter 2023 might become tighter than Winter 2022,
given Russian gas filling up the storage over 2022 will not be available for
2023.
Consequently, power prices remain volatile, especially in the spot and day
ahead markets, mostly due to the volatile gas and carbon prices as described
above but also due to maintenance on interconnectors, continued reduced French
nuclear capacity and varying wind generation.
During the year, the UK government introduced the Electricity Generator Levy,
a windfall profit tax on most non-fossil electricity generators of 45% on
power revenue exceeding £75/MWh (inflation adjusted) applied to generation
exported to national grid or to local distribution networks. The levy
calculation is subject to a £10m allowance. Revenues stemming from
behind-the-meter generation (i.e. generation that is not exported to the grid
but it is consumed on site) are exempt from this windfall tax and there is a
group generation threshold of 50 GWh. The Group is not affected given the
total eligible generation for the purpose of the levy is within the threshold.
Nordics
The Nordic power market remained volatile and continues to show a dependency
on hydro resources which have seen an increase of intermittent generation of
the total production mix for the last ten years. Until October, the year was
considerably drier than normal, which led to a deficit in the hydrological
balance and a tighter price coupling with the extreme continental prices.
Subsequently, high precipitation resulted in high inflow, especially in
southern Norway. In addition, temperatures have been higher than normal,
resulting in lower demand. The volatility in wind generation added to the
volatility in the spot market which was amplified by dry/wet spells,
temperature and hydrology levels throughout the fourth quarter of 2022.
Dividends
The Company achieved a cash dividend cover of 1.26x for the dividends of 5
pence per share paid during the period. Dividend cover is presented excluding
dividends paid to new shareholders immediately following the issuance of new
shares. If these are included, the dividend cover would be 1.17x. Cash
dividend cover has been calculated on a cash basis of income received by the
company and its immediate subsidiary.
The Board has resolved to pay the Company's fourth interim dividend of the
year of 1.25 pence per share, equivalent to £2.3 million, in respect of the
three months to 31 December 2022. This will bring total dividends paid in
respect of the financial year to 5 pence per share, which is in line with the
Company's updated dividend guidance. The fourth interim dividend is not
reflected in the accounts to 31 December 2022.
The Company has chosen to designate part of each interim dividend as an
interest distribution for UK tax purposes. Shareholders in receipt of such a
dividend will be treated for UK tax purposes as though they have received a
payment of interest in respect of the interest distribution element of this
dividend. This will result in a reduction in the corporation tax payable by
the Company.
Dividends in respect of the financial year to 31 December 2022 are as follows:
For the Period Ended Dividend Paid No. of Shares Total Dividend (pence per share) Interest Element (pence per share) Dividend Element (pence per share)
March 2022 June 2022 137,008,487 1.25 0.810 0.440
June 2022 September 2022 184,622,487 1.25 0.750 0.500
September 2022 December 2022 184,622,487 1.25 0.625 0.625
December 2022 March 2023 184,622,487 1.25 0.880 0.380
The Company intends to pay dividends on a quarterly basis, with dividends
typically declared in respect of the quarterly periods ending March, June,
September and December. Payment of the relevant dividend declared is expected
be made within three months of the relevant quarter end.
The Company will target a dividend of 5.38pps related to the year to 31
December 2023, a 7.6% increase from 2022. The increased dividend is expected
to be fully covered by the current portfolio. When near term assets that are
under exclusivity are taken into account, the dividend cover against the
increased dividend is expected to be in excess of 1.4x.
Net asset value and Portfolio Valuation
The Company's NAV increased by 54.4% during the year from £141.8 million to
£218.9 million. On a pence per share basis it increased by 14.6% from 103.5
pence per share to 118.6 pence per share as at 31 December 2022. The NAV
increase was driven by additional fundraising, strong operational performance
and increases in long term power price forecasts.
The bridge below shows the movement in NAV during the period, with each step
explained further below.
DORE NAV Bridge - 31 December 21 to 31 December 22 Movement in NAV (£'m)
Opening (1-Jan-22) 141.8
Management fee (1.8)
Other costs and charges (1.9)
Performance 9.3
Future power prices 18.0
Inflation 13.3
FX 2.9
Discount Rate (10.9)
FV uplift relating to new assets 8.9
Other (4.7)
Fundraising 51.9
Dividend (8.0)
Closing (31 December-22) 218.9
Opening
Represents the NAV at 31 December 2021.
Dividends
Distributions paid by the Company in the period.
Management Fee
Fees charged to the Company by the Investment Manager.
Other costs and charges
Charges incurred by the Company, and its immediate subsidiary DORE Hold Co, in
its normal operations. No transaction costs are included.
Performance(1)
Represents the difference between the expected performance, and actual
performance of the portfolio companies throughout the year.
Power Prices(1)
The Group uses long-term, forward-looking power price forecasts from third
party consultants for the purposes of asset valuations. In both the UK and
Sweden, an equal blend is taken from the most recent central case forecasts
from two leading consultants, enabling a more holistic view of the power
market to be included in the valuation. Where fixed price arrangements are
in place, the financial model will reflect this price for the relevant time
frame. The impact of our short-term power hedging strategy is also included in
this step.
The power price forecasts that are used in the valuations are set out below,
alongside a comparison against the last reporting period.
Inflation(1)
Near-term inflation forecasts were revised during the period reflective of the
increasing rate of inflation and in line with government forecasts.
The Group is now using near-term (calendar year 2023) inflation forecast of
6.42% for the purposes of UK asset valuations, falling to a medium-term
inflation forecast of 3.0% from 2024. From 2030 onwards, this forecast reduces
to 2.25% in line with the RPI reform announced by the UK Government.
A near-term inflation forecast of 5.58% is used for the Swedish asset
valuations. The forecast in the medium term (from 2024) to long term reduces
to 2.0%, in line with the long term Swedish central bank's target inflation
rate.
Models are also updated quarterly to reflect actual inflation to date.
Foreign Exchange(1)
The impact of foreign exchange movements on underlying investment valuations.
The impact of the foreign exchange hedging activity is included in this
movement.
Cashflows from assets that are generated in a non-sterling currency are
converted in each period they are earned using the actual hedges in place,
with the residual amounts converted at the relevant exchange rate.
The relevant exchange rate is taken from a forward curve provided by the
Company's foreign exchange advisors for ten years, at which point the exchange
rate is held constant due to the impracticalities of hedging currency further
into the future.
This step represents the impact of foreign exchange movements on underlying
investment valuations.
Discount rate(1)
Discount rates used for the purpose of the valuation process are
representative of the Investment Manager's and the Board's assessment of the
rate of return in the market for assets with similar characteristics and risk
profile.
As a result of movements in the risk-free rate in both the UK and Sweden,
discount rates were increased by 0.5% to 8% for the operational levered UK
solar and Swedish hydropower portfolios and by 0.3% to 6.3% for the unlevered
Swedish wind farm during the period. The increased discount rates took effect
as at 30 September 2022.
Discount rates in use across the portfolio range from 6.0% to 8.0%, with the
weighted value at 7.7%.
Acquisitions(1)
The difference between the original cost of an investment and the revaluation
of that investment throughout the year, using assumptions in place at the time
of the acquisition.
Other(1)
Reflects changes to the underlying valuations as a result of changes to
operational contracts (such as insurance), long term capital expenditure
assumptions and long term debt pricing, along with other minor changes.
(1) This is a component of the Fair Value of Investment.
Asset life
Where the land is owned by an external landlord, which is the case for the UK
solar and Swedish wind assets, asset operations have been modelled to the
earlier of the expiry of the planning or permit, and the lease agreement. As
well as these factors, life assumptions are also capped at the useful economic
life of the specific equipment installed on site.
As such, the Swedish wind portfolio is capped at 30 years.
The UK solar portfolio is capped at 25 years. It is noted that over the last
few years the market has started to assign economic value to years 25-40 for
solar assets, where lease and planning arrangements allow. Downing has and
will continue to explore opportunities with local councils and landlords to
extend existing planning permissions and lease agreements. In several cases
this has been successful and extensions to planning permission have been
granted in recent months.
To get comfortable with the technical operation risk post 25 years, we are now
in the process of working through the valuation approach for modelling the
cash flows after year 25. This involves building an accurate forecast for
lifecycle and maintenance costs, based on historic data and external sources.
Once this exercise is complete, we will look to include life extensions into
the DORE valuation.
Where the land is owned with the asset, which is the case for the Swedish
hydro assets, there are no constraints in terms of lease agreements that need
to be considered in the valuation. Also, due to the nature of hydro as an
asset class, the assets have an infinite life assuming an appropriate level of
capex to maintain the equipment and dams etc.
As a result, valuations are based on a perpetual life where the model assumes
the portfolio is sold in 2050. The 2050 sales price multiple is calculated as
a function of the 2021 purchase price inflated, as well as the annual expected
generation.
Portfolio Valuation sensitivities
The NAV reflects the fair market valuation of the Company's portfolio based on
a discounted cash flow analysis over the life of each of the Group's assets
plus the cash balances of the Company and its holding Company and other cash
and working capital balances in the Group.
The portfolio valuation is the largest component of the NAV and the key
sensitivities to this valuation are considered to be discount rate and the
principal assumptions used in respect of future revenues and costs.
A broad range of assumptions are used in the Company's valuation models. These
assumptions are based on long-term forecasts and are generally not affected by
short-term fluctuations in inputs, whether economic or technical.
The Investment Manager exercises its judgement and uses its experience in
assessing the expected future cash flows from each investment.
The impact of changes in the key drivers of the valuation are set out below.
Discount Rate
The weighted average discount rate of the portfolio at 31 December 2022 was
7.7%.
The Investment Manager considers a variance of plus or minus 1.0% is to be a
reasonable range of alternative assumptions for discount rates.
Energy Yield
For the solar assets, our underlying assumption set assumes the so called P50
level of electricity output based on reports by technical advisors. The P50
output is the estimated annual amount of electricity generation that has a 50%
probability of being exceeded and a 50% probability of being underachieved.
For hydropower assets, the expected annual average production is applied to
the valuation, similar to the P50 assumption applied to solar and wind assets.
Given the long operational record of the hydropower assets, the annual
production forecast is derived from historic datasets and validated by
technical advisors.
The Energy Yield sensitivities uses a variance of plus or minus 5% applied to
the generation.
Power Prices
The power price sensitivity assumes a 10% increase or decrease in power prices
relative to the base case for each year of the asset life.
While power markets can experience volatility in excess of +/-10% on a
short-term basis, the sensitivity is intended to provide insight into the
effect on the NAV of persistently higher or lower power prices over the whole
life of the portfolio, which is a more severe downside scenario.
Inflation
The Company's inflation assumptions are set out above. A long-term inflation
sensitivity of plus and minus 1.0% is presented below.
Foreign Exchange
The Company's foreign exchange policy is set out above. A sensitivity of plus
and minus 10% is applied to any non-hedged cashflows derived from non-sterling
assets. The Company will also try to ensure sufficient near-term distributions
from any non-sterling investments are hedged.
Market development and opportunities
Demand for electricity worldwide continued to be resilient in 2022, despite
the global energy crisis caused by Russia's invasion of Ukraine. According to
the International Energy Agency ("IEA"), global electricity demand grew by 2%
in 2022 6 (#_ftn6) . The electrification of transport and heating sectors
continued to accelerate, with record numbers of Electric Vehicles and heat
pumps sold in 2022. However, the unprecedented energy prices in 2022
contributed to a rise in inflation, with the economic slowdowns and high
electricity prices stifling growth in electricity demand in most regions of
the world.
According to IEA, Renewables and nuclear energy is expected to dominate the
growth of global electricity supply over the next three years, together
meeting on average more than 90% of the additional demand. The share of
renewables in the global power generation mix is forecast to rise from 29% in
2022 to 35% in 2025.
As a result of Russia's invasion of Ukraine, combined with other factors such
as droughts across Europe (impacting hydro generation) and low nuclear
generation due to closures and unavailabilities, the European Union saw in
2022 the highest absolute growth in power generation emissions since 2003
(excluding the 2021 post-pandemic rebound). The setback in the European Union
is expected to be temporary, however, as power generation emissions are
expected to decrease on average by about 10% annually through 2025. In order
to reduce reliance on fossil fuels and to increase resilience to price shocks,
the European Commission published its REPowerEU plan in May 2022 to accelerate
clean energy deployment.
In 2022, Europe experienced the most pronounced increase in wholesale
electricity prices, where they were, on average, more than twice as high as in
2021. The exceptionally mild winter so far in 2022/23 in Europe helped temper
wholesale electricity prices, but the prices remain high compared with recent
years and there are risks of continued tight supply in Europe for the winter
2023/24.
The Investment Manager is progressing a significant pipeline of opportunities
across technologies / sectors including wind, solar, hydro and utilities. The
geographical focus of the opportunities in progress is the Nordic region and
the UK, with certain further opportunities across Northern Europe.
The outlook for the Company remains encouraging; two new acquisitions have
been made in 2022 and proven operational and financial performance from the
Company's existing assets provide a strong foundation for future growth.
Section 172(1) Statement
The Directors confirm that they have acted in a way that they consider, in
good faith, to be the most likely to promote the success of the Company for
the benefit of its members as a whole, and in doing so have had regard to the
matters set out in section 172(1) of the Companies Act 2006 ("s172 Matters").
The following disclosures describe how the Directors have regard for the s172
Matters.
Section 172(1) Description
(a) the likely consequences of any decision in the long term The aim of the Board and of the Investment Manager is to ensure the
long-term sustainable success of the Company and, therefore, the likely
long‑term consequences of any decision is a key consideration.
The Board and Investment Manager believe they have acted in good faith in
managing the Company during the year, with a view to promoting the Company's
long-term sustainable success and achieving its wider objectives for the
benefit of our shareholders as a whole, having regard to our wider
stakeholders and the other matters set out in s172 Matters.
(b) the interests of the company's Employees As a closed-ended investment company, the Company has no employees; however,
the interests of any employees within project companies are considered when
making decisions.
(c) the need to foster the company's business relationships with suppliers, The Board's approach is described under 'Stakeholder Engagement' below.
customers and others
(d) the impact of the company's operations on the community and the The Board places a high value on monitoring ESG issues and establishes the
environment overall strategy for ESG matters pertaining to the Company. The Board is
responsible for managing any climate-related risks for the group, including
transparent disclosure of these risks, and taking mitigating actions to reduce
or eliminate them where possible.
(e) the desirability of the company maintaining a reputation for high The Board's approach is described under 'Culture and Values' below.
standards of business conduct
(f) the need to act fairly as between members of the company The Board's approach is described under 'Stakeholder Engagement' below.
Culture and Values
The overarching duty of the Board is to promote the Company's success for the
benefit of investors while taking other stakeholders' interests into
consideration. The Company strives to maintain the highest standards of
business conduct and corporate governance, and the Investment Manager ensures
that appropriate oversight, control, and policies are in place to ensure that
the Company treats its stakeholders fairly.
Through ongoing dialogue and engagement with its key stakeholders, the Board
seeks to ensure that its purpose, values, and strategy are aligned with this
culture of openness, debate, and integrity. The Board, which consists of two
male and one female members, aims to create a supportive business culture
while also providing constructive challenge, as well as to provide
shareholders and other stakeholders with regular information.
Although the Company has no employees, it is committed to respecting human
rights in its broader relationships. Both the Company and the Investment
Manager have anti-bribery and corruption policies in place to ensure business
integrity, a commitment to truth and fair dealing, and compliance with all
applicable laws and regulations.
To assist in maintaining a culture of good governance, the Company has several
policies and procedures in place, including those relating to diversity,
anti-bribery (including the acceptance of gifts and hospitality), tax evasion,
conflicts of interest, and Directors' dealings in the Company's shares.
The Board assesses and monitors compliance with these policies on a regular
basis through Board meetings and the annual evaluation process. The Board
seeks to appoint the most appropriate service providers for the Company's
needs and evaluates their services on a regular basis. The Board considers the
culture of the Investment Manager and other service providers through regular
reporting, receiving regular information, and ad hoc interactions.
Stakeholder Engagement
This section describes how the Board engages with its key stakeholders, how it
considers their interests and the outcome of the engagement when making
decisions, the long-term consequences of any decision, and how it maintains a
reputation for high standards of business conduct.
Stakeholder Why is it Important to Engage? How has the Company communicated and engaged? What were the key topics of engagement? Key strategic decisions impacting stakeholder group during period
Shareholders Shareholders and their ongoing support are critical to the business's The Company makes regular market announcements where appropriate. A large number of investor meetings were held prior to The Company has made acquisitions during the year which should be accretive to
continued existence and the deployment of our long-term investment strategy.
the NAV over the long-term. The Company raised c.£52.9 million during the
The Company has published quarterly fact sheets available on the Company's fundraising during the year to engage shareholders with the Company's year. The proceeds were used to repay the revolving credit facility and to
website. strategy. Prior to the Annual General Meeting ("AGM") in April 2022 and the invest in an attractive pipeline of near term opportunities, which are
subsequent General Meeting in June 2022, shareholders were given the intended to further diversify our portfolio, in line with the Company's
Views and feedback are sought from institutional investors via the Company's opportunity to engage with the Board and the Investment Manager, and are strategy. The Company put a revised investment policy to shareholders for
corporate broker. encouraged to do so at other times throughout the year. approval.
Investment Manager The Investment Manager is responsible for carrying out the Investment The Board maintains regular and open dialogue with the Investment Manager at In addition to all matters concerning the Company's Investment Objective, the Determination that the Investment Manager maintains a strong internal control
Objective within the parameters of the Company's Investment Policy. Board meetings and has regular contact on operational and investment matters Board met with the Investment Manager to discuss the Group's structure and the environment and that the Investment Manager's continued appointment is in the
outside of meetings. interpretation of investment restrictions. best interests of shareholders.
Service providers As an externally managed Company, we are reliant on our service providers to The Board maintains regular contact with its service providers, both through Throughout the year, the Board has worked closely with its professional Key service providers have been retained, providing continuity of service and
conduct our core activities. We believe that fostering constructive and Board and Committee meetings, as well as outside the regular meeting cycle. service providers, such as its external auditors, joint corporate brokers, familiarity with the objectives of the Company.
collaborative relationships with our service providers will assist in the The Management Engagement Committee is responsible for conducting periodic legal counsel, and the company secretary, to ensure that the Company is
promotion of the success of the Company. reviews of service providers. During the year, the Management Engagement managed efficiently and accurately in accordance with applicable laws,
Committee assessed that the continued appointment of all service providers regulations, and best practices.
remained in the best interests of the Company and its shareholders.
Asset-level counterparties Asset-level counterparties are an essential stakeholder group and engagement As part of continual monitoring of investments, we have a regular dialogue The key engagement with asset-level counterparties was during the due Acquired five new assets during the period,
with them is important to ensure assets are operating safely and effectively with these counterparties. diligence process prior to completing the investment
and performing as expected. increasing ongoing servicing requirements from O&M counterparties.
Debt-providers Providers of long-term debt are key to supporting the Company's long-term The Company and its unconsolidated subsidiaries provide regular updates on Pricing and sizing of the debt was a key consideration for the Company. Debt will be a key component of the Company's funding strategy looking forward
objectives through enabling the continued financing of investment covenant compliance and current positioning. and the portfolio will utilise the RCF debt facility when beneficial.
opportunities.
Risks and Risk Management
The Board recognises that effective risk management is key to the Group's
success and that a proactive approach is critical to ensuring the sustainable
growth and resilience of the Group. Risk is described as the potential for
events to occur that may result in damage, liability or loss. Should any of
these events occur, the Company may well be adversely impacted, potentially
leading to the disruption of the Company's business model, as well as
potential damage to the reputation or financial standing of the Company.
The benefit of a risk management framework is that it allows for potential
risks to be identified in advance and may enable these risks to either be
mitigated or possibly even converted into opportunities. The Company's
Prospectus, issued in June 2022 detailed the potential risks that the
Directors considered were material that could occur during the process of
implementing the Company's Investment Policy.
Principal Risks and Uncertainties
Procedures to identify principal or emerging risks
It is not possible to eliminate all risks that may be faced by the Company.
The objective of the Company's risk management framework and policies adopted
by the Company is to identify risks and enable the Board to respond to risks
with mitigating actions to reduce the potential impacts should any of the
risks materialise.
The Board, through the Audit and Risk Committee, regularly reviews the
Company's risk register, with a focus on ensuring appropriate controls are in
place to mitigate each risk. Taking considered risk is the essence of all
business and investment activity.
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.
Risk Identified Risk Description Risk Impact Mitigation
Exposure to wholesale electricity prices and risk to hedging power prices The Company makes investments in Assets with revenue exposure to wholesale Market demand for electricity can be impacted by many factors, including The Investment Manager closely monitors exposure to power price movements.
electricity prices. The market price of electricity is volatile and is changes in consumer demand patterns, increased usage of smart grids, a rise in Sensitivity to long term forecasts will be disclosed to investors and the
affected by a variety of factors, including market demand for electricity, demand for electric vehicle charging capacity and residential participation in Board on a regular basis.
levels of electricity generation, the generation mix of power plants, renewable energy generation. Such changing dynamics could have a material
government support for various forms of power generation and fluctuations in adverse effect on the Company's profitability, the NAV and the price of the
the market prices of commodities and foreign exchange. Ordinary Shares.
Many assets are expected to have a significant proportion of revenue that is
not linked to power price forecasts including subsidies such as
feed-in-tariffs.
To the extent that the Company or an SPV enters contracts to fix the price it
receives on the electricity generated or enters into derivatives with a view
to hedging against fluctuations in power prices, the Company or SPV, may be
exposed to risk related to delivering an amount of electricity over a specific In addition, assets are geographically diverse, spreading exposure across
period. different power markets and price drivers. Short and medium-term exposure to
power prices will be managed by locking power prices on a rolling basis.
If there are periods of non-production the Company or an SPV may need to pay
the difference between the price it has sold the power at and the market price
at that time.
Exposure to the transactional effects of foreign exchange rate fluctuations To the extent the Company invests in non-sterling jurisdictions, it may be While the Company and SPVs may enter derivative transactions to hedge such Natural hedging of foreign exchange exposure will occur due to an element of
and risks of foreign exchange hedging exposed to foreign exchange risk caused by fluctuations in the value of foreign exchange rate exposures, there can be no guarantee that the Company costs and debt (for capital structuring purposes) being linked to the local
foreign currencies when the net income and valuations of those operations in and/or SPVs will be able to, or will elect to, hedge such exposures, or that currency.
non-Sterling jurisdictions are translated into Sterling for the purposes of were entered into, will be successful.
financial reporting.
The Company will hedge expected income from foreign assets up to five years in
The Company and/or SPVs may be required to satisfy margin calls in respect of advance.
hedges and in certain circumstances may not have such collateral readily
available. In these circumstances, the Company could be forced to sell an
Asset or borrow further funds to meet a margin call or take a loss on a
position. To the extent that the Company and/or SPVs do rely on derivative
instruments to hedge exposure to exchange rate fluctuations, they will also be
subject to counterparty risk.
Any failure by a hedging counterparty to discharge its obligations could have
a material adverse effect on the Company's profitability, the NAV and the
price of the Ordinary Shares.
Non-compliance with the investment trust eligibility conditions under sections As an approved investment trust, the Company is exempt from UK corporation tax If the Company fails to maintain its investment trust status from HMRC, in The Company has contracted out the relevant monitoring to appropriately
S1158/S1159 of the CTA 2010 on its chargeable gains and capital profits on loan relationships. such circumstances, the Company would be subject to the normal rates of qualified professionals. The Investment Manager also monitors relevant
corporation tax on chargeable gains and capital profits arising on the qualifying conditions.
transfer or disposal of investments and other assets. Which could adversely
affect the Company's financial performance, its ability to provide returns to
its Shareholders or the post-tax returns received by its Shareholders.
The Investment Manager and the Company Secretary report on regulatory matters
to the Board on a quarterly basis. The assessment of regulatory risks forms
part of the Board's risk management framework.
Construction risks for certain renewable energy projects SPVs may undertake projects that are in the Construction Phase or are Should completion of any project overrun (both in terms of time and budget), The Investment Manager will monitor construction carefully and report
construction ready which may be exposed to certain risks, such as cost there is a risk that payments may be required to be made to (or withheld by) a frequently to the Board and AIFM.
overruns, construction delays and construction defects that may be outside the counterparty in relation to the delay. If the completion of a project
Company's control. overruns, it would also result in a delayed start to receipt of revenues,
which could affect the Company's ability to achieve its target returns,
depending on the nature and scale of such delay. The Investment Manager has an experienced asset management team including
technical experts to oversee construction projects. The Investment Manager
will undertake an extensive due diligence process prior to investment with
input from the Board (including technical expertise).
Additional costs and expenses, delays in construction or carrying out repairs,
failure to meet technical requirements, lack of warranty cover and/or
consequential operational failures or malfunctions may have a material adverse
effect on the Company's profitability, the NAV and the price of the ordinary Third party experts will be used as required to enhance knowledge and
shares. experience.
Reliance on third-party service providers The Company, whose Board is non-executive, and which has no employees, is The third-party provider may prove to be insufficiently skilled for the role There are clear service level agreements in place for all third-party
reliant upon the performance of third-party service providers for its or perform the roles required to an inadequate level, which may cause the providers and provisions are in place that any provider can be replaced,
executive function. Company to underperform, to breach regulations, or in extremis to go into subject to an initial term or a breach of the agreement occurring.
administration.
The Company relies on the Investment Manager and other service providers and They have all been chosen for being skilled and experienced in their areas of
their reputation in the energy and infrastructure market. expertise. The Board has regular oversight over all the other providers.
Lack of availability of suitable renewable energy projects Competition for renewable energy projects in the primary investment or If the Investment Manager is unable to source sufficient opportunities within The Company has an Investment Manager in place with a strong track record, who
secondary investment markets, may result in the Company being unable to make a reasonable timeframe, whether by reason of fundamental change in market strengthened their team ahead of the fund launch.
investments or on terms that enable the target returns to be delivered. conditions creating lack of available opportunities, too much competition or
otherwise. A greater proportion of the Company's assets will be held in cash
for longer than anticipated and the Company's ability to achieve its
Investment Objective may be adversely affected. Through extensive industry relationships the Investment Manager provides
access to a significant pipeline of investment opportunities.
Conflicts of interest The Investment Manager and the AIFM may manage from time-to-time other managed The appointment of the AIFM is on a non-exclusive basis and each of the AIFM The AIFM and the Investment Manager have clear conflicts of interest and
Funds pursuing similar investment strategies to that of the Company and which and Investment Manager manages other accounts, vehicles and funds pursuing allocation policies in place.
may be in competition with the Company. similar investment strategies to that of the Company.
Transactions where it is perceived that there may be potential conflicts of
This has the potential to give rise to conflicts of interest. The Company may interest are overseen by the Investment Manager's Conflicts Committee, an
also be in competition with other Downing Managed Funds for Assets. In independent fairness opinion on valuation may also be commissioned where
relation to the allocation of investment opportunities. deemed necessary.
The application of allocation policy is reviewed by the Investment Managers
Compliance Department, and by the Board on annual basis.
Further information on these procedures can be found in the Company's
Prospectus dated 12 November 2020.
Risks relating to the technical performance of assets The long-term performance of the assets acquired does not match the Incorrect assumptions against technical performance of assets, or the The Company will appoint third party technical advisors for every transaction.
expectations at the time of the acquisition. availability of natural resources may lead to additional costs and expenses, The advisors will undertake a review of the technology, design, installation
carrying out repairs, or reduced revenues. (if applicable), and natural resource availability and provide an analysis of
expected long term generation yields.
Any delays or reduction in the production or supply of energy may have a
material adverse effect on the performance of the Company, the NAV, the Where Assets are going through construction, appropriate contractual
Company's earnings and returns to shareholders. guarantees will be provided. Operators will often provide guarantees as to the
availability or performance of Assets.
Counterparties' ability to make contractual payments The Company's revenue derives from the renewable energy projects in the The failure by a counterparty to pay the contractual payments due, or the The Investment Manager will look to build in suitable mechanisms to protect
portfolio, the Company and its SPVs will be exposed to the financial strength early termination of a PPA by an Offtaker due to insolvency, may materially the income stream from the relevant renewable energy projects, which may
of the counterparties to such projects and their ability to meet their ongoing affect the value of the portfolio and could have a material adverse effect on include parent guarantees and liquidated damages payments on termination.
contractual payment obligations. the performance of the Company, the NAV, the Company's earnings and returns to
shareholders.
Exposure to defaults may be further mitigated by contracting with
counterparties who are public sector or quasi-public sector bodies or who are
able to draw upon government subsidies to partly fund contractual payments.
As part of the acquisition process, the Investment Manager conducts a thorough
due diligence process on all projects.
Risks associated with Cyber Security There exists an increasing threat of cyber-attack in which a hacker may Increased regulation, laws, rules and standards related to cyber security, Cyber security policies and procedures implemented by key service providers
attempt to access the Company's website or its secure data, or the computer could impact the Company's reputation or result in financial loss through the are reported to the Board regularly to ensure conformity.
systems that relate to one of its Assets and attempt to either destroy or use imposition of fines. Suffering a cyber breach will also generally incur costs
this data for malicious purposes. associated with repairing affected systems, networks and devices. Thorough third-party due diligence is carried out on all suppliers engaged to
service the Company. All providers have processes in place to identify cyber
security risks and apply and monitor appropriate risk plans.
If one or several Assets became the subject of a successful cyber-attack, to
the extent any loss or disruption following from such attack would not be
covered or mitigated by any of the Company's insurance policies, such loss or
disruption could have an adverse effect on the performance of the affected
Asset and consequently on the Company's profitability, the NAV and the price
of the Ordinary Shares.
Further financial risks are detailed in note 16 of the financial statements.
Emerging Risks
Emerging risks are characterised by a degree of uncertainty; therefore, the
Investment Manager and the Board consider new and emerging risks every six
months. The risk register is then updated to include these considerations. The
Board has a process in place to identify emerging risks, such as climate
related risks, and to determine whether any actions are required. The Board
relies on regular reports provided by the Investment Manager and the
Administrator regarding risks that the Company faces. When required, experts
are employed to provide further advice, including tax and legal advisers.
Climate Change
Environmental laws and regulations continue to evolve as the UK, Europe and
the rest of the world continue to focus their efforts on the goals laid out by
the Paris Agreement. In jurisdictions where the Company's Assets are located,
newly implemented laws and/or regulations may have an impact on a given
Asset's activities.
These laws may impose liability whether or not the owner or operator of the
Assets knew of or was responsible. There can be no assurance that
environmental costs and liabilities will not be incurred in the future. In
addition, environmental regulators may seek to impose injunctions or other
sanctions on an Asset's operations that may have a material adverse effect on
its financial condition and valuation. Climate change may also have other
wide-ranging impacts such as an increased likelihood of market reform,
insurance coverage availability and cost.
Climate change may also lead to increased variability in average weather
patterns such as periods of increased or reduced wind speeds or rainfall as
well as extreme events which may affect the performance of the Company's
investments.
Physical Effects of Climate Change
While efforts to mitigate climate change continue to progress, the physical
impacts are already emerging in the form of changing weather patterns. Such as
the recent heatwaves experienced in North America and recent flash flooding
seen throughout the UK and Europe.
Extreme weather events can result in flooding, drought, fires and storm
damage, which may potentially impair the operations of existing and future
portfolio companies at certain locations or impacting locations of companies
within their supply chain.
Transition Risks
Much of the conversation around climate change focuses on environmental
impacts, such as rising temperatures and extreme weather events. A big part of
climate risk, however, involves transition risk - or the risk that results
from changing policies, practices and technologies that arise as countries and
societies work to decrease their reliance on carbon. In the near and medium
term, transition risks to portfolio investments may arise from any unexpected
changes to existing government policies. An increase in renewables build-out
ambition without sufficient demand could reduce power price forecasts. This
could have a negative impact on the valuation of the Company's assets.
Going Concern and Viability Statement
Going Concern
The Board, in its consideration of the going concern position of the Company,
has reviewed comprehensive cash flow forecasts prepared by the Company's
Investment Manager which are based on market data and believes, based on those
forecasts, the assessment of the Company's subsidiary's banking facilities and
the assessment of the principal risks described in this report, that it is
appropriate to prepare the financial statements of the Company on the going
concern basis.
In arriving at their conclusion that the Company has adequate financial
resources, the Directors were mindful that the Group had cash of £23 million
as at 31 December 2022, though £5.1 million has been spent on new
acquisitions since the reporting date. The Group utilised EUR 27.4 million of
its facility with SEB to help fund the additional hydropower acquisitions.
There is EUR 16.1 million remaining available to be drawn on this facility.
The directors are provided with base cash flow forecasts and potential
downside scenarios.
Through its main subsidiary, DORE Hold Co Limited, the Company has access to
an undrawn £40 million RCF which is available for either new investments or
investment in existing projects and working capital. The RCF is currently
undrawn.
The Company's net assets at 31 December 2022 were £218.9 million and total
expenses for the period ended 31 December 2022 were £2.9 million, which
represented approximately 1.5% of average net assets during the period.
The Directors are satisfied that the Company has sufficient resources to
continue to operate for the foreseeable future, a period of not less than 12
months from the date of this report. Accordingly, they continue to adopt the
going concern basis in preparing these financial statements.
Viability Statement
In accordance with Principle 21 of the AIC Code, the Board has assessed the
prospects of the Company over a period longer than 12 months required by the
relevant 'Going Concern' provisions. In reviewing the Company's viability, the
Directors have assessed the viability of the Company for the period to 31
December 2027 (the 'Period'). The Board believes that the Period, being
approximately five years, is an appropriate time horizon over which to assess
the viability of the Company, particularly when considering the long-term
nature of the Company's investment strategy, which is modelled over five
years, and the principal risks outlined above. Based on this assessment, the
Directors have a reasonable expectation that the Company will be able to
continue to operate and to meet its liabilities as they fall due over the
period to 31 December 2027.
In making this statement, the Directors have considered and challenged the
reports of the Investment Manager in relation to the resilience of the
Company, taking account of its current position, the principal risks faced in
severe but reasonable scenarios, including a stressed scenario, the
effectiveness of any mitigating actions and the Company's risk appetite.
Sensitivity analysis has been undertaken to consider the potential impacts of
such risks on the business model, future performance, solvency and liquidity
over the period, both on an individual and combined basis. This has considered
the achievement of budgeted energy yields, the level of future electricity and
gas prices, continued government support for renewable energy subsidy payments
and the impact of a downside scenario which includes significant reduction of
projects' yields under severe power price and generation volume assumptions.
The Directors have determined that a five‑year look forward to December 2027
is an appropriate period over which to provide its viability statement. This
is consistent with the outlook period used in medium‑term forecasts
regularly prepared for the Board by the Investment Manager and the discussion
of any new strategies undertaken by the Board in its normal course of
business.
These reviews consider both the market opportunity and the associated risks,
principally the ability to raise third-party funds and invest capital, or
mitigating actions taken, such as a reduction of dividends paid to
shareholders or utilisation of additional borrowings available under the RCF.
Board approval of the Strategic Report
The Strategic Report has been approved by the Board of Directors and signed on
its behalf by the Chair
Hugh W M Little
Chair
31 March 2023
Extracts from the Directors' Report
Directors
Details of the Directors' terms of appointment can be found in the corporate
governance statement and the Directors' remuneration report.
Share Capital
The Company was granted authority at the 2022 AGM to issue up to 13,700,800
Ordinary Shares (equivalent to 10% of the Company's issued Ordinary Share
capital as at the date of the AGM) on a non-pre-emptive basis until the
conclusion of the Company's next annual general meeting in 2023. No ordinary
shares have been allotted under this authority during the year. As at the date
of this report, the Company may allot further ordinary shares up to an
aggregate nominal amount of £137,008 under its existing authority.
Following the passing of the proposed Issue Resolutions at the General Meeting
on 23 June 2022, the Directors were granted authority to issue up to 250
million Ordinary Shares on a non-pre-emptive basis under the Initial Issue and
Share Issuance Programme.
Following the General Meeting held on 23 June 2022, the Company announced that
gross proceeds of approximately £52.9 million had been raised through the
issue of 47,614,000 Ordinary Shares at an issue price of 111.0 pence per
Ordinary Share. The shares were issued to institutional investors and
professionally advised private investors and admitted to trading on the
Premium Segment of the London Stock Exchangeʼs Main Market on 27 June 2022.
As at the date of this report, the Company may allot further ordinary shares
up to an aggregate nominal amount of £2,023,860 under its existing authority.
This authority will expire on 6 June 2023.
A special resolution was passed at the 2022 AGM granting the Directors
authority to repurchase up to 20,537,572 Ordinary Shares (representing 14.99%
of the Company's issued Ordinary Share capital as at the date of the AGM)
during the period, expiring on the earlier of the Company's annual general
meeting to be held in 2023 and 31 December 2023. This authority will expire at
the conclusion of, and renewal will be sought at, the annual general meeting
to be held later this year. Ordinary Shares purchased by the Company may be
held in treasury or cancelled. No ordinary shares have been bought back under
this authority.
At the year end, and at the date of this report, the issued share capital of
the Company comprised 184,622,487 ordinary shares. At general meetings of the
Company, ordinary shareholders are entitled to one vote on a show of hands
and, on a poll, to one vote for every ordinary share held.
At 31 December 2022 and at the date of this report, the total voting rights of
the Company were 184,622,487.
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 UK adopted international accounting
standards and applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare financial
statements in accordance with UK adopted international accounting standards.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss for 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 they have been prepared in accordance with UK adopted
international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
· make judgements and accounting estimates that are reasonable and
prudent;
· prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business; and
· prepare a directors' report, a strategic report and directors'
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities. The Directors are responsible for ensuring that the
annual report and accounts, taken as a whole, are fair, balanced, and
understandable and provides the information necessary for shareholders to
assess the Company's position, performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the annual report and the financial
statements are made available on a website. Financial statements are published
on the Company's website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the Company's website is the responsibility of the Directors. The Directors'
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Directors' responsibilities pursuant to DTR4
The Directors confirm that, to the best of their knowledge:
· The financial statements have been prepared in accordance with the
applicable set of accounting standards and Article 4 of the IAS regulation and
give a true and fair view of the assets, liabilities, financial position and
profit and loss of the Company.
· The annual report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that they
face.
On behalf of the Board.
Hugh W M Little (Chair)
31 March 2023
Non-Statutory Accounts
The financial information set out below does not constitute the Company's
statutory accounts for the year ended 31 December 2022 but is derived from
those accounts. Statutory accounts for the period for the year ended 31
December 2022 will be delivered to the Registrar of Companies in due course.
The Auditor has reported on those accounts; their report was (i) unqualified,
(ii) did not include a reference to any matters to which the Auditor drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
The text of the Auditor's report can be found in the Company's full Annual
Report on the Company's website at www.doretrust.com.
Statement of Comprehensive Income
For the year from 1 January 2022 to 31 December 2022
Revenue Capital Total Revenue Capital Total
Notes 31 December 2022 31 December 2022 31 December 2022 31 December 2021 31 December 2021 31 December 2021
£'000s £'000s £'000s £'000s £'000s £'000s
Income
Return on investment 5 8,044 28,058 36,102 4,978 7,327 12,305
Total income 8,044 28,058 36,102 4,978 7,327 12,305
Expenses
Investment management fees 4 (1,781) - (1,781) (1,284) - (1,284)
Directors' fees 18 & 22 (125) - (125) (146) - (146)
Other expenses 6 (1,001) - (1,001) (745) - (745)
Total expenses (2,907) - (2,907) (2,175) - (2,175)
Profit before taxation 5,137 28,058 33,195 2,803 7,327 10,130
Taxation 7 - - - - - -
Profit after taxation 5,137 28,058 33,195 2,803 7,327 10,130
Profit and total comprehensive income attributable to:
Equity holders of the Company 5,137 28,058 33,195 2,803 7,327 10,130
Earnings per share - Basic & diluted (pence) 8 3.2 17.4 20.6 2.6 6.8 9.4
The total column of this statement is the Statement of Comprehensive Income of
the Company prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted. The supplementary revenue return and capital
columns have been prepared in accordance with the Association of Investment
Companies Statement of Recommended Practice (AIC SORP).
Statement of Financial Position
As at 31 December 2022
31 December 2022 31 December 2021
Notes £'000s £'000s
Non-current assets
Investments at fair value through profit and loss 9 196,866 131,508
196,866 131,508
Current assets
Trade and other receivables 10 567 280
Cash and cash equivalents 15 23,328 11,254
23,895 11,534
Total assets 220,761 143,042
Current liabilities
Trade and other payables 11 (1,862) (1,201)
(1,862) (1,201)
Total liabilities (1,862) (1,201)
Net assets 218,899 141,841
Capital and reserves
Called up share capital 12 1,846 1,370
Share Premium 65,910 14,506
Special distributable reserve 13 114,618 118,435
Revenue reserve 1,140 203
Capital reserve 35,385 7,327
Shareholders' funds 218,899 141,841
Net asset value per ordinary share (pence) 14 118.57 103.5
The audited financial statements of Downing Renewables & Infrastructure
Trust PLC were approved by the Board of Directors and authorised for issue on
31 March 2023 and are signed on behalf of the Board by:
Hugh W M Little
Chair
Company registration number 12938740
Statement of Changes in Equity
For the year ending 31 December 2022
Notes Share Capital Share Premium Capital Reserve Revenue Reserve Special Distributable Reserve Total
£'000s £'000s £'000s £'000s £'000s £'000s
Balance at the start of the period - - - - - -
Gross proceeds from share issue 1,370 136,001 - - - 137,371
Bonus shares - (52) - - - (52)
Share issue costs - (220) - - (2,450) (2,670)
Dividend - - - (2,600) (338) (2,938)
Transfer to special distributable reserve - (121,223) - - 121,223 -
Total comprehensive income for the period - - 7,327 2,803 - 10,130
Net assets attributable to shareholders at 31 December 2021 1,370 14,506 7,327 203 118,435 141,841
Gross proceeds from share issue 12 476 52,375 - - - 52,851
Share issue costs 12 - (971) - - 22 (949)
Dividends 20 - - - (4,201) (3,840) (8,041)
Total comprehensive income for the year - - 28,058 5,137 - 33,195
Net assets attributable to shareholders at 31 December 2022 1,846 65,910 35,385 1,140 114,618 218,899
The Company's distributable reserves consist of the Special distributable
reserve, Capital reserve attributable to realised gains and Revenue reserve.
There have been no realised gains or losses at the reporting date.
Statement of Cash Flows
For the year ending 31 December 2022
Year to Incorporation to
Notes 31 December 2022 31 December 2021
£000s £000s
Cash flows from operating activities
Profit before taxation 33,196 10,130
Adjusted for:
Interest income 5 (7,792) (4,978)
Unrealised gains on investments at fair value 5 (28,058) (7,327)
Increase in receivables (285) (280)
Increase in payables 661 1,201
Net cash outflows from operating activities (2,278) (1,254)
Cash flows from investing activities
Purchase of investments 9 (38,008) (121,749)
Loan Interest Received 9 8,500 2,546
Net cash outflows from investing activities (29,508) (119,203)
Cash flows from financing activities
Gross proceeds of share issue 12 52,852 137,371
Bonus shares 12 - (52)
Dividends Paid 20 (8,041) (2,938)
Share issue costs 12 (949) (2,670)
Net cash flows from financing activities 43,862 131,711
Increase in cash and cash equivalents 12,074 11,254
Cash and cash equivalents at the start of the year 11,254 -
Cash and cash equivalents at the end of the year 15 23,328 11,254
Notes to the Financial Statements
For the year ending 31 December 2022
1. General Information
The Company is registered in England and Wales under number 12938740 pursuant
to the Companies Act 2006 and its registered office Link Company Matters
Limited 6th Floor, 65 Gresham Street, London, United Kingdom, EC2V 7NQ.
The Company was incorporated on 8 October 2020 and is a Public Limited Company
and the ultimate controlling party of the group. The Company's ordinary shares
were first admitted to the premium segment of the Financial Conduct
Authority's Official List and to trading on the Main Market of the London
Stock Exchange under the ticker DORE on 10 December 2020.
The audited financial statements of the Company (the "financial statements")
are for the period from 1 January 2022 to 31 December 2022 and comprise only
the results of the Company, as all of its subsidiaries are measured at fair
value in line with IFRS 10 as disclosed in note 2.
The Company's objective is to generate an attractive total return for
investors comprising stable dividend income and capital preservation, with the
opportunity for capital growth through the acquiring and realising value from
a diverse portfolio of renewable energy infrastructure projects.
The Company currently makes its investments through its principal holding
company and single subsidiary, DORE Hold Co Limited ("Hold Co"), and
intermediate holding companies which are directly owned by the Hold Co. The
Company controls the Investment Policy of each of the Hold Co and its
intermediate holding companies in order to ensure that each will act in a
manner consistent with the Investment Policy of the Company.
The Company has appointed Downing LLP as its Investment Manager (the
"Investment Manager") pursuant to the Investment Management Agreement dated 12
November 2020. The Investment Manager is registered in England and Wales under
number OC341575 pursuant to the Companies Act 2006. The Investment Manager is
regulated by the FCA, number 545025.
2. Basis of preparation
The financial statements have been prepared in accordance with UK-adopted
international accounting standards and with the requirements of the Companies
Act 2006 as applicable to companies reporting under those standards.
The financial statements have also been prepared as far as is relevant and
applicable to the Company in accordance with the Statement of Recommended
Practice: Financial Statements of Investment Trust Companies and Venture
Capital Trusts ("SORP") issued in October 2019 by the Association of
Investment Companies ("AIC").
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 financial statements are presented in Sterling, which is the Company's
functional currency and are rounded to the nearest thousand, unless otherwise
stated.
Estimates and underlying assumptions are reviewed regularly on an on-going
basis. Revisions to accounting estimates are recognised in the year in which
the estimates are revised and in any future year affected.
Basis of Consolidation
The sole objective of the Company and through its subsidiary DORE Hold Co
Limited is to own Renewable Energy Infrastructure Projects, via individual
corporate entities. Hold Co typically will issue equity and loans to finance
its investments.
The Directors have concluded that in accordance with IFRS 10, the Company
meets the definition of an investment entity having evaluated the criteria
that needs to be met (see below). Under IFRS 10, investment entities are
required to hold subsidiaries at fair value through profit or loss rather than
consolidate them on a line-by-line basis, meaning Hold Co's cash, debt and
working capital balances are included in the fair value of the investment
rather than in the Company's assets and liabilities. Hold Co has one investor
which is the Company. However, in substance, Hold Co is investing the funds of
the investors of the Company on its behalf and is effectively performing
investment management services on behalf of many unrelated beneficiary
investors.
Characteristics of an investment entity
There are three key conditions to be met by the Company for it to meet the
definition of an investment entity. For each reporting year, the Directors
will continue to assess whether the Company continues to meet these
conditions:
· It obtains funds from one or more investors for the purpose of
providing these investors with professional investment management services;
· It commits to its investors that its business purpose is to invest
its funds solely for the returns (including having an exit strategy for
investments) from capital appreciation, investment income or both; and
· It measures and evaluates the performance of substantially all its
investments on a fair value basis.
In satisfying the second criterion, the notion of an investment timeframe is
critical. An investment entity should not hold its investments indefinitely
but should have an exit strategy for their realisation. The Company intends to
hold its renewable energy infrastructure assets for the remainder of their
useful life to preserve the capital value of the portfolio. However, as the
renewable energy infrastructure assets are expected to have no residual value
after their useful lives, the Directors consider that this demonstrates a
clear exit strategy from these investments.
Subsidiaries are therefore measured at fair value through profit or loss, in
accordance with IFRS 13 "Fair Value Measurement", IFRS 10 "Consolidated
Financial Statements" and IFRS 9 "Financial Instruments".
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 Annual
Report. The following is a summary of the Director's assessment of going
concern status of the Company. In reaching this conclusion, the Directors have
considered the liquidity of the Company's portfolio of investments as well as
its cash position, income and expense flows. As at 31 December 2022, the
Company had net assets of £218.9 (2021: £141.8) million including cash
balances of £23.3 (2021: £11.3) million which are sufficient to meet current
obligations as they fall due. Since the year end £5.1 million has been spent
on new acquisitions. The Group, through one of its unconsolidated
subsidiaries, utilised EUR 27.4 million of its facility with SEB to help fund
the additional hydropower acquisitions. Through its main subsidiary, DORE Hold
Co Limited, the Company has access to a RCF of £40 million which is available
for either new investments or investment in existing projects and working
capital. At the reporting date £0m had been drawn down from the RCF.
The Directors and the Investment Manager continue to actively monitor this and
its potential effect on the Company and its investments.
In particular, they have considered the following specific key potential
impacts:
• Unavailability of key personnel at the Investment Manager or
Administrator; and
• Increased volatility in the fair value of investments.
The directors have considered the impact of the Ukraine war on SPV revenues,
which are derived from the sale of electricity, and note that 58% of revenues
are not exposed to floating power prices. Revenue is received through power
purchase agreements in place with providers of electricity to the market and
also through government subsidies. In the year since acquisition and up to the
date of this report, there has been no significant impact on revenue and cash
flows of the SPVs. The SPVs have contractual operating and maintenance
agreements in place with large and reputable providers. Therefore, the
Directors and the Investment Manager do not anticipate a threat to the Group's
revenue.
The Directors do not consider that the effects of COVID-19 have created a
material uncertainty over the assessment of the Company as a going concern.
The Directors have reviewed Company forecasts and projections which cover a
period of at least 12 months from the date of approval of this report,
considering foreseeable changes in investment and trading performance, which
show that the Company has sufficient financial resources to continue in
operation for at least the next 12 months from the date of approval of this
report. The directors have considered the impact of the current economic
environment in their review. On the basis of this review, and after making due
enquiries, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operation and accordingly. They continue to
adopt the going concern basis in preparing the financial statements.
Segmental reporting
The Chief Operating Decision Maker (the "CODM") being the Board of Directors,
is of the opinion that the Company is engaged in a single segment of business,
being investment in renewable energy infrastructure.
The Company has no single major customer. The internal financial information
to be used by the CODM on a quarterly basis to allocate resources, assess
performance and manage the Company will present the business as a single
segment comprising the portfolio of investments in renewable energy
infrastructure assets.
Critical accounting judgements, estimates and assumptions
In the application of the Company's accounting policies, which are described
in note 3, the Directors are required to make judgements, estimates and
assumptions about the fair value of assets and liabilities that affect
reported amounts. It is possible, that actual results may differ from these
estimates.
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the application of the
accounting policies and the reported amount of assets, liabilities, income and
expenses. Estimates, by their nature, are based on judgement and available
information, hence actual results may differ from these judgements, estimates
and assumptions.
The key assumptions that have a significant impact on the carrying value of
investments that are valued by reference to the discounted value of future
cashflows are the useful life of the assets, the discount rates, 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
sensitivity analysis of these key assumptions is outlined in note 9 to the
financial statements.
Useful lives are based on the Investment Manager's estimates of the period
over which the assets will generate revenue which are periodically reviewed
for continued appropriateness. Where land is leased from an external landlord,
the operational life assumed for the purposes of the asset valuations is
valued at the earlier of planning or lease expiry. Where a project has a life
in excess of 75 years, the land it is located on is owned and there are no
constraints regarding planning, asset valuations are based on a perpetual life
including long term capital expenditure assumptions. This is the basis for the
valuation of the hydropower assets. The actual useful life may be a shorter or
longer period depending on the actual operating conditions experienced by the
asset.
The discount rates are subjective and therefore it is feasible that a
reasonable alternative assumption may be used resulting in a different value.
The discount rates applied to the cashflows are reviewed regularly by the
Investment Manager to ensure they are at the appropriate level. The Investment
Manager will take into consideration market transactions, where of similar
nature, when considering changes to the discount rates used.
The revenues and expenditure of the investee companies are frequently, partly,
or wholly subject to indexation and an assumption is made as to near term and
long-term rates.
The price at which the output from the generating assets is sold is a factor
of both wholesale electricity prices and the revenue received from the
Government support regimes. Future power prices are estimated using external
third-party forecasts which take the form of specialist consultancy reports,
which reflect various factors including gas prices, carbon prices and
renewables deployment, each of which reflect the UK and global response to
climate change.
The Company's investments in unquoted investments are valued by reference to
valuation techniques approved by the Directors and in accordance with the
International Private Equity and Venture Capital ("IPEV") Guidelines.
As noted above, the Board 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 meets the
criteria outlined in the accounting standards.
New, revised and amended standards applicable to future reporting periods
There were no new standards or interpretations effective for the first time
for periods beginning on or after incorporation that had a significant effect
on the Company's financial statements. Furthermore, none of the amendments to
standards that are effective from that date had a significant effect on the
financial statements.
New and revised standards not applied
At the date of authorisation of these financial statements, the following
amendments had been published and will be mandatory for future accounting
periods. Effective for accounting periods beginning on or after 1 January
2022:
· a number of narrow-scope amendments to IFRS 3 "Business
combinations", IAS 16 "Property, plant and equipment", IAS 37 "Provisions,
contingent liabilities and contingent assets" and annual improvements on IFRS
1 "First-time Adoption of IFRS", IFRS 9 "Financial instruments", IAS 41
"Agriculture" and the Illustrative Examples accompanying IFRS 16 "Leases".
Effective for accounting periods beginning on or after 1 January 2023:
· Narrow-scope amendments to IAS 1 "Presentation of Financial
Statements", Practice statement 2 and IAS 8 "Accounting Policies, Changes in
Accounting Estimates and Errors".
· Amendments to IAS 12, "Income Taxes" - deferred tax related to assets
and liabilities arising from a single transaction.
· Amendments to IFRS 17, "Insurance contracts" - this standard replaces
IFRS 4, which currently permits a wide variety of practices in accounting for
insurance contracts.
Effective for accounting years beginning on or after 1 January 2024:
· Amendments to IAS 1 on classification of liabilities clarify that
liabilities are classified as either current or non-current, depending on the
rights that exist at the end of the reporting year.
The impact of these standards is not expected to be material to the reported
results and financial position of the Company.
3. Significant Accounting Policies
Financial Instruments
Financial assets and financial liabilities are recognised on the Company's
Statement of Financial Position when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are to be
de-recognised when the contractual rights to the cash flows from the
instrument expire or the asset is transferred, and the transfer qualifies for
de-recognition in accordance with IFRS 9 Financial Instruments.
Financial assets
The Company classifies its financial assets as either investments at fair
value through profit or loss or financial assets at amortised cost. The
classification depends on the purpose for which the financial assets are
acquired. Management determines the classification of its financial assets at
initial recognition.
Investments at fair value through profit or loss ("FVTPL")
The fair value of investments in renewable energy infrastructure projects is
calculated by discounting at an appropriate discount rate future cash flows
expected to be received by the Company's intermediate holdings, from
investments in both equity (dividends and equity redemptions), shareholder and
inter-company loans (interest and repayments).
Investments are designated upon initial recognition as held at fair value
through profit or loss. Gains or losses resulting from the movement in fair
value are recognised in the Statement of Comprehensive Income at each
valuation point. As shareholder loan investments form part of a managed
portfolio of assets whose performance is evaluated on a fair value basis, loan
investments are designated at fair value in line with equity investments. The
Company's loan and equity investments in Hold Co are held at fair value
through profit or loss. Gains or losses resulting from the movement in fair
value are recognised in the Company's Statement of Comprehensive Income at
each valuation point.
Financial assets are recognised/derecognised at the date of the
purchase/disposal. Investments are initially recognised at cost, being the
fair value of consideration given. Transaction costs are recognised in the
Statement of Comprehensive Income as incurred. Fair value is defined as the
amount for which an asset could be exchanged between knowledgeable willing
parties in an arm's length transaction. Fair value is calculated on a levered,
discounted cashflow basis in accordance with IFRS 13.
Financial assets at amortised cost
Loans and other receivables are measured at amortised cost using the effective
interest method, less any impairment. They are included in current assets,
except where maturities are greater than 12 months after the reporting date,
in which case they are to be classified as non-current assets. The Company's
financial assets held at amortised cost comprise "other receivables" and "cash
and cash equivalents" in the statement of financial position.
Impairment
Impairment provisions for loans and receivables are recognised based on a
forward-looking expected credit loss model. All financial assets assessed
under this model are immaterial to the financial statements.
Financial liabilities
Financial liabilities are classified as other financial liabilities,
comprising other non-derivative financial instruments, including trade and
other payables, which are to be measured at amortised cost using the effective
interest method.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangement.
Equity instruments
The Company's Ordinary Shares are classified as equity and are not redeemable.
Costs associated or directly attributable to the issue of new equity shares
are recognised as a deduction in equity and are charged either from the share
premium account or the special distributable reserve, created on court
cancellation of share premium account.
Taxation
The Company is approved as an Investment Trust Company ("ITC") under sections
1158 and 1159 of the Corporation Taxes Act 2010 and part 2 Chapter 1 Statutory
Instrument 2011/2999. The approval is subject to the Company continuing to
meet the eligibility conditions of the Corporation Tax Act 2010. The Company
intends to ensure that it complies with the ITC regulations on an ongoing
basis and regularly monitors the conditions required to maintain ITC status.
Under the current system of taxation in the UK, the Company is not liable to
taxation on its operations in the UK. Current tax is the expected tax payable
on the taxable income for the year, using tax rates that have been enacted or
substantively enacted at the date of the Statement of Financial Position.
Dividends
Dividends to the Company's shareholders are recognised when they become
legally payable. In the case of interim dividends, this is when they are paid.
In the case of final dividends, this is when they are approved by the
shareholders at the Annual General Meeting.
Income
Income includes investment income from financial assets at FVTPL and finance
income.
Investment income from financial assets at FVTPL is recognised in the
Statement of Comprehensive Income within income when the Company's right to
receive payments is established.
Finance income comprises interest earned on intercompany loans and is
recognised on an accruals basis.
Expenses
Expenses are accounted for on an accruals basis. Share issue expenses directly
attributable to the listing of shares are charged through profit and loss with
incremental costs associated with raising capital charged through the Special
Distributable Reserve or Share Premium Account. The Company's investment
management fee, administration fees and all other expenses are charged through
the Statement of Comprehensive Income. In respect of the analysis between
revenue and capital these items are presented and charged 100% as revenue
items.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held on call with
banks and other short-term highly liquid deposits with original maturities of
three months or less.
Deposits to be held with original maturities of greater than three months are
included in other financial assets. There are no expected credit losses as the
bank institutions will have high credit ratings assigned by international
credit rating agencies.
4. Investment management fees
Under the terms of the Investment Management Agreement, the Investment Manager
is entitled to a management fee from the Company, which is calculated
quarterly in arrears at 0.95% of NAV per annum up to £500 million and 0.85%
per annum of NAV in excess of £500 million.
The Company incurred £1,780,561 (2021: £353,135) of management fees during
the year, investment management fees of £1,426,289 (2021: £933,414) were
unpaid at the year end.
No performance fee is payable to the Investment Manager under the Investment
Management Agreement and there are no provisions that would entitle the
Investment Manager to a performance fee in respect of future years.
5. Return on investment
31 December 2022 31 December 2021
£'000s £'000s
Unrealised movement in fair value of investments (Note 9) 28,058 7,327
Interest receivable on shareholder loans (note 9) 7,792 4,978
Provision of Corporate Services to DORE Holdco Limited 252 -
36,102 12,305
6. Other expenses
31 December 2022 31 December 2021
£'000s £'000s
Alternative investment fund manager fee 152 110
Fees payable to the Company's auditor for the audit of the Company's annual 167 96
accounts
Fees payable to the Company's auditor for other services - 89
Company secretarial fee 58 62
Legal fees 69 87
Depositary fee 49 48
Hedging advisory 25 39
Marketing fee 64 53
Broker fee 88 53
Retainer fee - 34
Professional fees 199
Other fees 130 74
1,001 745
Total fees payable to BDO LLP for non-audit services during the year were
£157,500 (2021: £88,500) for professional fees provided in respect of the
share issuance programme, this cost was taken directly to share premium. These
services were pre-approved by the Audit and Risk Committee and are not subject
to the fee cap. Audit fees which relate to the year ending 31 December 2022
were £154,500, £12,500 relate to accruals for the period ending 31 December
2021.
7. Taxation
Taxable income during the year was offset by expenses and the tax charge for
the year ended 31 December 2022 is £Nil.
As described above, the Company is recognised as an ITC for accounting years
and therefore not liable to UK taxation. To the extent that there is
insufficient group tax relief available to eliminate taxable profits, the
Company may make interest distributions to reduce taxable profits to nil.
(a) Analysis of charge in the year
Revenue Capital Total
£'000 £'000 £'000
Analysis of tax charge / (credit) in the year:
Current tax:
UK corporation tax on profits of the year - - -
Adjustments in respect of previous year - - -
- - -
Deferred tax:
Origination & reversal of timing differences - - -
Adjustments in respect of previous years - - -
Tax charge / (credit) on profit on ordinary activities - - -
(b) Factors affecting total tax charge for the year
The effective UK corporation tax rate applicable to the Company for the year
is 19%. The tax charge differs from the charge resulting from applying the
standard rate of UK corporation tax for an investment trust company. The
differences are explained below.
Revenue Capital Total
£'000 £'000 £'000
Profit / (Loss) on ordinary activities before tax 5,336 25,058 30,394
Profit on ordinary activities multiplied by standard rate
of corporation tax in the UK of 19% 1,013 4,761 5,774
Effect of:
Capital profits not taxable - (4,761) (4,761)
Non-taxable income - - -
Expenses non deductible -
Interest distributions (1,013) - (1,013)
Timing differences - - -
Group relief - - -
Excess management expenses - - -
Total charge / (credit) for the year - - -
HM Revenue & Customs ("HMRC") has granted approval to the Company's status
as an investment trust, and it is the Company's intention to continue meeting
the conditions required to obtain approval in the foreseeable future.
Investment companies which have been approved by HMRC under section 1158 of
the Corporation Tax Act 2010, as amended are exempt from tax on capital gains.
The March 2021 Budget announced a further increase to the main rate of
corporation tax to 25% from 1 April 2023. This rate has been substantively
enacted at the balance sheet date.
There is no unrecognised deferred tax asset or liability at 31 December 2022.
8. Earnings per share
Revenue Capital Total
£'000 £'000 £'000s
Revenue and capital profit attributable to equity holders of the Company 5,137 28,058 33,196
Weighted average number of ordinary shares in issue 161,532,958 161,532,958 161,532,958
Basic and diluted earnings per share (pence) 3.2 17.4 20.6
Basic and diluted earnings per share are the same as there are no arrangements
which could have a dilutive effect on the Company's ordinary shares.
9. Investments at fair value through profit and loss
Total Total
2022 2021
£'000s £'000s
Fair value at start of the year 131,508 -
Loan advanced to DORE Hold Co Limited 38,008 113,749
Shareholding in DORE Hold Co limited - 8,000
Unrealised gain on investments at FVTPL 28,058 7,327
Loan Interest (movement) (708) 2,432
Fair value at end of the year 196,866 131,508
There is a loan agreement between the Company and DORE Hold Co Limited for
£200,000,000 (2021: £120,000,000). At the reporting date £151,756,990
(2021: £113,748,641) had been advanced. The rate of interest on the loan is a
rate agreed between DORE Hold Co Limited and the Company and has been set at
6% per annum. Interest accrued at the year end and outstanding at the
reporting date amounted to £1,724,341 (2021: £2,432,398). Interest is
repayable at the repayment date of 31 December 2030 unless otherwise agreed
between the parties to repay earlier.
The Company received interest payments of £8,500,000 (2021: £2,546,000)
during the year. Included in the fair value are cash balances at DORE Hold Co
of £4.8 million (2021: £21.8 million).
The Company owns 100% of the nine shares in DORE Hold Co Limited. These shares
were allotted for a consideration of £8,000,000.
Fair value measurements
IFRS 13 "Fair Value Measurement" requires disclosure of fair value measurement
by level. The level of fair value hierarchy within the financial assets or
financial liabilities ranges from level 1 to level 3 and is determined on the
basis of the lowest level input that is significant to the fair value
measurement.
The fair value of the Company's investments is ultimately determined by the
underlying net present values of the SPV ("Special Purpose Vehicle")
investments. Due to their nature, they are always expected to be classified as
level 3 as the investments are not traded and contain unobservable inputs.
The fair value hierarchy consists of the following three levels:
· Level 1 - Quoted prices (unadjusted) in active markets for identical
assets or liabilities.
· Level 2 - Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices).
· Level 3 - Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The following table analyses the Company's assets at 31 December 2022:
Level 1 Level 2 Level 3 Total
£'000s £'000s £'000s £'000s
Investment portfolio summary
Unquoted investments at fair value through profit and loss - - 196,866 196,866
Total - - 196,866 196,866
The determination of what constitutes 'observable' requires significant
judgement by the Company. Observable data is considered to be market data that
is readily available, regularly distributed or updated, reliable and
verifiable, not proprietary, and provided by independent sources that are
actively involved in the relevant market.
The only investment held at fair value is the investment in DORE Holdco
Limited, which is fair valued at each reporting date. The investment has been
classified within level 3 as the investment is not traded and contains
unobservable inputs.
As the fair value of the Company's equity and loan investments in Hold Co is
ultimately determined by the underlying fair values of the SPV investments,
the Company's sensitivity analysis of reasonably possible alternative input
assumptions is the same as for the Group.
There have been no transfers between levels during the year.
Valuations are derived using a discounted cashflow methodology in line with
IPEV Valuation Guidelines and take into account, inter alia, the following:
i. due diligence findings where relevant;
ii. the terms of any material contracts including PPAs;
iii. asset performance;
iv. power price forecasts from leading market consultants; and
v. the economic, taxation or regulatory environment.
The DCF valuations of the Company's investments represent the largest
component of GAV and the key sensitivities are considered to be the discount
rate used in the DCF valuations and assumptions in relation to inflation,
energy yield, foreign exchange and power price.
The shareholder loan and equity investments are valued as a single class of
financial asset at fair value in accordance with IFRS 13 Fair Value
Measurement.
Sensitivity
Sensitivity analysis is produced to show the impact of changes in key
assumptions adopted to arrive at the valuation. For each of the sensitivities,
it is assumed that potential changes occur independently of each other with no
effect on any other base case assumption, and that the number of investments
in the portfolio remains static throughout the modelled life. Accordingly, the
NAV per share impacts shown below assume the issue of further shares to fund
these commitments.
The analysis below shows the sensitivity of the portfolio value (and its
impact on NAV) to changes in key assumptions as follows:
Discount rate
The weighted average valuation discount rate applied to calculate the
portfolio valuation is 7.7%.
An increase or decrease in this rate by 1.0% points has the following effect
on valuation.
Discount rate NAV per share impact -1.0% change Total portfolio Value +1.0% change NAV per share impact
£'000 £'000 £'000
Directors' valuation - Dec 2022 10.53 19,438 196,866 (16,238) (8.80)
Energy yield
The table below shows the sensitivity of the portfolio valuation to a
sustained decrease or increase of energy generation by minus or plus 5% on the
valuation, with all other variables held constant. The fair value of the solar
investments is based on a "P50" level of electricity generation for the
renewable energy assets, being the expected level of generation over the long
term. For hydropower assets, the expected annual average production is applied
to the valuation, similar to the P50 assumption applied to solar and wind
assets.
A change in the forecast energy yield assumptions by plus or minus 5% has
the following effect.
Energy Yield NAV per share impact -5% change Total portfolio Value +5% change NAV per share impact
£'000 £'000 £'000
Directors' valuation - Dec 2022 (9.42) (17,383) 196,866 17,369 9.41
Power prices
The sensitivity considers a flat 10% movement in power prices for all years,
i.e. the effect of adjusting the forecast electricity price assumptions in
each of the jurisdictions applicable to the portfolio down by 10% and up by
10% from the base case assumptions for each year throughout the operating life
of the portfolio.
A change in the forecast electricity price assumptions by plus or minus 10%
has the following effect.
Power Prices NAV per share impact -10% change Total portfolio Value +10% change NAV per share impact
£000 £000 £000
Directors' valuation - Dec 2022 (9.84) (18,172) 196,866 18,126 9.82
Inflation
The projects' income streams are principally a mix of subsidies, which are
amended each year with inflation, and power prices, which the sensitivity
assumes will move with inflation. The projects' operating expenses typically
move with inflation, but debt payments are fixed. This results in the
portfolio returns and valuation being positively correlated to inflation. The
weighted average long-term inflation assumption across the portfolio is 2.4%.
The sensitivity illustrates the effect of a 1.0% decrease and a 1.0% increase
from the assumed annual inflation rates in the financial model for each year
throughout the operating life of the portfolio.
Inflation NAV per share impact -1.0% change Total portfolio Value +1.0% change NAV per share impact
£'000 £'000 £'000
Directors' valuation - Dec 2022 (5.52) (10,192) 196,866 11,263 6.10
Foreign exchange
The Company, where appropriate, seeks to manage its exposure to foreign
exchange movements, to ensure that the Sterling value of known future
investment commitments is fixed. The portfolio valuation assumes foreign
exchange rates based on the relevant foreign exchange rates against GBP at the
reporting date. A change in the foreign exchange rate by plus or minus 10%
(Euro against Swedish Krona), has the following effect on the NAV, with all
other variables held constant. The effect is shown after the effect of current
level of hedging which reduces the impact of foreign exchange movements on the
Company's NAV.
Foreign Exchange NAV per share impact -10% change Total portfolio Value +10% change NAV per share impact
£'000 £'000 £'000
Directors' valuation - Dec 2022 (8.26) (15,258) 196,866 18,606 10.08
10. Trade and other receivables
31 December 2022 31 December 2021
£'000s £'000s
Prepayments 271 14
VAT 44 266
Debtors 252 -
567 280
11. Trade and other Payables
31 December 2022 31 December 2021
£'000s £'000s
Accounts Payable 1,098 51
Accruals 764 1,150
1,862 1,201
Included in the accruals amount at the year end, £525,893 relates to the
management fee charged by Downing LLP during the year.
12. Called up share capital
Allotted, issued and fully paid: Number of Shares
Opening Balance at 1 January 2022 137,008,487
Ordinary Shares issued - June 2022 47,614,000
Closing Balance of Ordinary Shares at 31 December 2022 184,622,487
Each ordinary share has equal rights to dividends and has equal rights to
participate in a distribution arising from a winding up of the Company.
The Company issued 47,614,000 additional ordinary shares on 27 June 2022
raising gross proceeds of £52,851,540. The share issue costs incurred to
raise the funding was £971,557. Accrued share issuance costs of £22,432
relating to the previous accounting year was rebated. The net share issuance
costs for the year therefore amounted to £949,124.
13. Special distributable reserve
At 31 December 2022 the special distributable reserve account was
£114,617,564. (2021: 118,435,271).
14. Net asset value per ordinary share
The basic total net assets per ordinary share is based on the net assets
attributable to equity shareholders as at 31 December 2022 of £218,899,172
(2021: £141,841,774) and ordinary shares of 184,622,487(2021: 137,008,487) in
issue at 31 December 2022.
There is no dilution effect and therefore no difference between the diluted
total net assets per ordinary share and the basic total net assets per
ordinary share.
15. Cash and Cash equivalents
At the year end, the Company had cash of £23.3 (2021: £11.3) million. This
balance was held by the Royal Bank of Scotland.
16. Financial Risk Management
The Company's investment activities expose it to a variety of financial risks,
including interest rate risk, foreign exchange risk, power price risk, credit
risk and liquidity risk. The Board of Directors have overall responsibility
for overseeing the management of financial risks, however the review and
management of financial risks are delegated to the AIFM and Investment
Manager.
Each risk and its management are summarised below.
Foreign exchange risk
Foreign exchange risk is defined as the risk that the fair value of future
cash flows will fluctuate because of changes in foreign exchange rates. The
Company monitors its foreign exchange exposures using its near-term and
long-term cash flow forecasts. Its policy is to use foreign exchange hedging
to provide protection to the level of sterling distributions that the Company
aims to receive from portfolio companies over the medium-term, where
considered appropriate. This may involve the use of forward exchange. The
Company's sensitivity to foreign exchange risk can be seen in note 9.
Interest rate risk
The Company may be exposed to changes in variable market rates of interest as
this could impact the discount rate and therefore the valuation of the
projects as well as the fair value of the loan receivables. The Company is not
considered to be materially exposed to interest rate risk.
The Company's interest and non-interest bearing assets and liabilities as at
31 December 2022 are summarised below:
Interest Bearing Non-Interest bearing Total
Assets £'000 £'000 £'000
Cash and cash equivalents - 23,328 23,328
Trade and other receivables - 567 567
Investments at fair value through profit and loss 151,757 45,109 196,866
Total assets at 31 December 2022 151,757 69,004 220,761
Total assets at 31 December 2021 113,749 29,293 143,042
Liabilities
Accrued expenses - (1,862) (1,862)
Total liabilities at 31 December 2022 - (1,862) (1,862)
Total liabilities at 31 December 2021 - (1,201) (1,201)
Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its
financial obligations as they fall due. The Investment Manager, AIFM and the
Board continuously monitor forecast and actual cash flows from operating,
financing, and investing activities to consider payment of dividends,
repayment of trade and other payables or funding further investing activities.
The Company ensures it maintains adequate reserves, will put in place banking
facilities and will continuously monitor forecast and actual cash flows to
seek to match the maturity profiles of financial assets and liabilities.
At the year end, the Company's investments were in secured loan and equity
investments in private companies, in which there is no listed market and
therefore such investments would take time to realise, and there is no
assurance that the valuations placed on the investments would be achieved from
any such sale process. The Company's Hold Co is the entity through which the
Company holds its investments, the liquidity of Hold Co is reflective of the
investments in which it holds. The Company's main subsidiary holds an RCF,
which has currently been undrawn.
Less than 1 year 1-5 years More than 5 years Total
£'000 £'000 £'000 £'000
Assets
Investments at fair value through profit and loss (note 9) - - 196,866 196,866
Trade and other receivables 252 - - 252
Cash and cash equivalents 23,328 - - 23,328
Liabilities
Trade and other payables (1,862) - - (1,862)
Total at 31 December 2022 21,718 - 196,866 218,584
Total at 31 December 2021 10,333 - 131,508 141,841
Credit risk
Credit risk is the risk that a counterparty of the Company will be unable or
unwilling to meet a commitment that it has entered into with the Company. It
is a key part of the pre-investment due diligence. The credit standing of the
companies which the Company intends to lend or invest is reviewed, and the
risk of default estimated for each significant counterparty position.
Monitoring is on-going, and year end positions are reported to the Board on a
quarterly basis.
Credit risk may also arise from cash and cash equivalents and deposits with
banks and financial institutions. The Company and its subsidiaries may
mitigate their risk on cash investments by only transacting with major
international financial institutions with high credit ratings assigned by
international credit rating agencies.
The carrying value of the investments and cash represent the Company's maximum
exposure to credit risk.
The Company's credit risk exposure as at 31 December 2022 is summarised below:
As at 31 December 2022 As at 31 December 2021
£'000 £'000
Trade and other receivables 252 -
Loan Investment 151,757 113,749
Cash and cash equivalents 23,328 11,254
Total 175,337 125,003
There is a loan agreement between the Company and DORE Hold Co Limited for
£200,000,000 (2021: £120,000,000). DORE Hold Co Limited is wholly owned
subsidiary of the Company. The total undrawn facility is £48,243,010.
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
FVTPL. As at 31 December 2022, the Company held three investments through its
intermediate holding company. The value of the underlying renewable energy
investments held by Hold Co will vary according to a number of factors
including discount rate used, asset performance and forecast power prices.
Capital risk management
The capital structure of the Company at the year-end consists of equity
attributable to equity holders of the Company, comprising issued capital and
reserves. The Board continues to monitor the balance of the overall capital
structure so as to maintain investor and market confidence. The Company is not
subject to any external capital requirements.
Market risk
Returns from the Company's investments are affected by the price at which the
investments are acquired. The value of these investments will be a function of
the discounted value of their expected future cash flows, and as such will
vary with, inter alia, movements in interest rates, market prices and the
competition for such assets. The Investment Manager carries out a full
valuation quarterly and this valuation exercise takes into account changes
described above.
17. Unconsolidated subsidiaries, associates and joint ventures
The following table shows subsidiaries of the Group. As the Company is
regarded as an Investment Entity as referred to in note 2, these subsidiaries
have not been consolidated in the preparation of the financial statements:
Investment Place of Business Ownership Interest as at 31 December 2022
DORE Hold Co Limited 7 England 8 100%
DORE Sweden Hold Co Limited(18) England(17) 100%
Downing Hydro AB 9 (#_ftn9) Sweden 10 (#_ftn10) 100%
Abercomyn Solar Ltd(21) England(17) 100%
Andover Airfield Solar Developments Ltd(20) England(17) 100%
Appleton Renewable Energy 11 (#_ftn11) England(17) 100%
Appleton Renewables(21) England(17) 100%
Beeston Solar Energy Ltd 12 (#_ftn12) England(17) 100%
Beeston Solar Ltd(21) England(17) 100%
Bourne Park Solar Ltd 13 (#_ftn13) England(17) 100%
Brookside Solar Ltd(21) England(17) 100%
Brown Argus Trading Ltd(23) England(17) 100%
Chalkhill Commercial PV Ltd(23) England(17) 100%
Chalkhill Life Holdings Ltd(18) England(17) 100%
Deeside Solar Farm Ltd 14 (#_ftn14) England(17) 100%
Emerald Isle Solar Energy Ltd 15 (#_ftn15) Northern Ireland(17) 100%
Emerald Isle Solar Ltd(21) Northern Ireland(17) 100%
Greenacre Redbridge Ltd(25) England(17) 100%
Greenacre Solar Energy Ltd 16 (#_ftn16) England(17) 100%
Greenacre Solar Ltd(21) England(17) 100%
Heulwen Solar Ltd(21) England(17) 100%
Hulse Energy Ltd(21) Northern Ireland(17) 100%
Hulse Renewable Energy Ltd 17 (#_ftn17) Northern Ireland(17) 100%
KPP132 Ltd(27) England(17) 100%
KPP141 Ltd(33) Northern Ireland(17) 100%
Moray Energy Ltd 18 (#_ftn18) Northern Ireland(17) 100%
Moray Power (UK) Ltd(27) Northern Ireland(17) 100%
Moray Power Ltd(21) Northern Ireland(17) 100%
Newton Solar Energy Ltd 19 (#_ftn19) England(17) 100%
Newton Solar ltd(21) England(17) 100%
Penarth Energy Ltd(21) England(17) 100%
Ridgeway Solar Energy Ltd 20 (#_ftn20) England(17) 100%
Ridgeway Solar ltd(21) England(17) 100%
Ringlet Trading Ltd(23) England(17) 100%
ROC Solar (UK) Ltd 21 (#_ftn21) Northern Ireland(17) 100%
ROC Solar ltd(21) Northern Ireland(17) 100%
Solar Finco 1 Limited 22 (#_ftn22) England(17) 100%
Solar Finco 2 Limited 23 (#_ftn23) England(17) 100%
Solar Finco 3 Limited(23) England(17) 100%
TGC Solar Oakfield Ltd(29) England(17) 100%
Triumph Renewable Energy Ltd(33) Northern Ireland(17) 100%
Triumph Solar Energy ltd 24 (#_ftn24) Northern Ireland(17) 100%
Triumph Solar ltd(21) Northern Ireland(17) 100%
Voltaise (UK) Ltd 25 (#_ftn25) England(17) 100%
Voltaise ltd(21) England(17) 100%
Wakehurst Renewable Energy Ltd 26 (#_ftn26) Northern Ireland(17) 100%
Wakehurst Renewables Ltd(21) Northern Ireland(17) 100%
York NIHE Ltd(36) Northern Ireland(17) 100%
York Renewable Energy Ltd 27 (#_ftn27) England(17) 100%
York Renewables Ltd(21) Northern Ireland(17) 100%
Watten i Sverige AB(28) Sweden(10) 100%
Edsbyn Vattenkraft AB(28) Sweden(10) 100%
Downing Summit AB(28) Sweden(10) 100%
AB Rots Ovre Kraftverk(28) Sweden(10) 100%
ASI Produktion AB(28) Sweden(10) 100%
Downing Wind Sweden Holdco AB(9) Sweden(10) 100%
Gabrielsberget Syd Vind AB(29) Sweden(10) 100%
18. Employees and Directors
The Company is governed by a Board of Directors, all of whom are independent
and non-executive. During the year, they received fees for their services of
£125,000 (2021: £145,833). The Company has 3 non-executive Directors.
Other than the Directors, the Company had no employees during the year.
19. Contingencies and commitments
The Company has no commitments or contingencies. (2021: no commitments or
contingencies). The total undrawn facility on the loan between the Company and
DORE Hold Co Limited is £48,243,010.
20. Dividends declared
The Company was targeting an initial annualised dividend yield of 3% by
reference to the IPO price of £1.00, in respect of the financial year from
IPO on 10 December 2020 to 31 December 2021 (equating to 3.0 pence per share),
rising to a target annualised dividend yield of 5% by reference to the IPO
price in respect of the financial year to 31 December 2022.
Dividend per share Total dividend
Interim dividends paid during the year ended 31 December 2022 pence £'000
With respect to the quarter ended 30 December 2021 1.25 1,713
With respect to the quarter ended 31 March 2022 1.25 1,712
With respect to the quarter ended 30 June 2022 1.25 2,308
With respect to the quarter ended 31 September 2022 1.25 2,308
5.00 8,041
Dividend per share Total dividend
Interim dividends declared after 31 December 2022 and not accrued in the year pence £'000
With respect to the quarter ended 31 December 2022 1.25 2,308
1.25 2,308
On 23 February 2023, The Board declared an interim dividend of 1.25 pence per
share with respect to the year ended 31 December 2022.
The Dividend is expected to be paid on or around 31 March 2023 to shareholders
on the register on 3 March 2023. The ex-dividend date is 2 March 2023.
As announced in September 2021, the Company has increased the dividend to 5
pence representing a dividend per share of 1.25 pence for the quarter ending
September 2021 and thereafter.
During the year, the Board declared four interim dividends of 1.25 pence per
share in respect of the quarterly periods ending 31 March 2022, 30 June 2022,
30 September 2022 and 31 December 2022. As outlined in the Company's
Prospectus, the Company has chosen to designate part of these interim
dividends as an interest distribution.
The dividend for the period to 31 December 2022, was paid as 0.425 pence per
share as an interest payment and 0.825 as an ordinary dividend. The dividend
paid for the period to 31 March 2022 was paid as 0.437 pence per share as an
interest payment and 0.813 as an ordinary dividend. The dividend paid for the
period to 30 June 2022 was paid as 0.5 pence per share as an interest payment
and 0.750 as an ordinary dividend. The dividend paid for the period to 30
September 2022 was paid as 0.625 pence per share as an interest payment and
0.625 as an ordinary dividend.
Shareholders in receipt of such a dividend will be treated for UK tax purposes
as though they have received a payment of interest in respect of the interest
distribution element of this dividend. This will result in a reduction in the
corporation tax payable by the Company.
21. Events after the balance sheet date
Dividends
On 24 February 2023, The Board declared an interim dividend of 1.25 pence per
share with respect to the period ended 31 December 2022.
The dividend is expected to be paid on or around 31 March 2023 to shareholders
on the register on 3 March 2023. The ex-dividend date is 2 March 2023.
The target dividend for the year from 1 January 2023 has been increased by
7.6% to 5.38 pence per ordinary share.
Acquisitions
The Company, through its main subsidiary acquired two operational hydropower
plants located in
Sweden for £5.1m.
22. Related party transactions.
The amounts incurred in respect of the Investment Management fees during the
year to 31 December 2022 was £1,781,037. Of this amount, £1,426,289 were
unpaid at 31 December 2022.
The Investment Manager is owed £113,830 commission in respect of funds raised
during the placing, open offer, offer for subscription and intermediaries
offer. This amount remained unpaid at the year end.
The amounts paid in respect of Directors fees during the year to 31 December
2022 was £125,000. The directors fees were increased by £5,000 per annum
from 1 October 2022 which remains unpaid. The amounts paid to individual
directors during the year were as follows:
Hugh W M Little (Chair) - £50,000, with an amount of £1,250 unpaid.
Jo Holt - £35,000, with an amount of £1,250 unpaid.
Ashley Paxton - £40,000, with an amount of £1,250 unpaid.
Due to the Company being an externally managed investment company, there are
no other fees due to key management personnel.
Intercompany Loans
During the year interest totalling £7.79 (2021: £4.98) million was charged
on the Company's long-term interest-bearing loan between the Company and its
subsidiary. At the year end, £1.7 (2021: £2.4) million remained unpaid.
The loan to DORE Hold Co Limited is unsecured. As at the balance sheet date,
the loan balance stood at £151.7 (2021: £113.7) million.
Company Information
Directors (all non-executive) Hugh W M Little (Chair)
Joanna Holt
Ashley Paxton
Registered Office Link Company Matters Limited
6th Floor
65 Gresham Street
London
EC2V 7NQ
AIFM and Administrator Gallium Fund Solutions Limited
Gallium House
Unit 2
Station Court
Borough Green
Sevenoaks
Kent
TN15 8AD
Investment Manager Downing LLP
6(th) Floor
Saint Magnus House
3 Lower Thames Street
London
EC3R 6HD
Joint Brokers Singer Capital Markets LLP
1 Bartholomew Lane
London
EC2N 2AX
Winterflood Securities Limited
The Atrium Building
Cannon Bridge House
25 Dowgate Hill
London
EC4R 2GA
Sponsor Singer Capital Markets Advisory
1 Bartholomew Lane
London
EC2N 2AX
Company Secretary Link Company Matters Limited
6th Floor
65 Gresham Street
London
EC2V 7NQ
Solicitors to the Company Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Registrar Link Group
10(th) Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Auditor BDO LLP
55 Baker Street
London
W1U 7EU
National Storage Mechanism
A copy of the Annual Report will be submitted shortly to the National Storage
Mechanism ("NSM") and will be available for inspection at the NSM, which is
situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Legal Entity Identifier: 2138004JHBJ7RHDYDR62
National Storage Mechanism
A copy of the Annual Report will be submitted shortly to the National Storage
Mechanism ("NSM") and will be available for inspection at the NSM, which is
situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Legal Entity Identifier: 2138004JHBJ7RHDYDR62
1 These are alternative performance measures
(#_ftnref2) 1 These are alternative performance measures.
2 A measure of total asset value including debt held in unconsolidated
subsidiaries.
3 Total returns in sterling, including dividend reinvested.
4 Based on NAV at IPO of £0.98/share.
(#_ftnref5) 12 These are alternative performance measures
(#_ftnref6)
6 IEA
(https://www.iea.org/news/surging-electricity-demand-is-putting-power-systems-under-strain-around-the-world)
Electricity Market Report, 2023.
7 DORE Hold Co is the intermediate holding company of the Group, this is
100% owned by DORE PLC
8 The Registered office is St Magnus House, 3 Lower Thames Street, London
EC3R 6HD
9 These Companies are 100% owned by DORE Hold Co Limited
10 The registered office is c/o Cirio Advokatbyra Box 3294, 103 65 Stockholm
11 Appleton Renewable Energy Ltd is 100% owned by Appleton Renewables,
Appleton Renewable Energy Ltd, in turn owns 100% of Andover Airfield Solar
Developments Ltd
12 These companies are 100% owned by Solar Finco 1 Ltd
13 Bourne Park Solar is 100% owned by Penarth Energy Ltd
14 These companies are 100% owned by Chalkhill Life Holdings Ltd
15 Emerald Isle Solar Energy Limited is 100% owned by Emerald Isle Solar Ltd
16 Both companies are 100% owned by Greenacre Solar Ltd
17 Hulse Renewable Energy Ltd is 100% owned by Hulse Energy Ltd
18 Moray Energy Ltd and Moray Power (UK) are 100% owned by Moray Power Ltd,
Moray Power (UK) Ltd owns 100% of KPP 132 Ltd
19 Newton Solar Energy is 100% owned by Newton Solar Ltd
20 Both companies are 100% owned by Ridgeway Solar Ltd
21 ROC Solar (UK) ltd is 100% owned by ROC Solar Ltd
22 Solar Finco 1 Ltd is 100% owned by Solar Finco 2 Ltd
23 Solar Finco 2 Ltd is 100% owed by Solar Finco 3 Ltd
24 Triumph Solar Energy is 100% owned by Triumph Solar Ltd, Triumph Solar
Energy Ltd in turn owns 100% of Triumph Renewable Energy Ltd and KPP 141 Ltd.
25 Voltaise (UK) Limited is 100% owned by Voltaise Ltd.
26 Wakehurst Renewable Energy Ltd is 100% owned by Wakehurst Renewables Ltd
27 These Companies are 100% owned by York Renewables Ltd
(28) These Companies are 100% owned by Downing Hydro AB
(29) These Companies are 100% owned by Downing Wind Sweden AB
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