Half-yearly report and financial statements 2023
21/06/2023 07:00
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RNS Number : 3351D GCP Infrastructure Investments Ltd 21 June 2023
GCP Infrastructure Investments Limited
("GCP Infra" or the "Company")
LEI 213800W64MNATSIV5Z47
Half-yearly report and financial statements for the period ended 31 March 2023
The Directors of the Company are pleased to announce the Company's half-yearly
results for the period ended 31 March 2023. The half-yearly report and
financial statements can be accessed via the Company's website
at www.gcpinfra.com (http://www.gcpinfra.com/) .
About the Company
The Company seeks to provide shareholders with regular, sustained, long-term
dividend income and to preserve the capital value of its investments over the
long term by generating exposure to infrastructure debt and/or similar assets.
It is currently invested in a diversified, partially inflation-protected
portfolio of investments, primarily in the renewable energy, social housing
and PPP/PFI sectors.
The Company is a FTSE 250, closed-ended investment company incorporated in
Jersey. It was admitted to the Official List and to trading on the London
Stock Exchange's Main Market in July 2010. At 31 March 2023 it had a market
capitalisation of £753.0 million.
At a glance
HY21 HY22 HY23
Market capitalisation £m 905.4 975.5 753.0
Net assets £m 887.6 996.3 991.9
Dividends for the period p 3.5 3.5 3.5
Share price p 102.80 110.40 85.20
NAV per share p 100.78 112.75 112.24
Profit for the period £m 3.8 108.9 25.8
Highlights for the period
- Dividends of 3.5 pence per share paid for the six month period to 31 March
2023 (31 March 2022: 3.5 pence per share), in line with the target1 of 7.0
pence set for the financial year
- Profit for the period of £25.8 million (31 March 2022: £108.9 million)
primarily reflects the impact of lower electricity prices compared to the
prior period. For further information refer to the financial review below
- Total shareholder return2 for the period of -9.7% (31 March 2022: 13.7%) and
total shareholder return2 since IPO in 2010 of 89.6%. Total NAV return2 for
the period of 2.7% (31 March 2022: 12.2%) and total NAV return2 since IPO of
167.0%
- Loans advanced totalling £75.1 million, secured against UK renewable
energy, social housing and PFI projects. The Company also received loan
repayments of £25.0 million
- Company NAV per ordinary share at 31 March 2023 of 112.24 pence
(31 March 2022: 112.75 pence)
- Third party independent valuation of the Company's partially
inflation‑protected investment portfolio at 31 March 2023 of £1.1 billion
(31 March 2022: £1.1 billion). The principal value at 31 March 2023 was
£1.0 billion
- Post period end, the Company made further advances of £2.1 million and
received repayments of £2.3 million
1. The dividend target set out above is a target only and not a profit
forecast or estimate and there can be no assurance that it will be met.
2. APM - for definition and calculation methodology, refer to the APMs section
below.
Andrew Didham, Chairman of GCP Infra, commented:
The Company is suitably positioned to benefit from the next wave of
infrastructure investment in the UK, most notably associated with the
decarbonisation of the economy. The Company is advised by an experienced team
with a proven track record of long‑term value creation for shareholders. It
has a well-diversified portfolio of assets that deliver products or services
that are required for the effective operation of a modern economy whilst often
generating positive environmental and social impacts.
It has been a positive financial period for the Company, with revaluations of
investments positively impacting profitability. The Company generated
operating income of £35.6 million, profit for the period of £25.8 million
and paid dividends of 3.5 pence per share, in line with the target(1) of 7.0
pence set for the financial year.
The Company maintains an attractive pipeline of investments across existing
sectors, emerging infrastructure sectors and follow-on investments in the
existing portfolio, at returns that would be accretive to dividend coverage.
The Board recognises that judgement must be exercised when looking at new
investments given the economic uncertainty and the price at which the
Company's shares are trading relative to the NAV, and any future capital
allocation will be considered alongside the alternatives of share buybacks and
a reduction in leverage.
Despite the background of economic turmoil and uncertainty, the assets
performed well during the period due to being largely uncorrelated to the
wider economic environment. Since its IPO in 2010, the Company has achieved a
total shareholder return(2) of 89.6% and a total NAV return(2) of 167.0%.
1. The dividend target set out above is a target only and not a profit
forecast or estimate and there can be no assurance that it will be met.
2. APM - for definition and calculation methodology, refer to the APMs section
below.
Investment objectives and KPIs
The Company primarily invests in UK infrastructure debt and/or similar assets
to meet the following key objectives:
Dividend income Diversification Capital preservation
To provide shareholders with regular, sustained, long‑term dividends. To invest in a diversified portfolio of debt and/or similar assets secured To preserve the capital value of its investments over the long term.
against UK infrastructure projects.
Key performance indicators
The Company has set a dividend target(1) of 7.0 pence per share for the The investment portfolio is exposed to a wide variety of assets in terms of The Company's ordinary shares have predominantly traded at a premium(5) to
financial year ending 30 September 2023. project type and source of underlying cash flow. their NAV since IPO in 2010(6)
3.5p 49 112.24p
Dividends paid for the six month period to 31 March 2023 Number of investments at 31 March 2023 NAV per share at 31 March 2023
£25.8m 11.1%(3) (0.31)%
Profit for the six month period ended 31 March 2023 Size of largest investment as a percentage Aggregate downward revaluations since IPO (annualised)(5)
of total assets
ESG indicators
66% 34% 50%
Portfolio by value contributing Portfolio by value that benefits end users within society(4) Board gender and ethnic
to green economy(2) diversity(7)
Further information on Company performance can be found in the financial
review below.
1. The dividend target set out above is a target only and not a profit
forecast or estimate and there can be no assurance that it will be met.
2. The Company has been awarded the LSE Green Economy Mark which recognises
London-listed companies generating more than half their revenues from green
environmental products and services.
3. The Cardale PFI loan is secured on a cross-collateralised basis against 18
separate operational PFI projects, with no exposure to any individual project
being in excess of 10% of the total portfolio (calculated by reference to the
percentage of total assets excluding other receivables and prepayments).
4. The Company's portfolio is 32% invested in projects in the healthcare,
education, justice and social housing sectors which are measured in alignment
with the UN SDGs, and 2% of the portfolio is invested in leisure projects.
5. APM - for definition and calculation methodology, refer to the APMs section
below.
6. At the period end, the Company's shares were trading at a discount5 to NAV
of 24.1%.
7. The Board is composed of one Director from a minority ethnic group and two
female Directors, along with three male Directors.
Portfolio at a glance
The Company's portfolio comprises underlying assets located across the UK
which fall under the following classifications:
Sector Number of assets within sector Percentage of portfolio
Anaerobic digestion 24 9
Biomass 760 11
Electric vehicles 250 1
Gas peaking 1 1
Geothermal 1 1
Hydro 14 2
Solar 52,594 23
Wind 11 18
PPP/PFI 134 23
Supported living 905 11
Senior ranking security
40%
Weighted average annualised yield(1)
7.9%
Average life
10 years
Partially inflation protected
47%
Principal value of portfolio
£1.0bn
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Chairman's interim statement
I am pleased to present the half-yearly report of the Company for the period
ended 31 March 2023.
Introduction
The Company continues to offer its shareholders attractive risk-adjusted
income underpinned by a diversified portfolio of UK-based infrastructure
assets. Despite the background of economic turmoil and uncertainty, the assets
performed well during the period due to being largely uncorrelated to the
wider economic environment. Since its IPO in 2010, the Company has achieved a
total shareholder return(1) of 89.6% and a total NAV return(1) of 167.0%.
Looking ahead, the Company is suitably positioned to benefit from the next
wave of infrastructure investment in the UK, most notably associated with the
decarbonisation of the economy. The interest rate environment also presents a
potential opportunity for the Company, with partial inflation linkage on c.47%
of the portfolio and an attractive pipeline of investments at prevailing
rates.
The Board recognises that judgement must be exercised when looking at new
investments given the economic uncertainty and the price at which the
Company's shares are trading relative to the NAV, and will consider
alternatives such as buying back shares and reducing leverage alongside any
investment decision.
Financial update
It has been a positive financial period with total income of £35.6 million
(31 March 2022: £117.6 million), profit for the period of £25.8 million (31
March 2022: £108.9 million) and total dividends declared and paid of £31.0
million (31 March 2022: £30.9 million(2)). The comparative period last year
included material positive revaluations resulting from significantly increased
electricity price forecasts; this period saw significant volatility with lower
short-term prices and lower long-term forecasts than the prior period.
From a cash generation perspective, the performance of the portfolio has
continued to be strong. As in prior periods, electricity price hedging
arrangements to partially mitigate NAV volatility and to lock in attractive
prices were maintained. These arrangements continue to offset the impact of
volatility in electricity prices on the NAV. The Company, through its
Investment Adviser, continues to review hedging opportunities that mitigate
exposure to volatile market prices (such as electricity prices) without taking
on additional material credit or cash flow risks.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
2. Including dividends settled in shares, where shareholders have elected to
take the scrip dividend alternative.
Share price performance
The Board is closely monitoring recent market volatility and its impact on the
Company's share price. The Company's shares have traded at an average
discount(1) to NAV of 14.3% during the period and an average premium(1) of
7.9% since IPO.
At 31 March 2023, the share price was 85.20 pence, representing a discount(1)
to NAV of 24.1%. At the close of business on 19 June 2023, this had widened to
33.5%. The Board and the Investment Adviser consider that the current share
price does not reflect the ongoing positive performance of, and attractive
risk-adjusted returns generated by, the Company's portfolio.
Accordingly, and as an appropriate means of returning value whilst maximising
sustainable long-term growth for shareholders, in March 2023, the Company
commenced a share buyback programme of shares up to a maximum aggregate value
of £15.0 million. Since commencement of the programme and up to the period
end, 1,050,000 shares have been bought back under the authority at an average
price of 88.92 pence per share, a discount to the prevailing NAV. Post period
end, the Company bought back a further 4,805,000 shares at an average price of
85.88 pence per share.
The Board is pleased to be taking proactive measures to grasp the opportunity
to buy back the Company's shares at this level as a highly attractive
investment for the Company's shareholders.
Operational overview
The Company's investment portfolio performed well during the period. A
continued focus on availability-based projects has meant the Company's
portfolio has continued to generate predictable revenues despite the volatile
economic backdrop.
Renewable investments have benefited from higher electricity prices than when
initially investing, resulting in increased cash generation by these projects.
From 1 January 2023, the Electricity Generator Levy will impact on the excess
revenues of certain assets, but the net revenues will be higher, even with the
levy, than the original investment case.
During the period, the Company progressed discussions with a number of
investee companies in relation to the extension of the operational life of
investments. Further information can be found in the Investment Adviser's
report below. No valuation benefit associated with potential life extensions
has been recognised to date, but is expected to be of value to the Company in
due course.
Investment activity
The Company's investment activity was predominately in the first quarter of
the period under review and any future capital allocation will be considered
alongside the alternatives of share buybacks and a reduction in leverage.
Investments of note during the period were as follows:
In the period to December 2022, the Company advanced £46.4 million to repay
third party senior debt secured against a portfolio of commercial solar
projects and a portfolio of renewable and PPP assets, improving the Company's
security position.
The Company advanced £7.4 million against gas peaking plants being brought
into operation by a borrower and a further £1.0 million to support the
ongoing development and optimisation of three anaerobic digestion plants in
the period to December 2022.
Two investments totalling £10.5 million were made in the electric vehicle
sector in February 2023. This included a new senior loan of £7.5 million to
finance the purchase of a fleet of 150 electric taxis and a follow‑on
investment of £3.0 million to grow an existing fleet. The new borrower
benefited from Government grants to reduce the effective loan to value ratio
against the vehicles.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
ESG
Whilst the Company does not have an explicit ESG purpose in its investment
objective, all of the Company's investments deliver products or services that
generate environmental or social benefits. For the year ended 30 September
2022(1), the Company's renewables portfolio exported 1,429 GWh of green
energy, which is the equivalent power for c.438,000 homes. The remainder of
the portfolio provided c.2,000 hospital beds, c.26,000 school places and
supported living units housing c.3,000 people with learning, physical or
mental disabilities. Further information can be found on pages 48 and 49 of
the Company's 2022 annual report.
The Investment Adviser's management of the portfolio seeks to measure, engage
with and encourage improvements in governance. This focus on ESG aims to
reduce the risks of investment whilst supporting, or even increasing, the
returns available.
The Board is committed to upholding best reporting practices on ESG matters,
including promoting transparency on the Company's ESG performance, and will
seek to publish further information in the Company's forthcoming 2023 annual
report.
Dividends
The Company aims to provide shareholders with regular, sustained, long-term
dividends. For the period to 31 March 2023, the Company paid dividends of 3.5
pence per share.
The Board and Investment Adviser do not believe there have been any material
changes in the Company's ability to service sustained, long‑term dividends
since the assessment carried out in 2021 that established a dividend target(2)
of 7.0 pence per share for this financial year.
The Company continues to assess dividend coverage by using several metrics,
most notably an alternative performance measure, 'loan interest accrued'(3)
which considers interest accruing to the benefit of the Company during the
relevant period. In the period to 31 March 2023, dividend coverage using this
metric (adjusted earnings cover(3)) was 1.1 times. Earnings cover under IFRS
was 0.8 times.
The Company maintains an attractive pipeline of new investments and follow-on
investments in existing investee companies as part of the optimisation
programmes that will generate returns in excess of the reinvestment rate
assumed during the 2021 exercise, further supporting the sustainability of the
target(2) in the medium term.
The Board considers that the pipeline provides the Company with attractive
opportunities at prevailing rates that would, if completed, support the target
dividend. However, the Board recognises that the use of cash resources for new
investments must be considered alongside repayment of the RCF or, whilst the
Company's share price trades at a material discount, buying back shares.
Future market outlook
During the period, the UK economy experienced significant volatility and
changes to sentiment. Against the background of recovery from the Covid-19
pandemic and, furthermore, the Russian invasion of Ukraine, there have been
energy shocks increasing the costs, and volatility in the prices of,
electricity and gas. Inflation has increased across the world, with the UK's
inflation rate reaching the highest in 40 years. Interest rates rose as a
result and with the 'mini-budget' in September 2022 there was a dramatic
increase in borrowing costs.
Although the threat of recession during 2023 is, according to some
commentators, receding, there still remain risks to economic activity given
the cost-of-living crisis and high borrowing costs. However, the portfolio is
largely focused on availability or contracted revenues and so the performance,
and valuation, of the portfolio is not directly correlated to economic
activity.
1. Data at 30 June 2022 to facilitate inclusion in the 2022 annual report.
2. The dividend target set out above is a target only and not a profit
forecast or estimate and there can be no assurance that it will be met.
3. APM - for definition and calculation methodology, refer to the APMs section
below.
Given the ongoing need to decarbonise the economy, and significant investment
required, the Board is confident in the Investment Adviser's ability to
continue to generate a pipeline of attractive investments for the Company. In
the medium term, the Investment Adviser is reviewing a number of investment
opportunities in sectors including further electric vehicles and associated
charging infrastructure, hydrogen, carbon capture, sustainable packaging and
digital infrastructure as well as additional investments in existing sectors
including anaerobic digestion and biomass. Further information on the pipeline
of investment opportunities can be found below.
Financing
At 31 March 2023, the Company had £154.0 million drawn under the RCF
(30 September 2022: £99.0 million). The facility provides the Company with
access to flexible debt finance, enabling it to take advantage of investment
opportunities as they arise, and may also be used to manage the Company's
working capital requirements from time to time.
The RCF is due to expire in March 2024. The Investment Adviser is reviewing
the Company's financing arrangements and has liaised with the existing lending
group to obtain indicative quantum, appetite and terms. Further information on
the RCF can be found in note 8.
At the period end, the Company had total cash resources of £26.0 million.
Post period end, the Company refinanced a portfolio of biomass projects, due
to generate net cash proceeds of c.£50.0 million, which will be used to
partially repay the RCF in due course. The Company will receive fees,
including prepayment fees, of c.£11.0 million associated with the refinance,
which is expected to result in a contribution of c.1.2 pence per share to the
Company's NAV.
Risks
As part of the Company's semi-annual risk assessment, the Board reviewed the
principal risks and uncertainties detailed on pages 68 to 73 of the Company's
2022 annual report and considers share price discount to NAV to be a new
principal risk at 31 March 2023. The existing principal risks and
uncertainties are expected to remain relevant to the Company for the next six
months of its financial year.
The Board also concluded that, although the existing principal risks are
unchanged, the probability and impact of some have changed due to the current
macro environment and a longer period of economic uncertainty. See below for
further information.
Final thoughts
With long-term gilt yields at the same level as when the Company was launched
in 2010, the investment proposition remains as compelling as ever.
The Company is advised by an experienced team with a proven track record of
long-term value creation for shareholders. It has a well-diversified portfolio
of assets that deliver products or services that are required for the
effective operation of a modern economy whilst often generating positive
environmental and social impacts. The Company also benefits from an active
buyback programme and a strong pipeline of new investment opportunities in
which to deploy available capital as appropriate.
Andrew Didham
Chairman
20 June 2023
Investment Adviser's report
The Company seeks to provide shareholders with long-term dividends and
preserve the capital value of its investments through exposure to a
diversified portfolio of UK infrastructure projects.
Investment objective and policy
Investment strategy
The Company's investment strategy is set out in its investment objective,
policy and strategy below. It should be considered in conjunction with the
Chairman's statement and the Investment Adviser's report, which provide an
in-depth review of the Company's performance and future strategy. Further
information on the business model and purpose is set out on pages 12 and 13 of
the Company's annual report and financial statements for the year ended
30 September 2022.
Investment objective
The Company's investment objective is to provide shareholders with regular,
sustained, long-term dividends and to preserve the capital value of its
investment assets over the long term.
Investment policy and strategy
The Company seeks to generate exposure to the debt of UK infrastructure
project companies, their owners or their lenders, and related and/or similar
assets which provide regular and predictable long-term cash flows.
Core projects
The Company will invest at least 75% of its total assets, directly or
indirectly, in investments with exposure to infrastructure projects with the
following characteristics (core projects):
-pre-determined, long-term, public sector backed revenues;
-no construction or property risks; and
-benefit from contracts where revenues are availability based.
In respect of such core projects, the Company focuses predominantly on taking
debt exposure (on a senior or subordinated basis) and may also obtain limited
exposure to shareholder interests.
Non-core projects
The Company may also invest up to an absolute maximum of 25% of its total
assets (at the time the relevant investment is made) in non-core projects,
taking exposure to projects that have not yet completed construction, projects
in the regulated utilities sector and projects with revenues that are entirely
demand based or private sector backed (to the extent that the Investment
Adviser considers that there is a reasonable level of certainty in relation to
the likely level of demand and/or the stability of the resulting revenue). At
31 March 2023, the Company's exposure to non-core projects was 2.3% of the
portfolio by value.
There is no, and it is not anticipated that there will be any, outright
property exposure of the Company (except potentially as additional security).
Diversification
The Company will seek to maintain a diversified portfolio of investments and
manage its assets in a manner which is consistent with the objective of
spreading risk. No more than 10% in value of its total assets (at the time the
relevant investment is made) will consist of securities or loans relating to
any one individual infrastructure asset (having regard to risks relating to
any cross‑default or cross-collateralisation provisions). This objective is
subject to the Company having a sufficient level of investment capital from
time to time, the ability of the Company to invest its cash in suitable
investments and the investment restrictions in respect of 'outside scope'
projects described above.
It is the intention of the Directors that the assets of the Company are (as
far as is reasonable in the context of a UK infrastructure portfolio)
appropriately diversified by asset type (e.g. PFI healthcare, PFI education,
solar power, social housing, biomass etc.) and by revenue source (e.g. NHS
Trusts, local authorities, FiT, ROCs etc.).
Non-financial objectives of the Company
The key non-financial objectives of the Company are:
-to maintain strong relationships with all key stakeholders of the Company,
including (but not limited to) shareholders and borrowers;
-to continue to focus on creating a long‑term, sustainable business relevant
to all stakeholders;
-to develop and increase the understanding of the investment strategy of the
Company and infrastructure as an investment class; and
-to focus on the long-term sustainability of the portfolio and make a positive
impact; through contributing towards the generation of renewable energy and
financing infrastructure that is integral to society.
Key policies
Distribution
The Company seeks to provide its shareholders with regular, sustained,
long‑term dividend income.
The Company has authority to offer a scrip dividend alternative to
shareholders. The offer of a scrip dividend alternative was suspended at the
Board's discretion, for all dividends during the period, as a result of the
discount(1) between the likely scrip dividend reference price and the relevant
quarterly NAV per share of the Company. The Board intends to keep the payment
of future scrip dividends under review.
Leverage and gearing
The Company intends to make prudent use of leverage to finance the acquisition
of investments and enhance returns for shareholders. Structural gearing of
investments is permitted up to a maximum of 20% of the Company's NAV
immediately following drawdown of the relevant debt.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Infrastructure sector overview and update
The Investment Adviser
Gravis Capital Management Limited ("Gravis" or the "Investment Adviser") is
the appointed Investment Adviser and AIFM to the Company.
The Investment Adviser has a long track record of working within the UK
infrastructure market, particularly with regard to debt advisory work, and has
established close relationships with many of the key participants in the UK
infrastructure market, including equity investors and lenders. The senior
management team at Gravis have extensive specialist expertise and a
demonstrable track record of originating, structuring and managing
infrastructure debt investments. Further information can be found on pages 80
to 83 of the 2022 annual report.
The Investment Adviser is an independently managed business with ORIX
Corporation as majority shareholder. ORIX Corporation is a global financial
services company based in Japan with assets under management of ¥55 trillion
globally.
UK infrastructure sector overview
The Investment Adviser continues to see a disconnect between the Government's
stated aims for infrastructure investment, in particular around the
decarbonisation of the economy in order to meet the legally binding net zero
targets, and the investment required to deliver these goals. The investment
required to achieve net zero is, according to the Independent Committee for
Climate Change, significantly greater than the actual private and public
sector investment made or planned to date. The Investment Adviser believes
that this will create opportunities for the Company to support the development
of new infrastructure that will benefit from policy support.
In relation to energy security, the Government estimates that
£50-£60 billion of investment is required annually to deliver on the UK's
net zero ambitions. The majority of this investment will need to come from the
private sector, and the Company will be well placed to participate given its
investment focus and track record.
The Company has already benefited from one of its portfolio businesses being
awarded a grant under the Net Zero Hydrogen Fund, which was set up to support
the development and construction of low‑carbon hydrogen plants.
The grant will benefit a wind farm located in Northern Ireland. A feasibility
study has been undertaken in partnership with a local cement manufacturer.
This presents the potential to generate additional revenue alongside a life
extension for the wind farm, and also to help decarbonise an intensive
manufacturing process by producing low‑carbon cement. If the study is
successful it is likely to both improve the returns on an existing investment
whilst providing further attractive investment opportunities.
In the Environmental Improvement Plan the UK Government has set a legally
binding target to halt the decline in domestic species abundance in England by
2030 and then increase the abundance by at least 10% to exceed 2022 levels by
2042. There are various incentives that the UK Government is using to create a
market to reward this development, including through the Environment Act 2021.
The UK Government is hoping that it can create market incentives to deliver at
least £500 million of private investment a year, principally in nature-based
solutions for carbon sequestration, flood risk management and water quality.
Sector update:
Renewable energy
The Company's portfolio is 66% invested in the renewables sector, with a
valuation of £744.8 million.
The UK energy market is emerging from several years of unusual volatility. The
reduction in economic activity as a result of the Covid-19 pandemic led to
lower power prices; then in 2021 as the economy was recovering, a combination
of below-average wind resources, maintenance of, and reduced output from, the
French nuclear fleet and lower rainfall impacting hydro resources, prices
started to rise. In 2022, with the Russian invasion of Ukraine, the sanctions
and issues with gas exports from Russia led to significant price increases and
volatility in both short and long-term price expectations.
During the period, the volatility in, and high levels of, electricity prices
was seen to favour renewable energy generators. As a result, the UK Government
imposed the Electricity Generator Levy to tax what were considered excess
profits. The introduction of this tax was announced in the Autumn Statement in
November 2022 and the expected valuation impact was reported in the Company's
2022 annual report: a reduction in the 30 September 2022 NAV of 1.50 pence
per share. In December 2022, when the full details of the levy were
announced, the actual impact of the tax was applied to the valuation of the
portfolio. This impacted the NAV by 0.93 pence per share at
31 December 2022. The difference in the estimated and actual impact arose
from the manner of the application of the levy to groups, demonstrating that
the assumptions used were broadly accurate.
In the period, short-term prices have fallen back below 2022 prices, and the
UK energy market forward curves have been lower despite market shocks, such as
OPEC+ announcing that it intends to cut output. Whilst long-term price
forecasts have historically been on a downward trajectory, the Investment
Adviser has seen a structural shift, increasing current long-term electricity
price expectations.
The long-term increase in prices can be explained by the increased focus on
electricity security resulting from the Russian invasion of Ukraine. To reduce
reliance on gas from Russia, the UK, and other European countries, will need
to rely on imports of liquefied natural gas ("LNG"). In Germany, there has
already been significant investment in its ability to import LNG, and this
investment is set to continue. LNG tends to be more expensive (given costs to
liquefy and regasify after transport) than piped gas and hence this will
naturally increase long-term power costs.
The drive for energy security, including increased renewable energy, will
require significant investment across Europe and this is also expected to
increase long-term costs. Furthermore, electricity demand is expected to
increase, driven by the decarbonisation of transport and heating amongst other
factors.
The UK Government's 2023 Green Finance Strategy sets out how it intends to
mobilise green investment. It highlights that the transition to a low-carbon
economy is not only an environmental imperative but a growth opportunity for
the UK. With an estimated £50‑£60 billion of capital investment required
each year to deliver the UK's net zero ambitions, there is significant
opportunity for private sector capital investment. This includes strategies to
deliver up to 50 GW of new offshore wind capacity by 2030, up to 70 GW of
solar capacity by 2035 and up to 10 GW of low‑carbon hydrogen production
capacity by 2030.
Sector update:
Supported living
The Company's portfolio is 11% invested in the supported living sector, with a
valuation of £118.1 million.
Since 2014, the Company has invested in the supported living sector, being
among the first listed investment companies to do so. The Company continues to
recognise the benefits of strong demand driven by the historic undersupply of
suitable supported living accommodation, along with the associated health and
social care benefits for individuals and the available cost efficiencies to
the public sector.
As previously reported, the Company stopped making new investments into the
sector in 2018 as other lenders came into the market which put pressure on
potential returns. This increased demand also meant that some Registered
Providers grew faster than their systems and processes for governance. The
Company has actively reduced its exposure to the sector as a consequence.
The Regulator of Social Housing has been focused on governance and long-term
financial viability of Registered Providers. Two Registered Providers that
have leases with properties financed by the Company are currently in
discussions with the Regulator. The Investment Adviser has been working with
the borrowers to seek to mitigate any exposure to these Registered Providers,
either to ensure that they remain viable and operate with good governance or
by seeking to support the transfer of leases to other Registered Providers.
Sector update:
PPP/PFI
The Company's portfolio is 23% invested in the PPP/PFI sector, with a
valuation of £257.2 million.
The departure by the UK Government and the devolved governments from PPP
models has all but ended primary investment opportunities for the Company. At
IPO, the portfolio comprised subordinated debt investments in projects
procured under PPP models and these projects remain a core part of the
portfolio. At the current time, the Investment Adviser continues to review
secondary opportunities when presented, but they are typically small in scale
and subject to competitive bidding processes.
These factors make it increasingly doubtful that the Company will make
significant investment in assets developed under PPP models going forward. The
Investment Adviser continues to actively review alternative funding models,
including licence‑based models such as the regulated asset base approach
when applied to particular projects, or offshore or onshore transmission
licensing frameworks.
Macro-economic update
Market update
The period under review has been dominated by high inflation, energy and
political shocks. In September 2022, the mini-budget adversely impacted
sentiment towards the UK, increasing the yields on Government debt whilst high
inflation has created a cost-of-living crisis. Central banks, including the
Bank of England, have increased base rates to seek to temper inflation, but
they have been cautious following the failure of a number of banks. There has
also been speculation as to whether the UK will suffer a recession during
2023, albeit this is now receding.
The UK energy market may now be approaching a new normal, following two years
of volatility. Energy prices are higher than 2021 but lower than 2022, with
long‑term forecasts lower in the medium term but still showing a structural
increase compared to before the Covid-19 pandemic.
The Company has been positively impacted by higher electricity prices and
inflation, in particular the net cash flows expected from renewable energy
assets. Whilst the Electricity Generator Levy will reduce the cash flows from
high electricity prices, it also reduces the volatility in valuation
associated with power price volatility when using a discounted cash flow
methodology. Further detail on the Company's valuation methodology is provided
below and in note 11.
Continuing demand for these assets amongst investors goes some way to
mitigating the risk of negative revaluations associated with central bank base
rate increases feeding through to discount rates applied in asset valuations.
The Company forecasts cash flows from renewable generation assets based on
quoted futures prices using the ICE electricity baseload forward curve
(adjusted for forecast capture price adjustments) for the three year period
immediately following the valuation point. Thereafter, the Company uses the
average of the last four quarterly electricity market forecast publications by
AFRY, an independent market consultant (also adjusted for capture price
forecasts).
Whilst absolute electricity price levels have benefited the Company over the
period, the increased volatility of such prices remains an increased risk.
Looking ahead, it is likely that structural changes will include a move
towards higher cost alternatives such as LNG, as noted below, positively
impacting long‑term electricity prices. The Investment Adviser continues to
review opportunities to hedge electricity market prices to both lock in
attractive price levels relative to the original investment forecasts and
mitigate volatility in NAV.
Key valuation assumptions
The table below summarises the key assumptions used in forecasting cash flows
from renewable assets in which the Company is invested, and the range of
assumptions the Investment Adviser observes in the market.
The Investment Adviser does not consider that such differences in assumptions
are compensated for in the market by applying a higher or lower discount rate
to recognise the increased or decreased risks respectively of a valuation,
resulting in potential material valuation differences. This is shown in the
sensitivity of the Company's NAV to a variation of such assumptions in the
table, on a pence per share basis.
Assumption Company approach Lower valuations Company valuation sensitivity (pps) Higher valuations
Electricity price forecasts Futures (three years) and AFRY four quarter average long term. Electricity AFRY Q1 2023 (0.24) 8.07 Aurora Q1 2023
Generator Levy applied to 31 March 2028
Capture prices (wind, solar) Asset-specific curve applied to each project 15% capture prices (solar), AFRY high scenario capture price forecast (wind) (0.66) 4.81 No capture prices
Asset life Lesser of planning, lease, technical life (20-25 years) Contractual limitations - 2.78 Asset life of 40 years (solar) and 30 years (wind)
Corporation tax Long-term corporation tax assumption of 25% from 1 April 2023 Long-term corporation tax assumption of 25% from 1 April 2023 - 1.08 Short-term corporation tax assumption of 25% then 19% thereafter
Indexation OBR short term, 2.5% RPI and 2.0% CPI long term OBR short term, 2.5% RPI and 2.0% CPI long term - 0.35 0.5% increase to inflation forecasts
Investment and portfolio review
Portfolio summary
At the period end, the Company held exposure to 49 investments with a total
valuation of £1.1 billion. Approximately 1% of the portfolio was exposed to
assets in their construction phase.
Portfolio by sector type
PPP/PFI 23%
Healthcare 8%
Education 5%
Waste (PPP) 4%
Leisure 2%
Housing (PPP) 2%
Energy efficiency 1%
Justice 1%
Renewables 66%
Wind (onshore) 18%
Solar (commercial) 14%
Biomass 11%
Solar (rooftop) 9%
Anaerobic digestion 9%
Hydro 2%
Geothermal 1%
Gas peaking 1%
Electric vehicles 1%
SL 11%
Supported living 11%
Portfolio by income type
PPP/PFI 23%
Unitary charge 18%
Gate fee (contracted) 2%
Electricity (fixed/floor) 1%
Lease income 1%
ROC 1%
Renewables 66%
ROC 25%
Electricity (merchant) 19%
FiT 14%
RHI 3%
Electricity (fixed/floor) 2%
Embedded benefits 1%
Gas (merchant) 1%
Pay per mile 1%
SL 11%
Lease income 11%
Portfolio by annualised yield(1)
>10% 9%
8-10% 30%
<8% 61%
Portfolio by average life (years)
>20 12%
10-20 7%
<10 81%
Portfolio by investment type
Equity 10%
Senior 40%
Subordinated 50%
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Top ten investments
Key:
1 Project type
2 % of total portfolio
3 Cash flow type
1 Cardale PFI Investments(1)
1 PPP/PFI
2 11.3%
3 Unitary charge
2 Gravis Solar 1
1 Commercial solar
2 9.4%
3 ROC/PPA/FiT
3 GCP Bridge Holdings(2)
1 Various
2 5.5%
3 ROC/FiT/Lease/PPA
4 Gravis Asset Holdings I
1 Onshore wind
2 4.8%
3 ROC/PPA
5 Gravis Asset Holdings H
1 Onshore wind
2 4.3%
3 ROC/PPA
6 GCP Programme Funding S3
1 Anaerobic digestion
2 4.1%
3 ROC/RHI
7 GCP Programme Funding S8
1 Biomass
2 3.9%
3 ROC/PPA
8 GCP Biomass 2
1 Biomass
2 3.8%
3 ROC/PPA
9 GCP Programme Funding S10
1 Supported living
2 3.6%
3 Lease
10 GCP Green Energy 1
1 Commercial solar/Onshore wind
2 3.4%
3 ROC/PPA
Top ten revenue counterparties % of total portfolio
Viridian Energy Supply Limited 9%
Statkraft Markets GmbH 9%
Ecotricity Limited 8%
Power NI Energy Limited 7%
Office of Gas and Electricity Markets 5%
Smartestenergy Limited 5%
Neas Energy Ltd 4%
Ceres Energy Ltd 4%
Good Energy Limited 4%
Gloucestershire County Council 4%
Top ten project service providers % of total portfolio
PSH Operations Limited 13%
Vestas Celtic Wind Technology Limited 12%
Solar Maintenance Services Limited 10%
A Shade Greener Maintenance Limited 8%
Burmeister and Wain Scandinavian Contractor AS 8%
Engie FM Limited 5%
Atlantic Biogas Ltd 4%
Urbaser Limited 4%
Agrikomp Limited 3%
Robertson Facilities Management Limited 3%
1. Cardale PFI Investments is secured on a cross-collateralised basis against
18 separate operational PFI projects.
2. GCP Bridge Holdings is secured against a portfolio of six infrastructure
investments in the renewable energy and PPP sectors.
Investments and repayments
During the period, the Company made seven advances totalling £75.1 million;
£7.5 million under one new facility and £67.6 million under existing
facilities, increasing the number of investments to 49. The Company received
24 repayments totalling £25.0 million; all of which were scheduled
repayments. Post period end, the Company made further advances of £2.1
million and received repayments of £2.3 million.
A detailed breakdown of the movements in valuation of the investment portfolio
is provided below.
Investments and repayments £m
New investments 7.5
Further advances 67.6
Scheduled repayments (25.0)
Unscheduled repayments -
Net investment/(repayment) 50.1
Sector analysis Investments (£m) Repayments (£m)
Anaerobic digestion 2.7 (0.4)
Biomass 10.3 (4.9)
Hydro - (0.2)
Offshore wind - -
Onshore wind - (11.2)
Commercial solar 36.2 (0.8)
Rooftop solar - (2.3)
PPP/PFI 4.8 (5.1)
Supported living 2.9 -
Geothermal 0.4 -
Flexible generation 7.4 -
Electric vehicles 10.4 (0.1)
Investments and repayments post period end £m
New investments 1.7
Further advances 0.4
Scheduled repayments (2.3)
Unscheduled repayments -
Net investment/(repayment) (0.2)
Sector analysis post period end Investments (£m) Repayments (£m)
Anaerobic digestion 0.1 (0.2)
Biomass - -
Hydro - (1.0)
Offshore wind - -
Onshore wind - -
Commercial solar 0.8 -
Rooftop solar 0.2 -
PPP/PFI 0.9 (0.5)
Supported living 0.1
Geothermal - -
Flexible generation - (0.6)
Electric vehicles - -
Pipeline of investment opportunities
The Company maintains an attractive pipeline of investments across existing
sectors, emerging infrastructure sectors and follow-on investments in the
existing portfolio, at returns that would be accretive to dividend coverage
and that reflect the current market pricing for credit that is in line with
the underlying risk. However, the Company recognises that the use of cash
resources for pipeline investments must be weighed against repayment of the
Company's RCF or, whilst the Company's share price trades at a material
discount to the net asset value, buying back shares.
Portfolio sensitivities
This section details the sensitivity of the value of the investment portfolio
to a number of the risk factors to which it is exposed. A summary of the
overall investment portfolio risks, and the Investment Adviser's approach to
risk, can be found on pages 17 and 18 of the Company's annual report and
financial statements for the year ended 30 September 2022.
Electricity prices
A number of the Company's investments rely on market electricity prices for a
component of their revenues. Changes in electricity prices will therefore
impact a borrower's ability to service debt or, in cases where the Company has
stepped into projects and/or has direct exposure through its investment
structure, impact on overall returns.
The Company adapted its approach to electricity price forecasts as a result of
the UK Government's announcement in November 2022 of the proposed
introduction of a levy. The levy was introduced to tax excess profits
generated by electricity generators, equal to 45% of any excess revenues
over £75 per MWh, subject to minimum revenue of £10 million and applicable
to generators producing over 100 GWh per annum.
The Company reported the expected valuation impact in the 2022 annual report:
a predicted reduction in the 30 September 2022 NAV of 1.50 pence per share.
In December 2022, when the full details of the levy were announced, the actual
impact of the tax was applied to the valuation of the portfolio. This impacted
the NAV by 0.93 pence per share at 31 December 2022. The difference in the
predicted and actual impact arose from the manner of the application of the
levy to groups, demonstrating that the assumptions used were broadly accurate.
Thereafter, the Company's approach of using the quoted futures prices for the
three year period immediately after a valuation date, and the AFRY average
thereafter, has not changed year on year.
The table below shows the forecast impact on the portfolio of a given
percentage change in electricity prices over the full life of the forecast
period to the maturity of the hedge, the impact on hedging arrangements, and
the subsequent net impact on a pence per share basis. Further information on
the Company's hedging arrangements is detailed in note 10 to the financial
statements.
Sensitivity applied to base case electricity price forecast assumption (10%) (5%) 0% 5% 10%
Portfolio sensitivity (pence per share) (5.37) (2.76) - 1.70 3.41
Hedge sensitivity (pence per share) 0.04 0.02 - (0.02) (0.04)
Net sensitivity (pence per share) (5.33) (2.74) - 1.68 3.37
Inflation
Almost half of the Company's investments, c.47% by portfolio value, have some
form of inflation protection. This is structured as a direct link between the
return and realised inflation (relevant to the supported living assets and
certain renewables) and/or a principal indexation mechanism which increases
the principal value of the Company's loans outstanding by a share of realised
inflation over a pre‑determined strike level (typically 2.75% to 3.00%).
The table below summarises the change in interest accruals and potential NAV
impact that would be associated with a movement in inflation.
Sensitivity applied to base case inflation forecast assumption (2.0%) (1.5%) (1.0%) (0.5%) 0.0% 0.5% 1.0% 1.5% 2.0%
NAV impact (pence per share) (6.48) (5.01) (3.44) (1.77) - 1.95 4.29 6.72 9.10
Portfolio performance update
Operationally, the portfolio has performed well during the period. The
weighted average discount rate used across the Company's portfolio at 31 March
2023 was 7.44% (30 September 2022: 7.47%). At the period end, c.1% (30
September 2022: c.1%) of the Company's portfolio was exposed to assets at the
construction stage.
Strong electricity prices continue to boost performance of the Company's
renewables investments, and some investee companies have been able to fix
prices under power purchase agreements to lock in such higher levels over the
next twelve months. Whilst revenues over £75 per MWh are, in certain assets,
subject to the Electricity Generator Levy, these assets still benefit from
increased output over and above the original forecasts. As in prior periods,
electricity price hedging arrangements to partially mitigate NAV volatility
and to lock in attractive prices have been maintained. The valuation of the
Company's direct exposures in the renewables sector (where the Company has
stepped into projects and/or has direct exposure through its investment
structure) and the debt service coverage ratios across all investments, have
been further boosted by:
-increases to the inflation forecasts published by the OBR, which the Company
adopts in the short term. The Company's long‑term expectations remain at
2.5% and 2.0% for RPI and CPI, respectively; and
-increases in the electricity price forecasts used in the valuation of the
renewables portfolio.
Post period end, ROCs were revoked by Ofgem on an additional project under
audit, meaning that three projects in the portfolio have now had ROCs revoked.
The Company has made a claim in connection with its rights under the original
investment documentation in respect of the losses it has incurred as a result
of such revocation. The Investment Adviser remains confident that it will be
able to either solely or cumulatively: (i) address Ofgem's queries to prevent
or mitigate negative impact on a further eight assets that remain under audit;
(ii) successfully challenge any adverse decision by Ofgem on other assets
under audit; or (iii) recover losses it incurs from third parties in relation
to a breach of investment documentation across all affected assets.
Valuation performance attribution
The specific factors that have impacted the valuation in the reporting period
are summarised in the table below.
Driver Description Impact Impact
(£m) (pps)
Inflation Higher inflation actuals and higher OBR medium-term inflation forecast 5.8 0.66
Biomass valuation Higher electricity prices and cost efficiencies implemented 3.1 0.35
Other upward movements Other upward movements across the portfolio 1.5 0.17
Total upward valuation movements 10.4 1.18
Actuals performance Impact of renewables actual generation lower than forecast (2.1) (0.24)
Discount rates Increase in discount rate for a portfolio asset (2.4) (0.27)
Tax Impact of the latest tax computations (1.2) (0.14)
Electricity Generator Levy Effect on valuation of incorporating the Electricity Generator Levy (8.2) (0.93)
legislation
Electricity prices(1) Electricity price movements in the period (4.7) (0.53)
Social housing valuation Valuation adjustment reflecting continued uncertainty in the sector (5.2) (0.59)
Other downward movements Other downward movements (2.0) (0.23)
Total downward valuation movements (25.8) (2.93)
Interest receipts Net valuation movements attributable to the timing of debt service payments (2.0) (0.23)
between periods
Total other valuation movements (2.0) (0.23)
Total net valuation movements before hedging (17.4) (1.98)
Commodity swap - unrealised(2) Derivative financial instrument entered into for the purpose of hedging 5.8 0.66
electricity price movements
Commodity swap - realised(2) 6.1 0.69
Total net valuation movements after hedging (5.5) (0.63)
1. Refer to commodity swap below.
2. The derivative financial instrument was utilised to mitigate volatility in
electricity price movements as detailed above; refer to notes 10 and 13
for further details.
Interest capitalised
During the period, £43.5 million (31 March 2022: £40.9 million) of loan
interest accrued(1) on the underlying investment portfolio for the benefit of
the Company. Of this, £40.9 million (31 March 2022: £35.8 million) was
received in cash or capitalised in the period. The capitalisation of interest
occurs for three reasons:
1. Where interest has been paid to the Company late (often as a result of
moving cash through the Company and borrower corporate structures), a
capitalisation automatically occurs from an accounting point of view.
2. On a scheduled basis, where a loan has been designed to contain an
element of capitalisation of interest due to the nature of the underlying
cash flows. Examples include projects in construction that are not generating
operational cash flows, or subordinated loans where the bulk of subordinated
cash flows are towards the end of the assumed life of a project, after
the repayment of senior loans. Planning future capital investment commitments
in this way forms an effective way of reinvesting repayments received from the
portfolio back into other portfolio projects.
3. Loans are not performing in line with the financial model, resulting
in:
(i) lock-up of cash flows to investors who are junior to
senior lenders; and
(ii) cash generation is not sufficient to service debt.
The table below shows a breakdown of interest capitalised during the period
and amounts paid as part of final repayment or disposal proceeds:
31 March 31 March 31 March 31 March
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Loan interest received 30,928 23,018
Capitalised amounts settled as part of final repayment or disposal proceeds - 9,727
Capitalised (planned) 8,301 7,445
Capitalised (unscheduled) 1,717 5,319
Loan interest capitalised 10,018 12,764
Capitalised amounts subsequently settled as part of repayments (4,752) 4,752 (6,928) 6,928
Adjusted loan interest capitalised(1) 5,266 5,836
Adjusted loan interest received(1) 35,680 39,673
The table below illustrates the forecast component of interest capitalised
that is planned and unscheduled.
The Investment Adviser and the independent Valuation Agent review any
capitalisation of interest and associated increase to borrowings to confirm
that such increase in debt, and associated cost of interest, can ultimately be
serviced over the life of the asset. To the extent an increase in loan balance
is not serviceable, a downward revaluation is recognised, notwithstanding that
such amount remains due and payable by the underlying borrower and where
capitalisation has not been scheduled, it attracts default interest payable.
30 September
% of total interest 2022 2023 2024 2025 2026 2027
Capitalised (planned) 17% 11% 9% 8% 9% 8%
Capitalised (unscheduled) 8% 7% 1% 2% 0% 0%
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Risks and viability
In the period, three of the principal risks included in the Company's 2022
annual report and financial statements have seen their residual risk decrease
or increase (risks 1, 2 and 5), with all other principal risks remaining
stable (risks 3, 4 and 6-10). In addition, the Board has identified a new
principal risk, which is set out below (risk 11).
Category 1: Execution risk
Risk Impact How the risk is managed Change in residual risk over the period
1. Investment due diligence If an investment underperforms relative to expectations, the interest and In addition to due diligence carried out by the Investment committee of the Increased
principal received Board and the Investment Adviser, various
Investment due diligence may
The current macro‑economic environment is uncertain, and the future outlook
on the investment may be lower than envisaged, negatively impacting the third party financial, technical, insurance and legal experts are engaged to for inflation and interest rates is difficult to predict with accuracy.
not reveal all the facts relevant performance of advise on specific project risks. The current climate has been exacerbated by the war in Ukraine, causing
volatility in gas and electricity prices and resulting in government
in connection with an investment and may not highlight issues the Company. intervention.
that could affect that investment's performance. This risk is likely to be
greater in new investment sectors such as geothermal, hydrogen storage,
forestry and electric vehicles.
Link to strategy: 1, 3
2. Availability of suitable investments and reinvestment risk If the Company cannot invest capital in suitable assets in a timely and The Investment Adviser is constantly in touch with the market seeking new Decreased
appropriate manner, the uninvested cash balance will have a negative impact on deals and builds a specifically identified investment pipeline before the
There is no guarantee that the Company will be able to identify suitable the Company's returns. If the only available investments with an appropriate Company seeks to raise additional capital in order to ensure that it is The Company made investments during the period totalling £75.1 million and
investments with risk risk profile yield deployed in a timely fashion. Consideration is also given to any scheduled has an active pipeline of investment opportunities under consideration. The
capital repayments investment pipeline comprises investment opportunities with an appropriate
and return characteristics that lower rates of return than have historically been achievable, the Company's risk profile to deliver the required returns. Further information on the
overall returns may be adversely affected. Furthermore, if loans are prepaid investment pipeline is included above. In an increasing interest rate
fit within the investment strategy of the Company. Where suitable investments earlier than expected the repayment of capital is accelerated, leading to environment the availability of suitable projects within the return objectives
can be identified, potential cash drag. Ultimately, this risks the sustainability of the of the Company may increase. The refinancing of loans and early prepayments
dividend. may also become less likely.
the Company may face competition in closing a transaction. This is a risk when
raising capital and when reinvesting capital repaid to the Company under
existing loan agreements.
Link to strategy: 1, 2, 3
Category 2: Portfolio risk
Risk Impact How the risk is managed Change in residual risk over the period
5. Performance of, and reliance on, subcontractors If a key subcontractor was to be replaced due to the insolvency The competence and financial strength of subcontractors, as well as the terms Increased
and feasibility of their engagements, are a key focus of investment
The performance of the Company's investments is typically, to a considerable of that subcontractor or for any other reason, the replacement subcontractor
Ongoing inflationary pressures, supply chain disruption and higher interest
degree, dependent on the performance of subcontractors, most notably may charge a higher price for the relevant services than previously paid. The due diligence. The Board and rates are putting strain on subcontractors' finances and operations.
facilities managers and operations and maintenance subcontractors. The Company resulting increase in costs may result in the Company receiving lower interest
is heavily reliant on subcontractors to carry out their obligations in and principal payments than envisaged. the Investment Adviser monitor the Company's exposure to any given
accordance with the terms of subcontractor and ensure that the risk of underperformance is mitigated by
diversification.
their appointment and to exercise due skill and care. Recovery from the
Covid-19 pandemic may continue to impact subcontractors' supply chains.
Link to strategy: 1, 3
Category 4: Other risks
Risk Impact How the risk is managed Change in residual risk over the period
11. Share price discount or premium to NAV A significant discount(1) may prevent the Company raising more capital. The level of discount(1) that the Company's shares are trading has meant that New
If the Company buybacks have become an attractive option from an investment point of view
The Company's share price discount(1) to NAV will persist and widen to a
relative to other opportunities. Consequently, during the period, the Company The Company's shares have traded at an average discount(1) of 14.3% during the
significant level, or was unable to secure further capital for investment, this may adversely affect has commenced a share buyback programme of shares up to an aggregate value of period and an average premium(1) of 7.9% since IPO.
the Company's investment returns and may £15.0 million. The decision to buy back shares is subject to the ongoing
will remain at an insufficiently
evaluation by the Board of the Company's share price,
have a material adverse effect
large or consistent premium(1).
the investment pipeline and the available cash resources of the Company. The The level of share price discount(1) is being closely monitored by the Board.
on the Company's financial position and results from operations. level of discount(1) relative to the NAV per share is closely monitored by the
Link to strategy: 2, 3 Board.
Key to strategy references
1. Dividend income
2. Diversification
3. Capital preservation
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Financial review
The Company generated income of £35.6 million and a profit of £25.8 million.
The Company's total shareholder return(1) was -9.7% and the NAV total
return(1) was 2.7%.
Operating review
It has been a positive financial period for the Company, with revaluations of
investments positively impacting profitability. The Company generated
operating income of £35.6 million (31 March 2022: £117.6 million)
including loan interest income of £40.9 million and net unrealised valuation
losses on investments of £17.4 million (31 March 2022: loan interest income
of £35.8 million, net unrealised valuation gains on investments of £72.0
million).
The comparative period last year included material upward revaluations
resulting from significantly increased electricity price forecasts; this
period saw significant volatility but with lower short-term prices and lower
long-term forecasts than last year. Net gains on derivative financial
instruments at period end were £11.9 million (31 March 2022: £4.2 million),
reflecting the electricity price hedging arrangements which locked in
attractive price levels for the Company.
Administration costs of £5.7 million (31 March 2022: £6.6 million) were
incurred during the period; these include the Investment Adviser's fee, the
Directors' fees and other third party service provider fees. These, and other,
operating costs have remained broadly in line with previous years, with no
further costs attributable to the Company in respect of professional fees
associated with ongoing audits being carried out by Ofgem (refer below for
further details) and no costs in relation to aborted transactions per the
prior year. The Company's ongoing charges ratio(1) has remained broadly in
line year on year at 1.1% (31 March 2022: 1.2%).
Finance costs have increased to £4.1 million from £2.1 million, reflecting
higher amounts drawn on the RCF compared to the comparative period and
increased interest rates in the period.
Total profit generated for the period was £25.8 million (31 March 2022:
£108.9 million). The decrease primarily reflects the impact of lower
electricity prices and long-term forecasts than the prior year.
Cash generation
The Company received loan principal payments of £25.0 million and made seven
advances totalling £75.1 million in the period (31 March 2022: £109.7
million in principal payments and 16 advances totalling £72.8 million).
Further, the Company made drawdowns of £55.0 million on its RCF.
Loan interest receipts of £30.9 million were used along with principal
repayments to pay cash dividends of £31.0 million (31 March 2022: £23.0
million and £29.4 million respectively). The Company aims to manage its cash
position effectively by minimising cash balances, while maintaining the
financial flexibility to pursue a pipeline of investment opportunities.
The Directors have assessed the Company's cash resources and availability of
funding as part of the going concern assessment. The Company held cash
balances of £26.0 million at the period end and does not expect the level of
annual expense to increase materially. The Directors and the Investment
Adviser believe that together with scheduled loan interest receipts,
repayments and the Company's RCF will provide sufficient liquidity for the
Company.
Dividends
The Company paid dividends of 3.5 pence per share in respect of the six months
to 31 March 2023. This is in line with the dividend target(1) set out for year
ending 30 September 2023 of 7.0 pence per share. On an annualised basis, this
represents a yield of 8.2% against the share price at 31 March 2023.
Share price performance
The Company's total shareholder return(2) was -9.7% for the period and 89.6%
since IPO in 2010. The Company has continued to experience significant
volatility in its share price in line with global equity markets. The shares
have traded at an average discount(1) to NAV of 14.3% over the period and an
average premium(1) of 7.9% since IPO. The share price at the period end was
85.20 pence per share, which represents a discount(1) to NAV of 24.1%.
Financing
At the beginning of the period, £99.0 million was drawn on the RCF.
Subsequently, in October 2022, the Company made a utilisation of
£15.0 million, followed by a further utilisation of £40.0 million in
December 2022. The RCF is due to expire in March 2024. The Investment Adviser
is liaising with the existing lending group in order to refinance the RCF in
advance of the date of expiry. Further information is included in note 2.1.
At 31 March 2023, £154.0 million of the £190.0 million RCF was drawn.
Further details on the Company's RCF can be found in notes 8 and 13.
1. The dividend target set out above is a target only and not a profit
forecast or estimate and there can be no assurance that it will be met.
2. APM - for definition and calculation methodology, refer to the APMs section
below.
Statement of Directors' responsibilities
Under the terms of the DTRs of the FCA, the Directors are responsible for
preparing the half-yearly report and unaudited interim condensed financial
statements in accordance with applicable regulations.
The Directors confirm to the best of their knowledge that:
- the unaudited interim condensed set of financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
- the Chairman's interim statement and the Investment Adviser's report
constitute the Company's interim management report, which includes a fair
review of the information required by DTR 4.2.7R (indication of important
events during the first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
- the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein).
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Jersey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
On behalf of the Board
Andrew Didham
Chairman
20 June 2023
Independent review report
To GCP Infrastructure Investments Limited
Conclusion
We have been engaged by GCP Infrastructure Investments Limited (the "Company")
to review the unaudited interim condensed set of financial statements in the
half-yearly financial report for the six months ended 31 March 2023 of the
Company, which comprises the statements of financial position, comprehensive
income, changes in equity, cash flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the unaudited interim condensed set of financial statements in
the half-yearly financial report for the six months ended 31 March 2023 is not
prepared, in all material respects, in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU and the Disclosure Guidance and
Transparency Rules (the "DTR") of the UK's Financial Conduct Authority (the
"UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued by the Financial
Reporting Council for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the unaudited interim condensed set of
financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the scope of review section of this report,
nothing has come to our attention to suggest that the Directors have
inappropriately adopted the going concern basis of accounting or that the
Directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Company to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Company will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for preparing the
interim financial report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the Company are
prepared in accordance with International Financial Reporting Standards as
adopted by the EU. The Directors are responsible for preparing the unaudited
interim condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU.
In preparing the half-yearly financial report, the Directors are responsible
for assessing the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless they either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the unaudited
interim condensed set of financial statements in the half-yearly financial
report based on our review. Our conclusion, including our conclusions relating
to going concern, are based on procedures that are less extensive than audit
procedures, as described in the scope of review paragraph of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement letter to assist the Company in meeting the requirements of the DTR
of the UK FCA. Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company for our review work,
for this report, or for the conclusions we have reached.
Andrew Quinn
For and on behalf of
KPMG Channel Islands Limited
Chartered Accountants and
Recognised Auditors
Jersey
20 June 2023
Unaudited interim condensed statement of comprehensive income
For the period 1 October 2022 to 31 March 2023
Period ended Period ended
31 March 31 March
2023 2022
Notes £'000 £'000
Income
Net income/gains on financial assets at fair value through profit or loss 3 23,526 113,242
Net gains on derivative financial instruments at fair value through profit or 3 11,853 4,247
loss
Other income 3 171 64
Total income 35,550 117,553
Expense
Investment advisory fees 12 (4,385) (4,123)
Operating expenses (1,283) (2,428)
Total expenses (5,668) (6,551)
Total operating profit before finance costs 29,882 111,002
Finance costs (4,121) (2,101)
Total profit and comprehensive income for the period 25,761 108,901
Basic and diluted earnings per share (pence) 6 2.91 12.34
All of the Company's results are derived from continuing operations.
The accompanying notes below form an integral part of the financial
statements.
Unaudited interim condensed statement of financial position
As at 31 March 2023
(Audited)
As at As at
31 March 30 September
2023 2022
Notes £'000 £'000
Assets
Cash and cash equivalents 25,997 15,981
Other receivables and prepayments 154 185
Derivative financial instruments at fair value through profit or loss 10 1,925 -
Financial assets at fair value through profit or loss 11 1,120,113 1,087,331
Total assets 1,148,189 1,103,497
Liabilities
Derivative financial instruments at fair value through profit or loss 10 - (3,861)
Other payables and accrued expenses 7 (2,938) (3,570)
Interest bearing loans and borrowings 8 (153,341) (98,009)
Total liabilities (156,279) (105,440)
Net assets 991,910 998,057
Equity
Share capital 9 8,837 8,848
Share premium 9 870,677 871,606
Capital redemption reserve 101 101
Retained earnings 112,295 117,502
Total equity 991,910 998,057
Ordinary shares in issue (excluding treasury shares) 883,747,669 884,797,669
NAV per ordinary share (pence per share) 112.24 112.80
Signed and authorised for issue on behalf of the Board of Directors.
Andrew Didham
Chairman
20 June 2023
Steven Wilderspin
Director
20 June 2023
The accompanying notes below form an integral part of the financial
statements.
Unaudited interim condensed statement of changes in equity
For the period 1 October 2022 to 31 March 2023
Capital
Share Share redemption Retained Total
capital premium(1) reserve earnings equity
Notes £'000 £'000 £'000 £'000 £'000
At 1 October 2021 8,822 868,867 101 39,009 916,799
Total profit and comprehensive income for the period
- - - 108,901 108,901
Equity shares issued 14 1,488 - - 1,502
Share issue costs - (27) - - (27)
Dividends 5 - - - (30,888) (30,888)
At 31 March 2022 8,836 870,328 101 117,022 996,287
At 1 October 2022 8,848 871,606 101 117,502 998,057
Total profit and comprehensive income for the period
- - - 25,761 25,761
Share repurchases 9 (11) (927) - - (938)
Share repurchase costs 9 - (2) - - (2)
Dividends 5 - - - (30,968) (30,968)
At 31 March 2023 8,837 870,677 101 112,295 991,910
1. The share premium is a distributable reserve in accordance with Jersey
Company Law. Refer to note 5 for further information.
The accompanying notes below form an integral part of the financial
statements.
Unaudited interim condensed statement of cash flows
For the period 1 October 2022 to 31 March 2023
Period ended Period ended
31 March 31 March
2023 2022
Notes £'000 £'000
Cash flows from operating activities
Total operating profit before finance costs 29,882 111,002
Adjustments for:
Loan interest income 3 (40,946) (35,782)
Net losses/(gains) on financial assets at fair value through profit or loss 3 17,420 (77,460)
Net gains on derivative financial instruments at fair value through profit 3 (11,853) (4,247)
or loss
(Decrease)/increase in other payables and accrued expenses (480) 32
Decrease in other receivables and prepayments 49 2
Total (5,928) (6,453)
Loan interest received 3 30,928 23,018
Purchase of financial assets at fair value through profit or loss 11.7 (65,080) (30,150)
Repayment of financial assets at fair value through profit or loss 11.7 24,896 80,677
Proceeds from derivative financial instruments at fair value through profit or 3 6,067 -
loss
Settlement of derivative financial instruments at fair value through profit or 3 - (10,889)
loss
Net cash flows (used in)/generated from operating activities (9,117) 56,203
Cash flows from financing activities
Proceeds from revolving credit facility 55,000 6,000
Repayment of revolving credit facility - (15,000)
Share issue costs - (27)
Share repurchases (938) -
Share repurchase costs (2) -
Dividends paid 5 (30,968) (29,386)
Finance costs paid (3,959) (1,863)
Net cash flows generated from/(used in) financing activities 19,133 (40,276)
Increase in cash and cash equivalents 10,016 15,927
Cash and cash equivalents at beginning of the period 15,981 7,470
Cash and cash equivalents at end of the period 25,997 23,397
Net cash flows from operating activities includes:
Other income 3 53 64
Deposit interest received 3 118 -
The accompanying notes below form an integral part of the financial
statements.
Notes to the unaudited interim condensed financial statements
For the period 1 October 2022 to 31 March 2023
1. General information
GCP Infrastructure Investments Limited is a public company incorporated and
domiciled in Jersey on 21 May 2010 with registration number 105775. The
Company is governed by the provisions of the Jersey Company Law and the CIF
Law.
The Company is a closed-ended investment company and its ordinary shares are
traded on the Main Market of the London Stock Exchange.
The Company makes infrastructure investments, typically by acquiring interests
in debt instruments issued by infrastructure Project Companies, their owners
or their lenders and related and/or similar assets which provide regular and
predictable long‑term cash flows.
2. Significant accounting policies
2.1 Basis of preparation
The unaudited interim condensed financial statements for the six month period
1 October 2022 to 31 March 2023 have been prepared in accordance with IAS 34
Interim Financial Reporting, as adopted by the EU.
The unaudited interim condensed financial statements do not include all
the information and disclosures required in annual financial statements and
should be read in conjunction with the Company's annual report and financial
statements for the year ended 30 September 2022. The financial statements
for the year ended 30 September 2022 were prepared in accordance with IFRS as
adopted by the EU and audited by KPMG Channel Islands Limited, who issued an
unqualified audit opinion.
The financial information contained in the unaudited interim condensed
financial statements for the period 1 October 2022 to 31 March 2023 has not
been audited, but has undergone a review by the Company's auditor in
accordance with International Standards on Review Engagements (UK) 2410,
Review of Interim Financial Information Performed by the Independent Auditor
of the Entity, issued by the Financial Reporting Council for use in the UK.
The unaudited interim condensed financial statements have been prepared under
the historical cost convention, as modified by the revaluation of financial
assets held at fair value through profit or loss.
The accounting policies adopted in the preparation of the unaudited interim
condensed financial statements are consistent with those followed in the
preparation of the Company's annual financial statements for the year ended 30
September 2022, except for the new standards and amendments to standards
disclosed below.
Changes in presentation of statement of cash flows
As noted in the 2022 annual report, the Company changed the presentation of
operating activities in the statement of cash flows. The update to the
presentation, which comprises presenting loan interest income and loan
interest received separately in net cash flows generated from operating
activities, provides more reliable and relevant information to users of the
financial statements. There has been no change in the net cash flows generated
from operating activities in the comparative statement of cash flows for 31
March 2022.
New standards, amendments and interpretations
In the period under review, the Company has applied amendments to IFRS issued
by the IASB. These include annual improvements to IFRS, changes in standards,
legislative and regulatory amendments, changes in disclosure and presentation
requirements.
This incorporated:
· onerous contracts - cost of fulfilling a contract (amendments to
IAS 37);
· annual improvements to IFRS standards;
· disclosure of accounting policies (amendments to IAS 1 and IFRS
Practice Statement 2); and
· definition of accounting estimates (amendments to IAS 8).
The adoption of the changes to accounting standards has had no material impact
on these or prior periods' financial statements. There are amendments to
IFRS that will apply from 1 January 2024 as follows:
· classification of liabilities as current or non-current (amendments
to IAS 1); and
· non-current liabilities with covenants (amendments to IAS 1).
The Directors do not anticipate that the adoption of these will have a
material impact on the financial statements. Other than those detailed above,
there are no new IFRS or IFRIC interpretations that are issued but not
effective that would be expected to have a material impact on the Company's
financial statements.
Functional and presentation currency
Items included in the unaudited interim condensed financial statements of the
Company are measured in the currency of the primary economic environment in
which the Company operates.
The financial statements are presented in Pound Sterling and all values have
been rounded to the nearest thousand pounds (£'000), except where otherwise
indicated.
Going concern
The Directors have made an assessment of the Company's ability to continue as
a going concern and are satisfied that the Company has the resources to
continue in business for the foreseeable future and for a period of at least
twelve months from the date of the authorisation of these unaudited interim
condensed financial statements.
The Investment Adviser has prepared cash flow forecasts which were challenged
and approved by the Directors and included consideration of: cash flow
forecasts and stress scenarios, including the impacts of volatile energy
prices; the availability of the Company's RCF (refer below); high inflation;
further increases to interest rates; and supply chain disruptions.
The Company has in place a RCF which is due to expire in March 2024. The
Investment Adviser is reviewing the Company's financing arrangements and has
liaised with the existing lending group to obtain indicative quantum, appetite
and terms. Each of the lenders in the group have confirmed appetite to
participate at the same level or potentially increase their exposure. The
Directors are therefore satisfied that the Company will be able to refinance
its RCF in line with previous years and that the refinance does not cause
significant doubt from a going concern perspective.
Furthermore, the Directors are not aware of any other material uncertainties
that may cast doubt upon the Company's ability to continue as a going concern.
Therefore, the unaudited interim condensed financial statements have been
prepared on a going concern basis.
2.2 Significant accounting judgements and estimates
The preparation of unaudited interim condensed financial statements in
accordance with IFRS requires the Directors of the Company to make judgements,
estimates and assumptions that affect the application of accounting policies
and the reported amounts recognised in the unaudited interim condensed
financial statements. However, uncertainty about these assumptions and
estimates could result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future.
(a) Critical accounting estimates and assumptions
Fair value of instruments not quoted in an active market
The valuation process is dependent on assumptions and estimates which are
significant to the reported amounts recognised in the unaudited interim
condensed financial statements, taking into account the structure of the
Company and the extent of its investment activities (refer to note 11 for
further information).
(b) Critical judgements
Assessment as an investment entity
The Directors have determined that the SPVs through which the Company invests
fall under the control of the Company in accordance with the control criteria
prescribed by IFRS 10 and therefore meet the definition of subsidiaries. In
addition, the Directors continue to hold the view that the Company meets the
definition of an investment entity and therefore can measure and present the
SPVs at fair value through profit or loss. This process requires a significant
degree of judgement, taking into account the complexity of the structure of
the Company and extent of investment activities (refer to note 11 of the
annual report and financial statements for the year ended 30 September 2022).
Segmental information
For management purposes, the Company is organised into one main operating
segment. All of the Company's activities are interrelated, and each activity
is dependent on the others. Accordingly, all significant operating decisions
by the Board (as the chief operating decision maker) are based upon the
analysis of the Company as one segment. The financial results from this
segment are equivalent to the unaudited interim condensed financial statements
of the Company as a whole. The following table analyses the Company's
underlying operating income per geographical location. The basis for
attributing the operating income is the place of incorporation of
the underlying counterparty.
31 March 31 March
2023 2022
£'000 £'000
Channel Islands 118 -
United Kingdom 35,432 117,553
Total 35,550 117,553
3. Operating income
The table below analyses the Company's operating income for the period per
investment type:
31 March 31 March
2023 2022
£'000 £'000
Interest on cash and cash equivalents 118 -
Other operating income 53 64(1)
Other income 171 64
Net changes in fair value of financial assets and derivative financial 35,379 117,489
instruments at fair value through profit or loss
Total 35,550 117,553
The table below analyses the net changes in fair value of the Company's
financial assets and derivative financial instruments at fair value through
profit or loss:
31 March 31 March
2023 2022
£'000 £'000
Loan interest received 30,928 23,018
Loan interest capitalised 10,018 12,764
Total loan interest income 40,946 35,782
Unrealised gains on investments at fair value through profit or loss 20,240 80,831(1)
Unrealised losses on investments at fair value through profit or loss (37,660) (8,865)
Net unrealised (losses)/gains on investments at fair value through profit or (17,420) 71,966
loss
Net realised gains on disposal of investments at fair value through profit or - 5,494
loss
Net (losses)/gains on investments at fair value through profit or loss (17,420) 77,460
Net income/gains on financial assets at fair value through profit or loss 23,526 113,242
Unrealised gains on derivative financial instruments at fair value through 5,786 15,136
profit or loss
Realised gains/(losses) on repayment of derivative financial instruments at 6,067 (10,889)
fair value through profit or loss
Net gains on derivative financial instruments at fair value through profit or 11,853 4,247
loss
Net changes in fair value of financial assets and derivative financial 35,379 117,489
instruments at fair value through profit or loss
4. Taxation
Profits arising in the Company for the period 1 October 2022 to 31 March 2023
are subject to tax at the standard rate of 0% (31 March 2022: 0%) in
accordance with the Income Tax (Jersey) Law 1961, as amended.
5. Dividends
Dividends paid for the six month period to 31 March 2023 were 3.50 pence per
share (31 March 2022: 3.50 pence per share) as follows:
31 March 2023 31 March 2022
Quarter ended Dividend Pence £'000 Pence £'000
Current period dividends
31 March 2023/22 Second interim dividend 1.75 - 1.75 -
31 December 2022/21 First interim dividend 1.75 15,484 1.75 15,449
Total 3.50 15,484 3.50 15,449
Prior period dividends
30 September 2022/21 Fourth interim dividend 1.75 15,484 1.75 15,439
30 June 2022/21 Third interim dividend 1.75 - 1.75 -
Total 3.50 15,484 3.50 15,439
Dividends in statement of changes in equity 30,968 30,888
Dividends settled in shares(2) - (1,502)
Dividends in cash flow statement 30,968 29,386
1. Principal indexation of £878,000 applied to a loan has been reclassified
from other operating income to unrealised gains on investments at fair value
through profit or loss.
2. The dividends settled in shares are where shareholders have elected to take
the scrip dividend alternative.
On 27 April 2023, the Company announced a second interim dividend of 1.75
pence per ordinary share amounting to £15.5 million paid on 14 June 2023 to
ordinary shareholders on the register at 12 May 2023.
In accordance with the Company's constitution, in respect of the ordinary
shares, the Company will distribute the income it receives to the fullest
extent that is deemed appropriate by the Directors.
In declaring a dividend, the Directors consider the payment based on a number
of factors, including accounting profit, fair value treatment of investments
held, future investments, reserves, cash balances and liquidity. The payment
of a dividend is considered by the Board and is declared on a quarterly basis.
Dividends are a form of distribution and, under Jersey Company Law, a
distribution may be paid out of capital. Therefore, the Directors consider the
share premium reserve to be a distributable reserve. Dividends due to the
Company's shareholders are recognised when they become payable.
The Board, at its discretion, has suspended the scrip dividend alternative as
a result of the likely discount between any scrip dividend reference price of
the shares and the NAV per share of the Company. The Board intends to keep the
payment of future scrip dividends under review.
6. Earnings per share
Basic and diluted earnings per share are calculated by dividing total profit
and comprehensive income for the period attributable to ordinary equity
holders of the Company by the weighted average number of ordinary shares in
issue during the period.
Total profit Weighted
and average
comprehensive number of
income ordinary Pence
£'000 shares(1) per share
Period ended 31 March 2023
Basic and diluted earnings per ordinary share 25,761 884,737,778 2.91
Period ended 31 March 2022
Basic and diluted earnings per ordinary share 108,901 882,704,452 12.34
1. Excluding shares repurchased and held in treasury.
7. Other payables and accrued expenses
(Audited)
31 March 30 September
2023 2022
£'000 £'000
Investment advisory fees 2,147 2,234
Other payables and accrued expenses 791 1,336
Total 2,938 3,570
8. Interest bearing loans and borrowings
(Audited)
31 March 30 September
2023 2022
£'000 £'000
Loan facilities 154,000 99,000
Unamortised arrangement fees (659) (991)
Total 153,341 98,009
The table below analyses the movement for the period:
(Audited)
31 March 30 September
2023 2022
£'000 £'000
Opening balance 98,009 163,412
Changes from cash flow
Proceeds from revolving credit facility 55,000 11,000
Repayment of revolving credit facility - (77,000)
Loan arrangement fees - (54)
Non-cash changes
Amortisation of loan arrangement fees 332 651
Closing balance 153,341 98,009
Revolving credit facility
The Company entered into a RCF agreement dated 29 March 2021, as amended and
restated on 29 June 2021, and with an additional commitment side letter dated
24 February 2022, with RBSI, Allied Irish Bank, Lloyds Bank, Clydesdale Bank
and Mizuho Bank. The RCF has £190.0 million total commitments and will expire
on 29 March 2024. The Investment Adviser is liaising with the existing lending
group in order to refinance the RCF in advance of the date of expiry. It is
secured against a portfolio of certain underlying assets held by the Company.
The interest on amounts drawn is charged at SONIA plus 2.00% per annum and a
commitment fee of 0.70% is payable on the undrawn amounts.
At 31 March 2023, the total amount drawn on the RCF was £154.0 million (30
September 2022: £99.0 million).
All amounts drawn under the RCF are to be used in or towards the making of
investments in accordance with the Company's investment policy. The facility
provides the Company with continued access to flexible debt finance, enabling
it to take advantage of investment opportunities as they arise, and may also
be used to manage the Company's working capital requirements from time to
time.
The RCF includes loan to value(1) and interest cover(1) covenants that are
measured at Company level. The Company has maintained sufficient headroom
against all measures throughout the financial period and is in full compliance
with all loan covenants at 31 March 2023.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
9. Authorised and issued share capital
(Audited)
31 March 2023 30 September 2022
Number of Number of
Share capital shares £'000 shares £'000
Ordinary shares issued and fully paid
Opening balance 884,797,669 8,848 882,210,228 8,822
Equity shares issued through:
Dividends settled in shares(1) - - 2,587,441 26
Total shares in issue 884,797,669 8,848 884,797,669 8,848
Treasury shares
Opening balance - - - -
Shares repurchased (1,050,000) (11) - -
Total shares repurchased and held in treasury (1,050,000) (11) - -
Total ordinary share capital excluding treasury shares 883,747,669 8,837 884,797,669 8,848
Share capital is representative of the nominal amount of the Company's
ordinary shares in issue.
The Company is authorised in accordance with its Memorandum of Association to
issue up to 1.5 billion ordinary shares, 300 million C shares and 300 million
deferred shares, each having a par value of one pence per share.
(Audited)
31 March 30 September
2023 2022
Share premium £'000 £'000
Premium on ordinary shares issued and fully paid:
Opening balance 871,606 868,867
Premium on equity shares issued through:
Dividends settled in shares(1) - 2,793
Share issue costs - (54)
Share repurchases (927) -
Share repurchase costs (2) -
Total 870,677 871,606
1. The dividends settled in shares are where shareholders have elected to take
the scrip dividend alternative.
Share premium represents amounts subscribed for share capital in excess of
nominal value less associated costs of the issue, less dividend payments
charged to premium as and when appropriate. Share premium is a distributable
reserve in accordance with Jersey Company Law.
The Company's issued share capital is represented by one class of ordinary
shares. Quantitative information about the Company's share capital is provided
in the statement of changes in equity.
At 31 March 2023, the Company's issued share capital comprised 884,797,669
ordinary shares (31 March 2022: 883,643,978), of which 1,050,000 (31 March
2022: none) were held in treasury, and there were no C shares or deferred
shares in issue.
The ordinary shares carry the right to dividends out of the profits available
for distribution attributable to each share class, if any, as determined by
the Directors. Each holder of an ordinary share is entitled to attend meetings
of shareholders and, on a poll, to one vote for each share held.
10. Derivative financial instruments at fair value through profit or loss
On 13 July 2022, the Company entered into a commodity swap agreement with Axpo
Solutions AG under the ISDA master agreement for risk management purposes,
which includes full right of set off. The derivative financial instrument
comprises a commodity swap on electricity/baseload for the purpose of hedging
electricity price market movements, in cases where the Company has stepped
into projects and/or has direct exposure through its investment structure.
This commodity swap agreement expired on 31 March 2023 and was settled in
April 2023 in line with the contractual terms.
On 15 February 2023, the Company entered into a new a commodity swap agreement
with Axpo Solutions AG under the same terms which is due to expire on 30
September 2023.
The Company has been granted a credit line of £50.0 million by Axpo Solutions
AG in order to mitigate the need for regular cash flows associated with the
hedge.
The table below sets out the valuation of the swap held by the Company at the
period end, provided by Axpo Solutions AG:
Notional
Total notional quantity
Derivative Maturity quantity per hour
Commodity swap - electricity/baseload 'winter 2022/23' 31 March 2023 26,208 MWh 6 MW
Commodity swap - electricity/baseload 'summer 2023' 30 September 2023 26,352 MWh 6 MW
(Audited)
31 March 30 September
2023 2022
£'000 £'000
Fixed
Fixed price: winter 2022/23 £434.0/MWh 1,935 11,374
Fixed price: summer 2023 £140.5/MWh 3,702 -
Floating
Commodity Reference Price Index: winter 2022/23 Electricity N2EX UK Power Index Day Ahead (514) (15,235)
Commodity Reference Price Index: summer 2023 Electricity N2EX UK Power Index Day Ahead (3,198) -
Fair value 1,925 (3,861)
11. Financial instruments
11.1 Capital management
The Company is funded from equity balances, comprising issued ordinary share
capital, as detailed in note 9, and retained earnings, in addition to a
revolving credit facility, as detailed in note 8. The Company may seek to
raise additional capital from time to time, to the extent that the Directors
and the Investment Adviser believe the Company will be able to make suitable
investments, with consideration also given to the alternatives of share
buybacks and a reduction in leverage.
The Company raises capital on a highly conservative basis only when it has a
clear view of a robust pipeline of highly advanced investment opportunities.
The Company may borrow up to 20% of its NAV at any such time borrowings are
drawn down. At the period end, the Company remains modestly geared with loan
to value(1) of 13% (30 September 2022: 10%).
1. APM - for definition and calculation methodology, refer to the APMs section
below.
11.2 Financial risk management objectives
The Company has an investment policy and strategy as summarised above that
sets out its overall investment strategy and its general risk management
philosophy and has established processes to monitor and control these in a
timely and accurate manner. These guidelines are the subject of regular
operational reviews undertaken by the Investment Adviser to ensure that the
Company's policies are adhered to as it is the Investment Adviser's duty to
identify and assist in the control of risk. The Investment Adviser reports
regularly to the Directors, who have ultimate responsibility for the overall
risk management approach.
The Investment Adviser and the Directors ensure that all investment activity
is performed in accordance with the investment guidelines. The Company's
investment activities expose it to various types of risk that are associated
with the financial instruments and the markets in which it invests. Risk is
inherent in the Company's activities and it is managed through a process of
ongoing identification, measurement and monitoring. The financial risks to
which the Company is exposed include market risk (which includes other price
risk), interest rate risk, credit risk and liquidity risk. Further, the
Company is exposed to a number of shareholder interests, c.10% of the
portfolio by value, either as a result of the specific targeting of these
positions or through enforcing its security as a result of the occurrence of
defaults. Such exposures are more sensitive to changes in market factors,
such as electricity prices, and the operational performance of projects, and
are therefore likely to result in increased volatility in the valuation of the
portfolio.
Geopolitical and market uncertainties
In the last year, there has been a significant increase in political and
economic uncertainty driven by the war in Ukraine, recovery from the Covid-19
pandemic, high inflation and a cost-of-living crisis, and the rapid change of
personnel in Government. The Company's infrastructure investments are
generally low volatility investments with stable, pre-determined, very
long-term, public sector backed revenues; half of the Company's investment
portfolio is exposed to some form of inflation protection mechanism.
The war in Ukraine continues to be monitored by the Board and the Investment
Adviser for any potential impacts on the Company. The uncertainty around the
conflict, and the associated global response through sanctions, has resulted
in increased market volatility, in particular in energy and commodity markets.
There have been significant increases in gas and power prices, shortages of
wheat and other supply chain disruptions.
In November 2022, the UK Government announced the introduction of an
Electricity Generator Levy to tax certain renewable energy generating assets
from 1 January 2023. The impacts of this levy were initially estimated and
reported in the 2022 annual report, with the actual levy applied to the
valuation of the portfolio once full details were published by the UK
Government in December 2022. Whilst the levy will impact the profitability
potential of certain investments, it does not adversely impact their viability
and these assets still benefit from increased output over and above the
original forecasts.
Climate risk
During the year ended 30 September 2022, the Investment Adviser carried out a
climate risk assessment for each underlying portfolio asset to assess the
actual and potential impacts of climate-related risks and opportunities across
the portfolio. The Investment Adviser intends to complete this assessment on
an annual basis. No changes to financial forecasts were proposed due to the
climate risk based on the analysis undertaken. Further information is given on
pages 53 to 55 of the annual report and financial statements for the year
ended 30 September 2022.
11.3 Market risk
There is a risk that market movements in interest rates, credit markets and
observable yields may decrease or increase the fair value of the Company's
financial assets without regard to the assets' underlying performance. The
fair value of the Company's financial assets is measured and monitored on a
quarterly basis by the Investment Adviser with the assistance of the Valuation
Agent.
The valuation principles used are based on a discounted cash flow methodology,
where applicable. A fair value for each asset acquired by the Company is
calculated by applying a relevant market discount rate to the contractual cash
flows expected to arise from each asset. At period end, all investments were
classified as Level 3; refer to note 11.7 for additional information.
The Valuation Agent determines the discount rate that it believes the market
would reasonably apply to each investment taking into account, inter alia, the
following significant inputs:
· Pound Sterling interest rates;
· movements of comparable credit markets; and
· observable yields on other comparable instruments.
In addition, the following are also considered as part of the overall
valuation process:
· general infrastructure market activity and investor sentiment; and
· changes to the economic, legal, taxation or regulatory environment.
The Valuation Agent exercises its judgement in assessing the expected future
cash flows from each investment. Given that the investments of the Company are
generally fixed-income debt instruments (in some cases with elements of
inflation protection) or other investments with a similar economic effect, the
focus of the Valuation Agent is on assessing the likelihood of any
interruptions to the debt service payments, in light of the operational
performance of the underlying asset. Where appropriate, the Valuation Agent
will also consider long‑term assumptions that have a direct impact on
valuation, such as electricity prices, inflation and availability. Given
fluctuating electricity prices, the Investment Adviser has continued with a
hedging programme to reduce volatility in the portfolio. Further information
can be found in notes 10 and 13.
The table below shows how changes in discount rates affect the changes in the
valuation of financial assets at fair value. The range of discount rates used
reflects the Investment Adviser's view of a reasonable expectation of
valuation movements across the portfolio in a six month period.
31 March 2023
Change in discount rate 0.50% 0.25% 0.00% (0.25%) (0.50%)
Valuation of financial assets at fair value (£'000) 1,087,877 1,103,756 1,120,113 1,136,970 1,154,349
Change in valuation of financial assets at fair value through profit or loss (32,236) (16,357) - 16,857 34,236
(£'000)
At 31 March 2023, the discount rates used in the valuation of financial assets
ranged from 6.08% to 10.38% with a rate of 20.00% being applied to one
financial asset due to changes in the perceived risk associated with one
project representing 0.54% of the portfolio.
30 September 2022 (audited)
Change in discount rate 0.50% 0.25% 0.00% (0.25%) (0.50%)
Valuation of financial assets at fair value (£'000) 1,056,545 1,071,707 1,087,331 1,103,437 1,120,047
Change in valuation of financial assets at fair value through profit or loss (30,786) (15,624) - 16,106 32,716
(£'000)
At 30 September 2022, the discount rates used in the valuation of financial
assets ranged from 6.08% to 10.38%.
11.4 Interest rate risk
Interest rate risk has the following effect:
Fair value of financial assets
Interest rates are one of the factors which the Valuation Agent takes into
account when valuing the financial assets. Interest rate risk is incorporated
by the Valuation Agent into the discount rate applied to the financial assets
at fair value through profit or loss. Discount rate sensitivity analysis is
disclosed in note 11.3.
Future cash flows
The Company primarily invests in senior and subordinated debt instruments of
infrastructure Project Companies. The financial assets have fixed interest
rate coupons, albeit with some inflation protection, and, as such, movements
in interest rates will not directly affect the future cash flows payable to
the Company.
Interest rate hedging may be carried out to seek protection against falling
interest rates in relation to assets that do not have a minimum fixed rate of
return acceptable to the Company in line with its investment policy and
strategy.
Where the debt instrument is subordinated, the Company is indirectly exposed
to the gearing of the infrastructure Project Companies. The Investment Adviser
ensures as part of its due diligence that the Project Company debt ranking
senior to the Company's investment has been, where appropriate, hedged against
movement in interest rates, through the use of interest rate swaps. At 31
March 2023, the Company had not entered into any interest rate swap contracts
(30 September 2022: none).
Borrowings
During the period, the Company made use of its revolving credit facility,
which is used to finance investments; details of the revolving credit
facility are given in note 8.
Any potential financial impact of movements in interest rates on the cost of
borrowings on the Company is mitigated by the short-term nature of such
borrowings.
The table below shows how changes in the interest rate affects the interest
rate expense incurred on amounts drawn under the RCF at the period end, with
all other variables being held constant.
The amounts drawn under the RCF were £154.0 million (31 March 2022: £156.0
million).
31 March 2023
Change in interest rates 2.0% 1.0% 0.0% (1.0%) (2.0%)
Interest expense (£'000) 6,297 5,527 4,757 3,987 3,217
Change in interest expense (£'000) 1,540 770 - (770) (1,540)
31 March 2022
Change in interest rates 2.0% 1.0% 0.0% (1.0%) (2.0%)
Interest expense (£'000) 3,658 2,878 2,098 1,318 538
Change in interest expense (£'000) 1,560 780 - (780) (1,560)
Other financial assets and liabilities
Bank deposits and payables and accrued expenses are exposed to and affected by
fluctuations in interest rates. However, the impact of interest rate risk on
these assets and liabilities is not considered material.
11.5 Credit risk
Credit risk refers to the risk that the counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has entered into
with the Company. The assets classified at fair value through profit or loss
do not have a published credit rating; however, the Investment Adviser
monitors the financial position and performance of the Project Companies on a
regular basis to ensure that credit risk is appropriately managed.
The Company is exposed to differing levels of credit risk on all of its
assets. Per the unaudited interim condensed statement of financial position,
the Company's total exposure to credit risk is £1,148.0 million (30 September
2022: £1,103.0 million), being the balance of total assets less other
receivables and prepayments. As a matter of general policy, cash is held at a
number of financial institutions to spread credit risk, with cash awaiting
investment being held on behalf of the Company at banks carrying a minimum
rating of A-1, P-1 or F1 from Standard & Poor's, Moody's or Fitch
respectively or in one or more similarly rated money market or short-dated
gilt funds. Cash is generally held on a short‑term basis, pending subsequent
investment. The amount of working capital that may be held at RBSI is limited
to the higher of £4.0 million or one quarter of the Company's running costs.
Any excess uninvested/surplus cash is held at other financial institutions
with minimum credit ratings described above. The maximum amount to be held at
any one of these other financial institutions is £25.0 million or 25% of
total cash balances, whichever is the larger. At period end, £21.5 million of
the Company's cash balance was held at Barclays Bank (30 September 2022:
£12.0 million held at Lloyds Bank). It is also recognised by the Board that
the arrival of ring-fenced banking had an impact on the availability of
A-rated banks.
Before an investment decision is made, the Investment Adviser performs
extensive due diligence complemented by professional third‑party advisers,
including technical advisers, financial and legal advisers, and valuation and
insurance experts. After an investment is made, the Investment Adviser uses
detailed cash flow forecasts to assess the continued creditworthiness of
Project Companies and their ability to pay costs as they fall due. The
forecasts are regularly updated with information provided by the Project
Companies in order to monitor ongoing financial performance.
The Project Companies receive a significant portion of revenue from government
departments and public sector or local authority clients.
The Project Companies are also reliant on their subcontractors, particularly
facilities managers, continuing to perform their service delivery obligations
such that revenues are not disrupted. The credit standing of each significant
subcontractor is monitored by the Investment Adviser on an ongoing basis, and
significant exposures are reported to the Directors quarterly.
The concentration of credit risk to any individual project did not exceed 10%
of the Company's portfolio at the period end, which is the maximum amount
permissible per the Company's investment policy. The Investment Adviser
regularly monitors the concentration of risk, based upon the nature of each
underlying project, to ensure appropriate diversification and risk remains
within acceptable parameters.
The concentration of credit risk associated with counterparties is deemed to
be low due to asset and sector diversification. The underlying counterparties
are typically public sector entities which pay pre-determined, long-term,
public sector backed revenues in the form of subsidy payments (i.e. FiT and
ROCs payments) for renewables transactions, unitary charge payments for PFI
transactions or lease payments for social housing projects. In the view of the
Investment Adviser and Board, the public sector generally has both the ability
and willingness to support the obligations of these entities.
As noted in the Company's 2022 annual report, and following the Russian
invasion of Ukraine, there has been an increase in the volatility of
electricity market prices. These dynamics have resulted in the collapse of
some energy suppliers. The Company has exposure to certain electricity
suppliers through offtake arrangements with renewables project borrowers. To
date, the Company has not directly been impacted by any suppliers that have
collapsed.
Through its usual systems and processes, the Investment Adviser monitors the
credit standing of all customers and suppliers and believes that where
offtakers have supply businesses they remain in a strong position to continue
such arrangements. In any case, the Investment Adviser considers the offtake
market for renewable projects to be a liquid and competitive sector, meaning
any arrangements that are terminated as part of an offtaker collapse could be
easily replaced by a continuing third party.
The credit risk associated with each Project Company is further mitigated
because the cash flows receivable are secured over the assets of the Project
Company, which in turn has security over the assets of the underlying
projects. The debt instruments held by the Company are held at fair value, and
the credit risk associated with these investments is one of the factors which
the Valuation Agent takes into account when valuing the financial assets.
Changes in credit risk affect the discount rate. The sensitivity of the fair
value of the financial assets at fair value through profit or loss to possible
changes to the discount rates is disclosed in note 11.3. The Directors have
assessed the credit quality of the portfolio at the period end and, based on
the parameters set out above, are satisfied that the credit quality remains
within an acceptable range for long‑dated debt.
On 13 July 2022, the Company entered into a commodity swap agreement with Axpo
Solutions AG under the ISDA's master agreement for risk management purposes.
The ISDA master agreement is an internationally agreed document which is used
to provide certain legal and credit protection for parties who enter into
financial derivatives transactions. It includes standard terms which detail
what happens if a default occurs to one of the parties and how derivative
transactions are terminated following a default, including the grounds under
which one of the parties can force close-out due to the occurrence of a
default event by the other party. The agreement also includes full right
of set off. This commodity swap agreement expired on 31 March 2023 and was
fully settled in April 2023 in line with the contractual terms. On 15 February
2023, the Company entered into a new a commodity swap agreement with Axpo
Solutions AG under the same terms.
The Company has not been required to post collateral in respect of the
commodity swap agreement. There is potential for credit risk in relation to
the arrangement depending on whether the arrangement is an asset or a
liability at any point in time. At the date of the report, the Company's
exposure to credit risk exposure relating to the commodity swap agreement is
£1.9 million. Axpo Solutions AG is a Swiss‑based energy supply and trading
business and, together with its partners, operates over 100 power stations as
the largest renewable generator in Switzerland. The business has over 5,000
employees and operates in 30 countries. Axpo Solutions AG is wholly owned by
the cantons and cantonal utilities of North-eastern Switzerland. The Directors
are satisfied that the credit risk associated with Axpo Solutions AG as a
counterparty is minimal and remains within the Company's risk appetite.
Further information on derivative financial instruments is given in notes 10
and 13.
11.6 Liquidity risk
Liquidity risk is defined as the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities that
are settled by delivering cash or another financial asset. Exposure to
liquidity risk arises because of the possibility that the Company could be
required to pay its liabilities earlier than expected. The Company's objective
is to maintain a balance between continuity of funding and flexibility through
the use of bank deposits and interest bearing loans and borrowings.
The table below analyses all of the Company's financial assets and liabilities
into relevant maturity groupings based on the remaining period from the period
end to the contractual maturity date. The Directors have elected to present
both assets and liabilities in the liquidity disclosure to illustrate the net
liquidity exposure of the Company.
All cash flows in the table below are on an undiscounted basis.
Less than One to Three to Greater than
one month three months twelve months twelve months Total
31 March 2023 £'000 £'000 £'000 £'000 £'000
Financial assets
Cash and cash equivalents 25,997 - - - 25,997
Other receivables and prepayments - - 154 - 154
Financial assets at fair value through profit or loss 19,167 45,899 113,442 1,818,825 1,997,333
Derivative financial instruments at fair value through profit or loss
1,420 316 189 - 1,925
Total financial assets 46,584 46,215 113,785 1,818,825 2,025,409
Financial liabilities
Other payables and accrued expenses - (2,938) - - (2,938)
Interest bearing loans and borrowings - (2,236) (160,658) - (162,894)
Total financial liabilities - (5,174) (160,658) - (165,832)
Net exposure 46,584 41,041 (46,873) 1,818,825 1,859,577
Less than One to Three to Greater than
one month three months twelve months twelve months Total
30 September 2022 (audited) £'000 £'000 £'000 £'000 £'000
Financial assets
Cash and cash equivalents 15,981 - - - 15,981
Other receivables and prepayments - - 185 - 185
Financial assets at fair value through profit or loss 11,828 60,122 125,801 1,732,787 1,930,538
Total financial assets 27,809 60,122 125,986 1,732,787 1,946,704
Financial liabilities
Other payables and accrued expenses - (3,570) - - (3,570)
Derivative financial instruments at fair value through profit or loss
- - (3,861) - (3,861)
Interest bearing loans and borrowings - (1,045) (3,099) (101,032) (105,176)
Total financial liabilities - (4,615) (6,960) (101,032) (112,607)
Net exposure 27,809 55,507 119,026 1,631,755 1,834,097
11.7 Fair values of financial assets
Basis of determining fair value
Loan notes
The Valuation Agent carries out quarterly valuations of the financial assets
of the Company. These valuations are reviewed by the Investment Adviser and
the Directors. The subsequent NAV produced is reviewed and approved by the
Directors.
The basis for the Valuation Agent's valuations is described in note 11.3.
Derivative financial instruments
The valuation principles used are based on inputs from observable market data,
being a commonly quoted electricity price index, which most closely reflects a
Level 2 input. The fair value of the derivative financial instrument is
derived from its mark-to-market valuation provided by Axpo Solutions AG on a
quarterly basis. The mark-to-market value is calculated based on the fixed leg
of the commodity swap offset by the market price of the floating leg which is
indexed to the Electricity N2EX UK Power Index Day Ahead. The Investment
Adviser monitors the exposure internally using its own valuation system.
Further information on derivative financial instruments is given in notes 10
and 13.
Fair value measurements
Investments are measured and reported at fair value and are classified and
disclosed in one of the following fair value hierarchy levels depending on
whether their fair value is based on:
· Level 1: quoted prices in active markets for identical assets or
liabilities;
· Level 2: inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (as prices) or
indirectly (derived from prices); and
· Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
An investment is always categorised as Level 1, 2 or 3 in its entirety. In
certain cases the fair value measurement for an investment may use a number of
different inputs that fall into different levels of the fair value hierarchy.
In such cases, an investment level within the fair value hierarchy is based on
the lowest level of input that is significant to the fair value measurement.
The assessment of the significance of a particular input to the fair value
measurement requires judgement and is specific to the investment.
The Company recognises transfers between levels of the fair value hierarchy at
the end of the reporting period during which the change has occurred.
The table below analyses all investments held by the level in the fair value
hierarchy into which the fair value measurement is categorised:
(Audited)
31 March 30 September
Fair value 2023 2022
hierarchy £'000 £'000
Financial assets at fair value through profit or loss
Loan notes Level 3 1,120,113 1,087,331
Derivative financial instruments at fair value through profit or loss Level 2 1,925 -
Financial liabilities at fair value through profit or loss
Derivative financial instruments at fair value through profit or loss Level 2 - (3,861)
Discount rates between 6.08% and 10.38% were applied to the investments
categorised as Level 3, with a rate of 20.00% being applied to one financial
asset representing 0.54% of the portfolio, due to changes in the perceived
risk associated with one project (30 September 2022: 6.08% and 10.38%).
The Directors have classified financial instruments depending on whether or
not there is a consistent data set comparable and observable transactions and
discount rates. The Directors have classified all loan notes as Level 3. No
transfers were made between levels in the period.
The following table shows a reconciliation of all movements in the fair value
of financial instruments categorised within Level 3 between the beginning and
end of the period:
(Audited)
31 March 30 September
2023 2022
£'000 £'000
Opening balance 1,087,331 1,096,555
Purchases of financial assets at fair value through profit or loss 75,098 127,380
Repayments of financial assets at fair value through profit or loss (24,896) (219,164)
Net realised gains on disposal of investments at fair value through profit or - 5,494
loss
Unrealised gains on investments at fair value through profit or loss(1) 20,240 89,606
Unrealised losses on investments at fair value through profit or loss (37,660) (12,540)
Closing balance 1,120,113 1,087,331
1. Includes principal indexation of £nil (30 September 2022: £1.9 million)
applied to certain loans.
The tables below show the reconciliation of purchases and repayments of
financial assets at fair value through profit or loss to the statement of cash
flows:
31 March 31 March
2023 2022
Purchases £'000 £'000
Purchases of financial assets at fair value through profit or loss (75,098) (71,913)
Loan interest capitalised 10,018 12,764
Non-cash internal transfers - 28,999
Purchases of financial assets at fair value through profit or loss in (65,080) (30,150)
statement of cash flows
31 March 31 March
2023 2022
Repayments £'000 £'000
Repayments of financial assets at fair value through profit or loss 24,896 109,676
Non-cash internal transfers - (28,999)
Repayments of financial assets at fair value through profit or loss in 24,896 80,677
statement of cash flows
For the Company's financial instruments categorised as Level 3, changing the
discount rates used to value the underlying instruments alters the fair value.
A change in the discount rates used to value the Level 3 investments would
have the effect on the valuation as shown in the table in note 11.3.
In determining the discount rates for calculating the fair value of financial
assets at fair value through profit or loss, movements to Pound Sterling
interest rates, comparable credit markets and observable yield on comparable
instruments could give rise to changes in the discount rate.
The Directors consider the inputs used in the valuation of investments and the
appropriateness of their classification in the fair value hierarchy. Should
the valuation approach change, causing an investment to meet the
characteristics of a different level of the fair value hierarchy, it will be
reclassified accordingly in the appropriate period.
12. Related party disclosures
As defined by IAS 24 Related Party Disclosures, parties are considered to be
related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial or operational
decisions.
Directors
The non-executive Directors are considered to be the key management personnel
of the Company. Directors' remuneration comprised of Directors' fees and
expenses incurred in the period, totalled £215,000 (31 March 2022:
£218,000). This is in line with the Directors' remuneration policy as
disclosed in the 2022 annual report. At 31 March 2023, liabilities in respect
of these services amounted to £90,000 (30 September 2022: £42,000).
At 31 March 2023:
· Andrew Didham, together with his family members, indirectly held
93,024 ordinary shares in the Company, equivalent to 0.011% of the issued
share capital (30 September 2022: 73,165 ordinary shares, 0.008% of the issued
share capital, prior to joining the Board on 17 December 2021);
· Dawn Crichard indirectly held 75,261 ordinary shares in the
Company, equivalent to 0.009% of the issued share capital
(30 September 2022: 75,261 ordinary shares, 0.009% of the issued share
capital);
· Steven Wilderspin indirectly held 15,000 ordinary shares in the
Company, equivalent to 0.002% of the issued share capital
(30 September 2022: 15,000 ordinary shares, 0.002% of the issued share
capital); and
· Alex Yew indirectly held 20,000 ordinary shares in the Company,
equivalent to 0.002% of the issued share capital (30 September 2022: nil).
Andrew Didham is an executive vice chairman at Rothschild & Co and serves
on the board of NM Rothschild & Sons Ltd, presently on a part‑time
basis. Rothschild & Co is engaged by the Company to provide ongoing
investor relations support. The Company and Rothschild & Co maintain
procedures to ensure that Mr Didham has no involvement in either the decisions
concerning the engagement of Rothschild & Co or the provision of investor
relation services to the Company.
Investment Adviser
The Company is party to an Investment Advisory Agreement with the Investment
Adviser, which was most recently amended and restated on 13 December 2017,
pursuant to which the Company has appointed the Investment Adviser to provide
advisory services relating to the assets on a day-to-day basis in accordance
with its investment objectives and policies, subject to the overall
supervision and direction of the Board of Directors. As a result of the
responsibilities delegated under this agreement, the Company considers it to
be a related party by virtue of being 'key management personnel'.
Under the terms of the Investment Advisory Agreement, the notice period of the
termination of the Investment Adviser by the Company is 24 months. The
remuneration of the Investment Adviser is set out below.
For its services to the Company, the Investment Adviser receives an annual fee
at the rate of 0.9% (or such lesser amount as may be demanded by the
Investment Adviser at its own absolute discretion) multiplied by the sum of:
· the NAV of the Company; less
· the value of the cash holdings of the Company pro rata to the
period for which such cash holdings have been held.
The Investment Adviser is also entitled to claim for expenses arising in
relation to the performance of certain duties and, at its discretion, 1% of
the value of any transactions entered into by the Company (where possible, the
Investment Adviser seeks to charge this fee to the borrower).
The Investment Adviser receives a fee of 0.25% of the aggregate gross proceeds
from any issue of new shares in consideration for the provision of marketing
and investor introduction services.
The Company's Investment Adviser is authorised as an AIFM by the FCA under the
UK AIFM Regime. The Company has provided disclosures on its website,
incorporating the requirements of the UK AIFM Regime. The Investment Adviser
receives an annual fee of £70,000 in relation to its role as the Company's
AIFM, increased annually at the rate of the RPI.
During the period, the Company expensed £4,385,000 (31 March 2022:
£4,123,000) in respect of investment advisory fees, marketing fees, and
transaction management and documentation services. At 31 March 2023,
liabilities in respect of these services amounted to £2,147,000 (30 September
2022: £2,234,000).
The directors and employees of the Investment Adviser also sit on the boards
of, and control, several SPVs through which the Company invests. The Company
has delegated the day-to-day operations of these SPVs to the Investment
Adviser through the Investment Advisory Agreement.
At 31 March 2023, the key management personnel of the Investment Adviser,
together with their family members, directly or indirectly held 1,012,479
ordinary shares in the Company, equivalent to 0.115% of the issued share
capital (30 September 2022: 952,614 ordinary shares, 0.108% of the issued
share capital).
13. Subsequent events after the reporting date
On 6 April 2023, the Company's winter 2022/23 commodity swap, which matured on
31 March 2023, was settled in line with the contractual terms.
The Company declared, on 27 April 2023, a second interim dividend of 1.75
pence per ordinary share, amounting to £15.5 million, which was paid on 14
June 2023 to ordinary shareholders who were recorded on the register at close
of business on 12 May 2023.
In addition to the above, the following events occurred post period end:
· the Company made seven advances totalling £2.1 million under three
new facilities and four existing facilities. The Company also received
scheduled repayments totalling £2.3 million in respect of eight investments;
· the Company refinanced a portfolio of biomass projects, due to
generate net cash proceeds of c.£50.0 million, which will be used to
partially repay the RCF in due course; and
· the Company repurchased 4,805,000 ordinary shares at a total cost
of £4.1 million, which are held in treasury. The issued share capital at the
date of the report is 884,797,669, of which 5,855,000 shares are held in
treasury.
14. Non-consolidated SPVs
As explained in note 2.2, the Company invests through certain SPVs which are
not consolidated in these financial statements due to the Company meeting the
criteria of an investment entity and therefore applying the exemption to
consolidation under IFRS 10. The Company has measured its financial interests
in these SPVs at fair value through profit or loss.
Refer to note 11 of the 2022 annual report for the details of contractual
arrangements between the Company and the SPVs and to the risk disclosures in
note 11 for details of events or conditions that could expose the Company to
losses.
During the period, the Company did not provide financial support to the
unconsolidated SPVs.
For details of the non-consolidated SPVs, refer to the Company's annual report
and financial statements for the year ended 30 September 2022.
15. Ultimate controlling party
It is the view of the Directors that there is no ultimate controlling party.
Alternative performance measures
The Board and the Investment Adviser assess the Company's performance using a
variety of measures that are not defined under IFRS and are therefore classed
as alternative performance measures ("APMs").
Where possible, reconciliations to IFRS are presented from the APMs to the
most appropriate measure prepared in accordance with IFRS. All items listed
below are IFRS financial statement line items unless otherwise stated.
APMs should be read in conjunction with the unaudited interim condensed
statement of comprehensive income, the unaudited interim condensed statement
of financial position, the unaudited interim condensed statement of cash flows
and the unaudited interim condensed statement of changes in equity, which are
presented in the unaudited interim condensed financial statements section of
this report. The APMs below may not be directly comparable with measures used
by other companies.
Adjusted earnings cover
Ratio of the Company's adjusted net earnings(1) per share to the dividend per
share. This metric seeks to show the Company's right to receive future net
cash flows by way of interest income from the portfolio of investments, by
removing: (i) the effect of pull-to-par and (ii) any upward or downward
revaluations of investments; which are functions of accounting for financial
assets at fair value under IFRS 9, and that do not contribute to the Company's
ability to generate cash flows.
31 March 31 March
2023 2022
£'000 £'000
Adjusted earnings per share(1) 3.8 3.7
Dividend per share 3.5 3.5
Times covered 1.1 1.1
Adjusted earnings per share
The Company's adjusted net earnings(1) divided by the weighted average number
of shares.
31 March 31 March
2023 2022
£'000 £'000
Adjusted net earnings(1) 33,680 32,294
Weighted average number of shares 884,737,778 882,704,452
Adjusted earnings per share 3.8 3.7
Adjusted loan interest capitalised
In respect of a period, a measure of loan interest capitalised adjusted for
amounts subsequently paid as part of repayments.
31 March 31 March
2023 2022
£'000 £'000
Capitalised (planned) 8,301 7,445
Capitalised (unscheduled) 1,717 5,319
Loan interest capitalised 10,018 12,764
Capitalised amounts subsequently settled as part of repayments (4,752) (6,928)
Adjusted loan interest capitalised 5,266 5,836
Adjusted loan interest received
In respect of a period, a measure of loan interest received adjusted for loan
interest capitalised and subsequently paid as part of repayments or disposal
proceeds.
31 March 31 March
2023 2022
£'000 £'000
Loan interest received 30,928 23,018
Capitalised amounts settled as part of final repayment or disposal proceeds - 9,727
Capitalised amounts subsequently settled as part of repayments 4,752 6,928
Adjusted loan interest received 35,680 39,855
1. APM - refer to relevant APM below for further information.
Adjusted net earnings
In respect of a period, a measure of the loan interest accrued(1) by the
portfolio less total expenses and finance costs. This metric is used in the
calculation of adjusted earnings cover(2).
31 March 31 March
2023 2022
£'000 £'000
Total profit and comprehensive income 25,761 108,901
Less: income/gains on financial assets at fair value through profit or loss (23,526) (113,242)
Less: gains on derivative financial instruments at fair value through profit (11,853) (4,247)
or loss
Less: other operating income (171) (64)
Add: loan interest accrued(1) 43,469 40,946
Adjusted net earnings 33,680 32,294
Aggregate downward revaluations since IPO (annualised)
A measure of the Company's ability to preserve the capital value of its
investments over the long term. It is calculated as total aggregate downward
revaluations divided by total invested capital since IPO expressed as a time
weighted annual percentage.
31 March 31 March
2023 2022
£'000 £'000
Total aggregate downward revaluations since IPO (74,896) (47,556)
Total invested capital since IPO 1,877,849 1,713,053
Percentage (annualised) 0.31% 0.24%
Average NAV
The average of the twelve net asset valuations calculated monthly over the
financial year.
Earnings cover
Ratio of the Company's earnings per share to the dividend per share.
31 March 31 March
2023 2022
£'000 £'000
Earnings per share 2.9 12.34
Dividend per share 3.5 3.5
Times covered 0.8 3.5
Discount
The price at which the shares of the Company trade below the NAV per share.
Dividend yield
A measure of the quantum of dividends paid to shareholders relative to the
market value per share. It is calculated by dividing the dividend per share
for the twelve month period to 31 March 2023 by the share price at the period
end.
Interest cover
The ratio of total loan interest income to finance costs expressed as a
percentage.
Loan interest accrued
The measure of the value of interest accruing on a loan in respect of a
period, calculated based on the contractual interest rate stated in the loan
documentation.
Loan interest accrued differs from net income/gains on financial assets at
fair value through profit or loss, as recognised under IFRS 9, as it does not
include:
· the impact of realised and unrealised gains and losses on financial
assets at fair value through profit or loss;
· the impact of 'pull-to-par' in the unwinding of discount rate
adjustments over time (where the weighted average discount rate used to value
financial assets differs from the interest rate stated in the loan
documentation);
· the impact of cash flows from loan interest received;
· the impact of loan interest capitalised; and
· the impact of loan principal indexation applied.
This metric is used in the calculation of adjusted net earnings(2).
1. APM - refer to relevant APM below for further information.
2. APM - refer to relevant APM above for further information.
Loan to value
A measure of the indebtedness of the Company at the period end, expressed as
interest bearing loans and borrowings as a percentage of net assets.
NAV total return
A measure showing how the NAV per share has performed over a period of time,
taking into account both capital returns and dividends paid to shareholders,
expressed as a percentage. It assumes that dividends paid to shareholders are
reinvested at NAV at the time the shares are quoted ex‑dividend.
This is a standard performance metric across the investment industry and
allows comparability across the sector.
Source: Investment Adviser
Ongoing charges ratio
Ongoing charges ratio is a measure of the annual percentage reduction in
shareholder returns as a result of recurring operational expenses assuming
markets remain static and the portfolio is not traded.
This is a standard performance metric across the investment industry and
allows comparability across the sector; it is calculated in accordance with
the AIC's recommended methodology.
31 March 31 March
2023 2022
£'000 £'000
Investment advisory fees 4,385 4,123
Directors' fees 215 218
Administration expenses 1,068 2,210
Total expenses 5,668 6,551
Less: non-recurring expenses (44) 1,061
Annualised 11,424 10,980
Average NAV(1) 1,002,615 920,906
Ongoing charges ratio 1.1 1.2
Premium
The price at which the shares of the Company trade above the NAV per share.
Total shareholder return
A measure of the performance of a company's shares over time. It combines
share price movements and dividends to show the total return to the
shareholder expressed as a percentage. It assumes that dividends are
reinvested in shares at the time the shares are quoted ex‑dividend.
This is a standard performance metric across the investment industry and
allows comparability across the sector.
Source: Bloomberg
Weighted average annualised yield
The weighted average yield on the investment portfolio calculated based on the
yield of each investment weighted by the principal balance outstanding on such
investment, expressed as a percentage.
The yield forms a component of investment cash flows used for the valuation of
financial assets at fair value through profit or loss under IFRS 9. It is
calculated including borrower company leverage but before any Company level
leverage.
The yield forms a component of investment cash flows used for the valuation of
financial assets at fair value through profit or loss under IFRS 9.
1. APM - refer to relevant APM above further information.
Glossary of key terms
Adjusted earnings cover
Refer to APMs section above
Adjusted earnings per share
Refer to APMs section above
Adjusted loan interest capitalised
Refer to APMs section above
Adjusted loan interest received
Refer to APMs section above
Adjusted net earnings
Refer to APMs section above
Aggregate downward revaluations since IPO (annualised)
Refer to APMs section above
AGM
The Annual General Meeting of the Company
AIC
Association of Investment Companies
AIC Code
AIC Code of Corporate Governance
AIFM
Alternative Investment Fund Manager
Average life
The weighted average term of the loans in the investment portfolio
Borrower
The special purpose company which owns and operates an asset
CIF Law
Collective Investment Funds (Jersey) Law 1988
The Company
GCP Infrastructure Investments Limited
C shares
A share class issued by the Company from time to time. Conversion shares are
used to raise new funds without penalising existing shareholders. The funds
raised are ring‑fenced from the rest of the Company until they are
substantially invested
Deferred shares
Redeemable deferred shares of £0.01 each in the capital of the Company
arising from C share conversion
Discount
Refer to APMs section above
Dividend yield
Refer to APMs section above
DTR
Disclosure Guidance and Transparency Rules of the FCA
Earnings cover
Refer to APMs section above
ESG
Environmental, social and governance
EU
European Union
FCA
Financial Conduct Authority
FiT
Feed-in tariff
ICE
Intercontinental Exchange Inc.
IFRS
International Financial Reporting Standards
ING
ING Bank N.V.
Interest cover
Refer to APMs section above
IPO
Initial public offering
ISDA
International Swaps and Derivatives Association
Jersey Company Law
The Companies (Jersey) Law 1991 (as amended)
KPIs
Key performance indicators
KPMG
KPMG Channel Islands Limited
LNG
Liquefied natural gas
Loan interest accrued
Refer to APMs section above
Loan to value
Refer to APMs section above
LSE
London Stock Exchange
MW
Megawatt
NAV
Net asset value
NAV total return
Refer to APMs section above
OBR
The Office for Budget Responsibility
Official List
The Official List of the FCA
Ongoing charges ratio
Refer to APMs section above
Ordinary shares
The ordinary share capital of the Company
PFI
Private finance initiative
PPA
Power purchase agreement
PPP
Public-private partnership
Premium
Refer to APMs section above
Project Company
A special purpose company which owns and operates an asset
Public sector backed
All revenues arising from UK central Government or local authorities or from
entities themselves substantially funded by UK central Government or local
authorities, obligations of NHS Trusts, UK registered social landlords and
universities and revenues arising from other Government‑sponsored or
administered initiatives for encouraging the usage of renewable or clean
energy in the UK
Pull-to-par
The effect on income recognised in future periods from the application of a
new discount rate to an investment
RBSI
Royal Bank of Scotland International Limited
RCF
Revolving credit facility with RBSI, AIB Group (UK) plc, Lloyds Group plc,
Clydesdale Bank plc and Mizuho Bank (formerly with RBSI, AIB Group (UK) plc,
Lloyds Group plc and Clydesdale Bank plc)
RHI
Renewable heat incentive
ROCs
Renewable obligation certificates
Senior ranking security
Security that gives a loan priority over other debt owed by the issuer in
terms of control and repayment in the event of default or issuer bankruptcy
SONIA
Sterling Overnight Interbank Average rate
SPV
Special purpose vehicle through which the Company invests
TCFD
Task Force on Climate-related Financial Disclosures
Total shareholder return
Refer to APMs section above
UK AIFM Regime
Together, The Alternative Investment Fund Managers Regulations 2013 (as
amended by The Alternative Investment Fund Managers (Amendment etc.) (EU Exit)
Regulations 2019) and the Investment Funds sourcebook forming part of the FCA
Handbook, as amended from time to time
Weighted average annualised yield
Refer to APMs section above
Weighted average discount rate
A rate of return used in valuation to convert a series of future anticipated
cash flows to present value under a discounted cash flow approach. It is
calculated with reference to the relative size of each investment
Corporate information
The Company
GCP Infrastructure Investments Limited
IFC 5
St Helier
Jersey JE1 1ST
Contact: jerseyinfracosec@apexgroup.com
Corporate website: www.gcpinfra.com
Directors
Andrew Didham (Chairman)
Julia Chapman (Senior Independent Director)
Michael Gray
Steven Wilderspin
Dawn Crichard
Ian Reeves CBE (retired on 31 October 2022)
Alex Yew (appointed on 1 November 2022)
Administrator, Secretary and registered office of the Company
Apex Financial Services (Alternative Funds) Limited
IFC 5
St Helier
Jersey JE1 1ST
Tel: +44 (0)20 4549 0700
Advisers on English law
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Advisers on Jersey Company Law
Carey Olsen Jersey LLP
47 Esplanade
St Helier
Jersey JE1 0BD
Depositary
Apex Financial Services (Corporate) Limited
IFC 5
St Helier
Jersey JE1 1ST
Financial Adviser and Broker
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
Tel: +44 (0)20 7710 7600
Public relations
Quill PR (Buchanan Communications)
107 Cheapside
London EC2V 6DN
Independent Auditor
KPMG Channel Islands Limited
37 Esplanade
St Helier
Jersey JE4 8WQ
Investment Adviser, AIFM and Security Trustee
Gravis Capital Management Limited
24 Savile Row
London W1S 2ES
Tel: +44 (0)20 3405 8500
Operational bankers
Barclays Bank PLC, Jersey Branch
13 Library Place
St Helier
Jersey JE4 8NE
BNY Mellon
1 Piccadilly Gardens
Manchester M1 1RN
Lloyds Bank International Limited
9 Broad Street
St Helier
Jersey JE4 8NG
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
Registrar
Link Market Services (Jersey) Limited
IFC 5
St Helier
Jersey JE1 1ST
Valuation Agent
Mazars LLP
Tower Bridge House
St Katharine's Way
London E1W 1DD
For further information, please contact:
Gravis Capital Management Limited +44 (0)20 3405 8500
Philip Kent
Ed Simpson
Max Gilbert
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Edward Gibson-Watt
Jonathan Wilkes-Green
Quill/Buchanan +44 (0)20 7466 5000
Helen Tarbet
Sarah Gibbons-Cook
Henry Wilson
Notes to Editors
GCP Infra is a closed-ended investment company and FTSE-250 constituent, its
shares are traded on the main market of the London Stock Exchange. The
Company's objective is to provide shareholders with regular, sustained,
long-term distributions and to preserve capital over the long term by
generating exposure to UK infrastructure debt and related and/or similar
assets.
The Company primarily targets investments in infrastructure projects with long
term, public sector-backed, availability-based revenues. Where possible,
investments are structured to benefit from partial inflation protection. GCP
Infra is advised by Gravis Capital Management Limited.
GCP Infra has been awarded with the London Stock Exchange's Green Economy Mark
in recognition of its contribution to positive environmental outcomes.
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