REG - GCP Infra Inv Ltd - Annual report and financial statements
13/12/2023 07:15
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RNS Number : 5623W GCP Infrastructure Investments Ltd 13 December 2023
GCP Infrastructure Investments Ltd
("GCP Infra" or the "Company")
13 December 2023
LEI 213800W64MNATSIV5Z47
Annual report and financial statements for the year ended 30 September 2023
The Directors of the Company are pleased to announce the Company's annual
results for the year ended 30 September 2023. The full annual report and
financial statements can be accessed via the Company's website
www.graviscapital.com/funds/gcp-infra/literature
(http://www.graviscapital.com/funds/gcp-infra/literature) and will be posted
to shareholders on 11 January 2024.
About the Company
The Company seeks to provide shareholders with regular, sustained, long-term
dividend income whilst preserving 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. It had a market capitalisation of
£589.8 million at 30 September 2023.
At a glance - 30 September 2023
FY2021 FY2022 FY2023
Net assets £m 916.8 998.1 956.6
Profit/(loss) for the year £m 62.4 140.3 30.9
Dividends for the year p 7.0 7.0 7.0
Aggregate downward revaluations since IPO(1) (annualised) % 0.42 0.18 0.36
Share price p 100.40 97.80 67.70
NAV per share p 103.92 112.80 109.79
Highlights for the year
- Dividends of 7.0 pence per share for the year to 30 September 2023 (30
September 2022: 7.0 pence per share). For the forthcoming financial year, the
Company has set a dividend target(2) of 7.0 pence per share.
- Against a challenging macro-economic backdrop, the Company's total
shareholder return(1) for the year was -25.2% (30 September 2022: 3.8%) with
total shareholder return(1) of 57.1% since IPO in 2010. Total NAV return(1)
for the year was 3.7% (30 September 2022: 15.8%).
- Profit for the year decreased to £30.9 million (30 September 2022:
profit of £140.3 million), due to a combination of factors including lower
electricity prices and generation and revaluations in respect of discount rate
adjustments. For information on financial performance for the year, refer to
the financial review below.
- NAV per share at 30 September 2023 of 109.79 pence (30 September 2022:
112.80 pence).
- Limited new loans of £9.2 million. Portfolio investments of £129.5
million(3) focused on restructuring and management. This was offset by
repayments of £128.0 million(3), giving a net investment in the existing
portfolio of £1.5 million.
- Refinance of two biomass projects generating £50.0 million in net
cash proceeds. The proceeds were used to repay the Company's RCF and led to a
1.2 pence per share uplift to the Company's NAV primarily from prepayment
fees.
- Third party independent valuation of the Company's partially
inflation-protected investment portfolio at 30 September 2023 of £1.0 billion
(30 September 2022: £1.1 billion). The principal value of the portfolio was
£1.0 billion (30 September 2022: £1.0 billion).
- Entered into arrangements to partially hedge the Company's financial
exposure to electricity prices for the summer 2023 and winter 2023/24 periods.
- Adoption by the Board of a capital allocation policy realising c.15%
(£150 million) of the portfolio to rebalance sectors and reduce equity
exposures, and to apply the funds towards a material reduction in the RCF and
facilitate the return of capital to shareholders of at least £50 million
before the end of the calendar year 2024. Refer to the Chairman's statement
below.
- Post year end, the Company signed heads of terms for a new reduced
£150.0 million RCF with Lloyds, AIB, Mizuho and Clydesdale, in accordance
with the Board's stated intention to reduce leverage of the Company.
1.APM - for definition and calculation methodology, refer to the APMs section
below.
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.Inclusive of non-cash items as disclosed in note 11 to the financial
statements.
Andrew Didham, Chairman of GCP Infra, commented:
The wider financial market in which the Company operates has continued to face
significant challenges. Against a backdrop of increased inflation, higher
interest rates and high energy prices, the Company has continued to deliver
stable and predictable income for shareholders through its focus on debt
investments in infrastructure assets vital to the efficient operation of
modern society.
The Company generated total profit and comprehensive income for the year of
£30.9 million (30 September 2022: £140.3 million) and paid a dividend of 7.0
pence per ordinary share (30 September 2022: 7.0 pence). For the forthcoming
financial year, the Company has set a dividend target(1) of 7.0 pence per
share. At the year end, the Company's share price was 67.70 pence,
representing a 38.3% discount(2) to NAV (30 September 2022: 97.80 pence,
representing a 13.3% discount(2) to NAV). The Board believes the discount at
which the Company's shares have traded to the stated NAV is not reflective of
the strength in the Company's underlying investment portfolio, with the
effective yield considerably higher than the discount rate on investments
determined by the independent Valuation Agent. Underlying portfolio
performance also remains strong, with loans continuing to be serviced.
The Board and the Investment Adviser are committed to the Company's intentions
to re-allocate capital towards reducing gearing, buying back shares while they
remain an attractive investment opportunity and disposing of assets to
rebalance the portfolio and generate funds. Subject to market conditions and
the ability to agree acceptable terms, the Board has adopted a capital
allocation policy of realising c.15% (£150 million) of the portfolio to
rebalance sectors and reduce equity exposures, and to apply the funds towards
a material reduction in the RCF and facilitate the return of capital to
shareholders of at least £50 million before the end of the calendar year
2024, whilst maintaining the dividend target(1). The Board believes that this
capital allocation policy will underline the Company's position as a leading
investor in infrastructure debt, with a strong focus on sustainable
investments.
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's purpose is to invest 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 paid a dividend of 7.0 pence in respect of the year. A dividend The investment portfolio is exposed to a wide variety of assets in terms of The Company has generated a NAV total return(5) for the year of 3.7% and
target(1) of 7.0 pence has been set for the forthcoming financial year. project type and the source of its underlying cash flow. 169.5% since the Company's IPO in 2010.
7.0p 51 109.79p
Dividends paid for the year ended 30 September 2023 Number of investments at 30 September 2023 NAV per share at 30 September 2023
£30.9m 12.0%(3) 0.36%
Profit for the year ended 30 September 2023 Size of largest investment as a percentage Aggregate downward revaluations since IPO (annualised)(5)
of total portfolio
Sustainability indicators
Portfolio contributing to green economy(2) Portfolio that benefits end users within society(4) Board gender and ethnic diversity(6)
65% 35% 50%
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 LSE Green Economy Mark recognises London-listed companies generating
more than half their revenues from green environmental products and services.
The Company's portfolio is 65% invested in the renewable energy sector.
3.The Cardale PFI loan is secured on a cross‑collateralised basis against 18
operational PFI projects, with no exposure to any individual project being in
excess of 10% of the total portfolio.
4.The Company's portfolio is 33% invested in PPP/PFI projects in the
healthcare, education, waste, housing, energy efficiency and justice sectors
which are measured in alignment with the UN SDGs, and 2% of the portfolio is
invested in PPP/PFI leisure projects.
5.APM - for definition and calculation methodology, refer to the APMs section
below.
6.For further information please refer to the Nomination committee report in
the full annual report on the Company's website.
Portfolio at a glance:
The Company's portfolio comprises underlying assets across the UK which fall
under the following classifications:
Number of assets % of portfolio
Sector
Geothermal 1 1
Solar 53,179 25
PPP/PFI 134 24
Supported living 905 11
Hydro-electric 14 2
Gas peaking 2 1
Biomass 761 9
Electric vehicles 250 1
Wind 11 17
Anaerobic digestion 23 9
Senior ranking security
42%
Weighted average annualised yield(1)
7.9%
Average life
10 years
Partially inflation protected
41%
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Chairman's statement
I am pleased to present the Company's annual report for the year ended 30
September 2023.
Andrew Didham
Chairman
Introduction
Political and economic volatility have continued to impact UK markets this
financial year. Against a backdrop of wider economic turmoil and uncertainty,
the Company has continued to deliver stable and predictable income for
shareholders through its focus on debt investments in infrastructure assets
vital to the efficient operation of modern society.
The underlying portfolio assets have performed as expected, with loans
continuing to be serviced. However, it is important to recognise the Company's
share price has come under pressure, with shares trading at a persistent
discount(1) to NAV throughout the year and a substantial portion of the prior
year, after eleven years of the shares trading at an average premium(1).
This issue is not individual to the Company; other investment companies
focused on the provision of income from infrastructure and renewable energy
generation have faced similar share price pressure. This is primarily due to
high levels of economic uncertainty in the UK, with a higher energy price
environment stemming from Russia's invasion of Ukraine and unrest in the
Middle East post year end, as well as increased inflation and higher interest
rates. The Board believes the discount at which the Company's shares have
traded to the stated NAV is not reflective of the strength in the Company's
underlying investment portfolio.
Proposed combination
On 11 August 2023, the Company announced that it had agreed heads of terms
with GCP Asset Backed in respect of a proposed combination of the two
companies (the "Scheme"). As set out at the time, the Board believed the
Scheme would benefit both existing and new shareholders in the Company.
Following the announcement, the Board and its advisers consulted widely with
shareholders. The majority of shareholders recognised the Company's efforts to
put forward a constructive proposal that sought to accelerate: (i) the
reduction of the Company's outstanding debt; (ii) the return of capital to
shareholders; and (iii) the reset of the return and risk being generated by
the Company's portfolio of investments.
The Board understood that there was a divergence of views, predominantly
amongst the shareholders of GCP Asset Backed. The Board determined that if the
Scheme was completed with a significant minority of GCP Asset Backed
shareholders that were not supportive, it would risk the ability of the Scheme
to achieve its intended purpose. Therefore, on 18 September 2023, the
Company announced that it had ceased discussions relating to the Scheme.
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Capital allocation
Following the termination of discussions in relation to the Scheme, the Board
has reconfirmed the intended capital allocation policy for the forthcoming
year:
- prioritise the reduction of leverage whilst interest
rates remain high, by using capital proceeds from disposals and refinances to
repay the RCF;
- improve the risk adjusted return of the existing
portfolio by reducing equity risks as well as exposure to the social housing
sector; and
- buy back the Company's shares while they remain an
attractive investment opportunity and/or otherwise return capital to
shareholders.
At the year end, the average term of the portfolio was ten years. The Company
has historically been able to complete strategic refinances and disposals
before the end of the term of the loan. For the forthcoming financial year,
the Board and Investment Adviser intend to refocus on refinances and
disposals. Subject to market conditions and the ability to agree acceptable
terms, the Board has set a conditional target of releasing £150 million
(c.15% of the portfolio) of funds in order to materially reduce the RCF and
return at least £50 million of capital to shareholders before the end of the
calendar year 2024, whilst maintaining the dividend target(1).
The Board believes that the capital allocation policy will emphasize the
Company's position as a leading investor in infrastructure debt, with a strong
focus on sustainable investments.
Market context
The wider financial market in which the Company operates has continued to face
significant challenges. Russia's invasion of Ukraine has caused a global
energy shock, increasing the cost of, and volatility in, the prices of
electricity and gas. Post period end, further geopolitical tension between
Israel and Hamas in the Middle East has resulted in additional uncertainty in
the market, contributing to volatility in short-term power prices. In tandem
with this, inflation has continued to increase, with the UK's inflation rate
reaching its highest level in 40 years.
The UK's mini-budget in September 2022 led to a dramatic increase in the cost
of borrowing, with a rapid increase in central bank rates. At the year end,
interest rates had risen to 5.25% in the UK, with higher rates aiming to
reduce headline inflation. The twelve month CPI rate peaked at 11.1% in
October 2022, and reduced to 6.7% in September 2023, materially above the
Bank of England's target rate of 2.0%. At the time of writing, CPI is 4.6%.
While headline energy costs have reduced from their peak in late 2022, the UK
has continued to see labour market strength, with low unemployment, strong
wage growth and increasing costs.
Whilst the relative yields explain some of the reduction in the Company's
share price, the Board believes the discount at which the Company's shares
have traded to the stated NAV is not reflective of the strength in the
Company's underlying investment portfolio, with the effective yield
considerably higher than the discount rate on investments determined by the
independent Valuation Agent. Despite this, underlying portfolio performance
remains strong.
Financial performance
It has been a challenging financial year for the Company, with investment
revaluations negatively impacting profitability. The Company generated total
profit and comprehensive income of £30.9 million (30 September 2022:
£140.3 million). The comparative period last year included material positive
revaluations resulting from increased electricity price forecasts, with higher
power prices driven by the war in Ukraine generating higher than expected cash
flows from renewable generating assets. Further information on financial
performance can be found below.
The net assets of the Company decreased to £956.6 million (109.79 pence per
share) from £998.1 million the previous year (112.80 pence per share). At the
year end, the Company's share price was 67.70 pence, representing a 38.3%
discount(2) to NAV (30 September 2022: 97.80 pence, representing a 13.3%
discount(2) to NAV).
The dividend of 7.0 pence per share for the year was 0.5 times covered on an
earnings cover(2) basis, which includes investment revaluations in accordance
with IFRS, and 1.2 times covered on an adjusted earnings cover(2) basis,
calculated on the Investment Adviser's assessment of adjusted net earnings(2)
in the year; further information can be found 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.APM - for definition and calculation methodology, refer to the APMs section
below.
Investment activity
The Company undertook very little investment activity during the year: there
was very limited follow-on and new investments before the dramatic shift in
interest rates became embedded early in the year; later, investment activity
was confined to portfolio restructuring and management. The Board and the
Investment Adviser remain committed to the Company's intentions to reallocate
capital towards reducing gearing, buying back shares whilst they trade at a
significant discount and, where appropriate and attractive, disposing of
assets to rebalance the portfolio and generate funds.
At the start of the year, the Company's borrowings totalled £99.0 million,
with drawings against the Company's RCF peaking at £154.0 million in
December 2022. At year end, the borrowings had fallen to £104.0 million
following repayments. 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 year end, the Company has invested
£10.6 million in shares under the authority at an average price of 78.16
pence per share, a discount(1) to the prevailing NAV. Post year end, the
Company invested a further £2.2 million in shares at an average price of
63.47 pence per share. The Board notes that buying back shares at a
discount(1) to the NAV provides a highly attractive investment for the
Company's shareholders, and is focused on maximising value by reducing
leverage, disposing of assets and buying back shares before making any new
investments.
The Company made new loans of £9.2 million in the year. Portfolio investments
of £129.5 million focused on restructuring and management. This was offset by
repayments of £128.0 million, giving a net investment in the existing
portfolio of £1.5 million.
Investment activity in the year focused on portfolio management to enhance the
Company's security position and generate new repayments. Portfolio investments
advanced to existing borrowers included: £46.4 million in the fourth quarter
of 2022 to repay third party senior debt secured against a portfolio of
commercial solar projects and a portfolio of renewable and PPP assets, which
improved the Company's security; and in May 2023 the Company entered into
agreements for the refinancing of two existing loan notes in the biomass
sector and committed to a new £50.0 million loan note as part of a
syndicated facility.
This refinancing generated c.£50.0 million of net cash proceeds that were
used to repay the Company's RCF and led to a 1.2 pence per share uplift to the
Company's NAV, primarily from prepayment fees. The refinance improved the
Company's security position whilst also earning prepayment fees of
£8.7 million.
Financing
The Company maintains a RCF with a number of lenders, with total commitments
of £190.0 million, maturing in March 2024, of which £104.0 million is drawn
at the date of the report. The Investment Adviser, on behalf of the Company,
has engaged positively with its lenders. Post year end, in December 2023, the
Company signed heads of terms for a new debt facility at the reduced amount of
£150.0 million, in line with the Board's stated intention of reducing Company
leverage.
Further details on the Company's financing activity are provided below and
details of the RCF can be found in note 15.
ESG
The Company's portfolio continues to have a positive impact by contributing to
the generation of renewable energy and financing infrastructure that has clear
benefits to users in society. The Board believes that by ensuring the
Company's investments are focused on their environmental and social impact,
the risks associated with long-term investments are reduced, and the
borrowers' ability to service the loans is increased as users of the products
or services tend to prefer sustainable providers.
The Company has made good progress this year with the ESG objectives set out
in the 2022 annual report. Of particular note has been the Global Real Estate
Sustainability Benchmark ('GRESB') assessment completed by the Investment
Adviser for one of the wind assets in the portfolio, which achieved a rating
of four green stars and a score of 90 out of 100. The GRESB assessment marks
the first step in the Company's external assurance journey, with the intention
of sharing the lessons learned across the portfolio assets and replicating
policies and management approach for other assets.
More details of the Company's work in relation to sustainable investment are
given in the sustainability section below.
Share repurchases
The Board is aware of market volatility and its impact on share prices,
including the impact on the Company's share price. The Company's shares have
traded at an average discount(1) of 14.3% during the year and, at prior year
end, an average premium(1) of 8.8% since IPO. At 30 September 2023, the
share price was 67.70 pence, representing a discount(1) to NAV of 38.3%.
As outlined above, the Company has undertaken a share repurchase scheme as
part of its ongoing investment strategy, particularly given the high
discount(1) to NAV it has experienced. These purchases are an attractive use
of shareholders' funds relative to the pipeline of potential new investments,
and they are expected to enhance earnings per share and dividend cover going
forward.
The Board continues to support and authorise share repurchases from time to
time, subject to the prevailing share price discount(1) and availability of
cash resources relative to cash commitments.
Outlook
Bank of England base rates, which at the time of writing are 5.25%, have
increased throughout the financial year in a bid to reduce inflation. Whilst
year-on-year CPI peaked in October 2022 and has since fallen, it is still
materially above the Bank of England's target rate of 2.0%. Markets have
predicted that interest rates will reduce in time, but are set to remain
higher for longer than markets were pricing earlier in the year.
Energy prices have fallen from the highs experienced in the previous financial
year, but like interest rates, they are predicted to stay higher for longer
than in this period last year. Furthermore, the UK has retained its commitment
to decarbonise the electricity grid by 2035. Despite this commitment, and the
need for new renewable electricity generation infrastructure to achieve it,
there were no bids to build new offshore wind capacity under the most recent
contracts-for-difference auction round run by the UK Government. The Committee
for Climate Change has expressed concerns to Parliament about the pace of
change required to meet the UK's climate goals over the course of the 2030s.
The failure to secure bids to build incremental offshore wind generating
capacity is likely to make these targets even harder to achieve, which will
likely lead to higher power prices for longer.
A total of 41% of the portfolio benefits from some form of inflation
protection, meaning that higher inflation is set to benefit the existing
portfolio. In addition, renewable energy generators make up around two-thirds
of the portfolio and are set to benefit from power prices being structurally
higher than when the Company originally invested. Thus, the current market and
market outlook are positive for the Company's portfolio.
Higher interest rates have caused a shift in credit markets and, as a result,
opportunities to make new loans within the Company's risk appetite at rates of
interest that reflect the steep change in rates across asset classes may
emerge. Given the continuing need for new infrastructure to decarbonise the
economy, the Board is confident in the Investment Adviser's ability to
continue building a pipeline of attractive investments for the Company. This
gives the Company the opportunity to reset the long‑term returns on its
investments at a higher yield when it resumes investment activity.
As noted above, the Board is focused on maximising value for shareholders by
reducing leverage, disposing of assets where pricing is attractive to generate
funds and optimise the portfolio, and buying back shares, given the attractive
risk adjusted returns from doing so, before making any new investments.
Andrew Didham
Chairman
12 December 2023
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Strategic overview
The Company's purpose is to invest in UK infrastructure debt and/or similar
assets to provide regular, sustained, long-term dividends and to preserve the
capital value of its investments over the long term.
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 strategic report which provides an in-depth
review of the Company's performance and future strategy. Further information
on the business model and purpose is set out below.
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).
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. PPP/PFI healthcare, PPP/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 build and 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 the Company's stakeholders;
- to develop and increase the understanding of infrastructure debt as an
asset class and to use that understanding continually to review the Company's
investment strategy; 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 the 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 year, due to 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.
The calculation of leverage under the UK AIFM Regime in note 15 to the
financial statements includes derivative financial instruments as is required
by the applicable regulation.
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Business model
The Company's purpose is to invest in UK infrastructure debt and/or similar
assets to provide regular, sustained, long-term dividends and to preserve the
capital value of its investments over the long term.
Investment objectives Sustainability considerations Implementation of investment strategy Key performance indicators Sustainability indicators
Generate dividend income Governance Board of Directors Stewardship and oversight Generate dividend income Governance
The Company operates under a robust governance framework, read more on pages 7.0p 50%
90
To provide shareholders with regular, sustained, long‑term dividends.
Dividends per share declared for the Board gender and ethnic diversity at
to 119 of the full annual report on the Company's website.
year ended 30 September 2023 30 September 2023
Preserve capital
Environmental
To preserve the capital value of its investment assets over the long term.
Preserve capital Environmental
The Investment Adviser positively screens for assets which benefit the
environment, read more below. 109.79p 1,398 GWh
Provide diversification NAV per share at Renewable energy exported by portfolio assets(1)
To invest in a diversified portfolio Social 30 September 2023
of debt and/or The Investment Adviser positively screens for assets which benefit Social
similar assets secured against UK infrastructure projects. society, read more below. Provide diversification 856
51 FTEs at portfolio asset level at 30 June 2023(1)
Financial Number of investments at 30 September 2023
The Company uses credit facilities, hedging arrangements, cash flow forecasts Financial
and stress scenarios to ensure financial viability, read more below.
0.5 times(2)
Basic dividend cover (IFRS) at 30 September 2023
Investing ESG due diligence Operating ESG data collection
The Company seeks to generate exposure to infrastructure debt and/or similar The Company pays careful attention to the control and management of the
assets in the renewable energy, social housing and PPP/PFI sectors. portfolio and its operating costs.
The Investment Adviser provides advisory services relating to the portfolio The day-to-day provision of investment advice and administration of the
in accordance with the Company's investment objective and policy. Company is provided by the Investment Adviser and the Administrator
respectively, whose roles are overseen by the Board.
Financing ESG positive investment Managing Assessing climate risk
The Company raises capital on a highly conservative basis, with consideration As an investment company, the Company seeks to take investment risk.
given to scheduled capital repayments.
The Investment Adviser works alongside the Board to manage risks and shape the
The Company will seek to raise capital when it has an advanced pipeline of risk policy of the Company. It is also responsible for risk monitoring,
investment opportunities. It also makes prudent use of leverage to finance the measuring and managing.
acquisition of investments and enhance returns.
1.Twelve month period to 30 June 2023 to facilitate data inclusion in the
annual report.
2.The dividend of 7.0 pence per share is fully covered by an adjusted EPS(3)
of 8.58 pence per share.
3.APM - for definition and calculation methodology, refer to the APMs section
below.
Investment Adviser's report
The Company's focus remains on investing in UK infrastructure debt in project
companies that have the specific purpose to build, own and operate assets that
benefit from public sector backed revenues.
UK infrastructure market
Infrastructure investments are typically characterised by high upfront capital
costs, paid back in consideration for the provision of a service over long
asset lives. The infrastructure the Company seeks to invest in has inherent
environmental and social benefits. For example, some of the assets in the
Company's portfolio generate renewable electricity to displace polluting
fossil fuel fired power stations, while others provide quality accommodation
for members of society who need support to live a productive life with dignity
and independence.
Encouraging the construction and operation of such assets has historically
required Government intervention, initially by way of subsidies or long‑term
revenue guarantees, and more recently by the UK Government creating
long‑term market incentives to support their business case.
Infrastructure investment has broad cross-party political backing to support
economic, social and fiscal outcomes. In the UK Government's 2023 Green
Finance Strategy, it was noted that, "Private investment will be crucial to
delivering net zero, building climate resilience and supporting nature's
recovery. We estimate that to deliver on the UK's net zero ambitions through
the late 2020s and 2030s, an additional £50‑60 billion capital investment
will be required each year."(1) Furthermore, a 2021 report from the Green
Finance Institute estimated that over the next ten years, the UK's domestic
nature-related goals could require between £44‑97 billion of investment(2).
With increased policy initiatives incentivising investment in infrastructure,
there are significant opportunities to enhance the Company's existing
portfolio and continue making attractive risk‑adjusted investments.
Challenges and opportunities
The table below sets out some of the challenges and associated opportunities
for infrastructure investment.
Challenge Infrastructure opportunities Government support/intervention Investment characteristics
Decarbonisation of the UK economy by 2050, with intermediary targets in place - Further investment in established renewable sectors such as wind and - CfD Inflation-linked subsidy support but reliant on merchant prices long term
such as the decarbonisation of the electricity system by 2035 solar
- Deployment of less-established renewables across electricity, heat - Green Gas Support Scheme and Net Zero Hydrogen Scheme
generation and transport
- Various grant and capital support
High energy prices and reliance on foreign suppliers into the energy system - Low-marginal cost domestic renewable generators - Price cap Exposure to wholesale energy prices. Some contractual income (some
inflation-linked) from capacity mechanism or grid service arrangements
- Nuclear (including small modular reactors) - Carbon pricing
- Grid infrastructure such as interconnectors - Energy profits levy
- Energy storage -
- Energy efficiency schemes -
Climate change adaptation: increased frequency of extreme weather events in - Flood defences - The Government has a large direct investment flood defence programme Limited current investment opportunities, but expected to be a growth area
new geographies
- River flood mitigation measures -
A growing and ageing population will place different demands on social - Housing - This has been a recent focus of direct Government funding, with a Investment opportunities are typically in the private sector (e.g. private
infrastructure limited role for private sector investors in public procurements care homes, private schools). These have more corporate or property investment
characteristics which are less attractive to the Company
- Healthcare and social care provision -
- Transport -
- Education -
- Utilities -
Digitalisation drives a greater need for access to online services - Broadband infrastructure - Capital support for rural deployment Demand-based risks and, in certain geographies, competition for customers
- Data centres and associated energy systems
1."Mobilising green investment: 2023 green finance strategy", UK Government,
April 2023.
2.Finance Gap for UK Nature Report, Green Finance Institute, October 2021.
Company position
The Company has a well-diversified portfolio across a wide range of
operational renewable projects, social infrastructure (through PPP/PFI
schemes), and supported living social housing. The explicit objective of
diversification has historically enabled the Company to respond to more
challenging conditions in any one asset class (such as decreasing yields
and/or more competition) by diversifying into other areas.
Over the life of the Company, the Investment Adviser has seen several sectors
in which the Company has historically been invested mature over time. PFI,
PPP, certain renewable asset classes and supported social housing have all
seen increased demand for investment, with risks better understood and
accepted by investors.
The Company's response to the current market environment is as follows:
1. Reduce gearing:
- The Company's debt under the RCF is priced at a margin to SONIA.
Rising interest rates have meant the margin between the rates charged to
borrowers and the cost of the Company's debt has fallen. Reducing borrowing in
this high rate environment is low risk but enables higher returns for the
Company.
2. Buy back shares:
- The Board and the Investment Adviser both consider the implied yield
on the Company's shares, which are trading at a significant discount(1) to
NAV, is higher than the actual risk on the underlying investments given the
positive ongoing performance of the portfolio. Therefore, buying back the
Company's shares offers an attractive risk-adjusted return for shareholders.
3. Optimise the portfolio:
- The Company's average loan life is ten years. However, the Investment
Adviser continues to seek opportunities to optimise the portfolio by seeking
early refinances or disposals where appropriate. The Investment Adviser is
actively seeking to return capital to the Company by reducing exposure to the
social housing sector and by de-risking the equity investments.
- The Investment Adviser has identified a number of opportunities to
extend the lives of assets, or to enable assets to provide additional services
that create supporting revenue streams which will increase the valuation of
the assets.
- The debt market has undergone significant change over the last twelve
months and it has created opportunities to invest at a similar risk level
whilst generating higher returns. As such, the Company remains focused on
recycling capital to reduce gearing and investing in share buybacks. However,
over the long term, the need for new sustainable infrastructure and the higher
rates available in the market will provide attractive opportunities when the
Company resumes making new investments.
Differentiation
The Company retains some key differentiators that make it well positioned to
take advantage of attractive risk-adjusted returns, despite infrastructure
investment opportunities remaining competitive. These include:
Scale Diversification Track record Debt focus
The Company can make investments that are too small Having the explicit objective The Company has been The Company's focus on debt, and flexibility across senior and subordinated
positions, means that it is well placed to match the investment risk with an
for certain investors (such as commercial banks) to consider, particularly of diversifying across a range investing in new infrastructure sectors for over a decade. appropriate capital structure solution.
where there is an opportunity to scale an investment over time through
follow‑on financing to existing borrowers. of asset classes means that The Investment Adviser has
the Investment Adviser can an established model to assess and evaluate opportunities in
seek the most attractive risk-adjusted returns, and is not bound to invest in new asset classes. Moreover,
sectors that remain unattractive due to
this track record means the Investment Adviser has developed expertise in a
higher competition or asset characteristics.
number of asset classes,
such as anaerobic digestion
and biomass, that other investors are not likely to benefit from.
Key investment activity
This year's focus has been optimising the Company's existing portfolio and
buying back shares, whilst reviewing the use of the Company's RCF. A full
summary of investments and repayments during the year is shown below.
In December 2022, the Company invested a further £36.1 million into an
existing portfolio of commercial solar projects to repay third party senior
debt. These assets are subject to audit by Ofgem and by replacing the senior
debt, the Company was able to manage the audit process without incurring a
potential conflict of interest with a third party. In May 2023, the Company
agreed to a refinance of two existing loan notes provided to the owners of two
biomass plants.
The loan notes were redeemed at par and the Company received fees (including
prepayment fees) of c.£10 million (the effect of the refinance was equivalent
to adding 1.2 pence per share to the NAV). As part of the refinance, the
Company committed a new £50.0 million loan note to the owner of the two power
plants as part of a syndicated facility. This refinance improved the Company's
security position, with the new facility including a third operational power
plant. It also increased the total yield projected on the investment. New
investments of note in the year included a £7.5 million senior loan to
purchase a fleet of electric taxis.
As part of the Company's share buyback programme announced in March 2023, the
Company has invested £10.6 million to buyback its own shares at a discount(1)
to the prevailing NAV, providing an attractive investment for the Company and
its shareholders.
The Company has also reduced the use of its RCF given the high interest rate
environment. The drawings under the facility peaked at £154.0 million in
December 2022 but were reduced to £104.0 million at the year end.
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Investment risk
The table below details the Investment Adviser's view of the changes to the
risk ratings for sectors where changes have been observed in the past year.
Risk Sector Change in year Description
Market risk Renewables (all sectors) Increased While electricity prices have decreased over the year, volatility has
persisted. This volatility has also contributed to higher inflation throughout
The risk of an investment being exposed to changes in market prices, such as the year. The Company has exposure to electricity prices and inflation as part
electricity prices or inflation. of its renewables portfolio, and the higher price environment has been
beneficial to the assets.
Supported living Increased The rents charged on the supported living properties are inflation linked and
the RPs who have leased the properties have to pass on the inflationary
increases in the rents they charge to the local authorities.
Credit risk Supported living Increased The leases on the underlying properties have inflation linkage and, as such,
the leases charged to RPs have increased during the year. The underlying RPs
The risk of reliance on customers and suppliers to provide goods and/or have to agree to pass the increases on to local authorities. With higher
services for a project and manage certain project risks as part of such inflation there is more pressure on local authorities to minimise such rental
arrangements. increases.
Operational risk Renewables (all sectors) Increased The supply chains for spare and replacement parts have continued to be
impacted by global labour and supply chain challenges. The Company has
The risk of exposure to the construction and/or operations of a project suffered from delays of this nature during the year, for example where a
associated with the failure of people, processes and/or systems required to network operator had a fire on its site and had to cease operations on the
monetise an asset. wind farm until repairs were completed.
Legal/regulatory risk Renewables (all sectors) Increased There is uncertainty regarding potential future Government intervention in the
energy market, therefore forecast power prices may not be realisable in
The risk associated with changes to laws and/or regulations. This covers reality. The implementation of the Electricity Generator Levy in January 2023
UK-wide, non-specific risks, such as changes to the tax regime, and specific has impacted the short-term profitability of certain assets in the portfolio.
risks such as the change to a subsidy regime that a project relies on. The levy will be in place until 31 March 2028.
Interest capitalised
The Company received total loan interest income of
£80.8 million (30 September 2022: £74.5 million) from the underlying
investment portfolio. Of this, £58.8 million was received in cash and £22.0
million was capitalised in the year (30 September 2022: £52.1 million and
£22.4 million respectively), refer to note 3 for further information. 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 is an effective way
of reinvesting repayments received from the portfolio back into other
portfolio projects.
3. Loans are not performing in line with financial models, 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.
Other unscheduled capitalisations in the year related to the re-direction of
cash flows into three gas-to-grid anaerobic digestion projects in Scotland to
address performance issues encountered in the year.
The table below shows a breakdown of interest capitalised during the year and
amounts paid as part of final repayment or disposal proceeds:
30 September 30 September 30 September 30 September
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Loan interest received (cash) 58,791 52,079
Capitalised amounts settled as part of final repayment or disposal proceeds - 9,727
Capitalised (planned) 18,253 15,421
Capitalised (unscheduled) 3,706 6,979
Loan interest capitalised 21,959 22,400
Capitalised amounts subsequently settled as part of repayments (10,822) 10,822 (13,408) 13,408
Adjusted loan interest capitalised(1) 11,137 8,992
Adjusted loan interest received(1) 69,613 75,214
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 an increase in debt, and the 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 an 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 2023 2024 2025 2026 2027 2028
Capitalised (planned) 21% 12% 8% 6% 9% 11%
Capitalised (unscheduled) 4% 5% 1% - - 2%
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Renewables
Renewable projects generate renewable energy across the heat, electricity and
transport sectors and benefit from long‑term Government subsidies.
65%
Percentage of portfolio by value
£683.8m
Valuation of sector
Background
Renewable energy involves the sustainable production of energy for
electricity, heat production and transport. In its 2023 Green Finance
Strategy, the UK Government estimated that to deliver on the UK's net zero
ambitions through the late 2020s and 2030s, an additional £50 to £60 billion
capital investment will be required each year. This will provide the Company
with significant investment opportunities across the renewables sector.
Current position
The UK remains committed to decarbonising the electricity system by 2035 and
becoming net zero by 2050. However, the Climate Change Institute recently
noted that "Better transparency is no substitute for real delivery. Our
confidence in the UK meeting its goals from 2030 onwards is now markedly less
than it was in our previous assessment a year ago".(1)
An example of this apparent failure to deliver can be seen in the results of
round five of the UK's flagship renewable support mechanism, the
contract-for-difference ('CfD') published on 8 September 2023. No offshore
wind projects bid into the auction, a technology that has historically been
the major beneficiary of the CfD. As a result of this, questions have been
raised over the UK's target to build 50 GW of offshore wind by 2030 and
decarbonise the electricity grid by 2035, or 2030 under a Labour Government.
The reasons for the failure to attract bids have been well publicised: the
administrative strike price (the maximum price that bidders can achieve in the
CfD auction) was set at a level too low to make new investment attractive.
Future outlook
Further Government support and intervention is likely to deliver the new
renewable energy generation capacity required to meet the UK's decarbonisation
targets. In the short term, this is likely to support the price of renewable
energy sold by the Company's existing portfolio of borrowers, and in the
medium term is likely to create further investment opportunities for the
Company.
Impact
1,398 GWh Renewable energy exported by portfolio assets(2)
SDG alignment
7 - Affordable and clean energy
8 - Decent work and economic growth
1."Better transparency is no substitute for real delivery", Climate Change
Institute, June 2023.
2.Data at 30 June 2023 to facilitate inclusion in the annual report.
Evermore and Widnes projects
Refinance of two operational biomass plants
The Evermore project is a c.15.8 MWe waste wood combined heat and power
station located in Lisahally, Northern Ireland. The project uses c.90,000
tonnes of waste wood per annum, sourced principally from the construction and
demolition industry, to fuel a steam turbine that generates electricity and
supplies heat to a virgin wood drying system. The project benefits from two
ROCs per MWh of electricity generated for 20 years from its commissioning
date, providing a stable, RPI-linked public sector backed revenue stream.
The Widnes project is a 20.2 MWe waste wood to energy combined heat and power
station located in Cheshire. It uses up to 147,000 tonnes per annum of waste
wood. The plant is eligible for 1.4 ROCs per MWh of electricity.
The Company originally provided subordinated loans against the construction
and operation of both plants, investing in Evermore in 2013, and committing
£23.2 million to the financing of its construction as part of a total
financing package of c.£80.0 million, with the project completing
construction in 2015.
The Company has built a strong working relationship with the borrowers of both
Evermore and Widnes since the initial investments were made. In the previous
financial year, the Company, alongside another lender, completed the refinance
of the senior loans and subordinated debt, replacing them with 'unitranche'
debt, a flexible form of financing. This resulted in the Company taking a
senior, rather than subordinated, position, removing the associated lock-up
and interest capitalisation risks.
Furthermore, this year the Company completed the refinancing of the unitranche
debt, while retaining exposure to the two plants and one additional biomass
project by participating in a new syndicated facility. The refinancing repaid
the Company at par, while generating £8.7 million of early prepayment fees,
demonstrating the valuation of the loans.
Sustainability indicators
Environment
252 GWh Energy exported in 2022/23(1)
Social
48 FTEs at portfolio asset level(1)
Governance
8 ISO certifications(1)
Financial
£33.8m Valuation at 30 September 2023
1.Data at 30 June 2023 to facilitate inclusion in the annual report.
Supported Living
Supported living projects create long-dated cash flows supported by the UK
Government through the secured pledge of centrally funded benefits.
11% Percentage of portfolio by value
£111.6m Valuation of sector
Background
The Company has historically targeted a subset of the social housing sector
provision referred to as 'supported living' through the financing of
development or conversion of existing accommodation to suit specific care
needs for individuals with learning, physical or
mental disabilities. The Company has provided debt finance to entities that
own and develop properties, which are leased under a long-term fully repairing
and insuring lease to RPs who operate and manage the properties. The RPs
receive housing benefits for individuals housed in such properties. The budget
for housing benefit in this sector is funded by the central Government and has
historically been, and remains, highly protected and uncapped.
During the last financial year, the Company refinanced 78 operational
supported living properties let by three of the Company's
borrowers to a single RP. The refinancing facilitated the return of c.£50
million of cash to the Company and an increase in the Company's expected
return on the loan.
Current position
RPs that have leased properties from the Company's borrowers have continued to
be challenged in respect of governance and financial viability by the
Regulator of Social Housing ("RSH"). In the year under review, these RPs have
continued to focus on improving processes, people and systems in seeking to
address the RSH's governance concerns. Furthermore, the Company has consented
to
a number of amendments in the relationships between RPs and the Company's
borrowers that seek to enhance the financial viability of the applicable RPs.
It is the Investment Adviser's view that the fundamentals of the sector,
underpinned by a well‑protected housing benefit budget and a
care model that has demonstrated healthcare and financial benefits for the
recipients, and the UK Government, remain attractive. The RSH has itself noted
its desire to see higher deployment of care under a supported living model and
for this to be financed by the private sector.
Future outlook
The Company maintains the position that it does not intend to grow its
exposure to the social housing sector in any new projects as a result of
concerns raised by the RSH in respect of the governance and financial
viability of RPs. The Investment Adviser also notes there is increased
competition in this sector, which has put pressure on potential returns. The
Company continues to work with its borrowers to seek to optimise the portfolio
in order to stabilise the rental yields received by the borrowers from the RPs
and to consider further refinances or other transactions as appropriate.
Impact
3,119 People housed in supported accommodation(1)
SDG alignment
11 - Sustainable cities and communities
9 - Industry, innovation and infrastructure
1.Twelve month period to 30 June 2023 to facilitate data inclusion in the
annual report.
Westmoreland Supported Housing
Improving governance at a portfolio of supported living accommodation
The Company has invested in a portfolio of 13 properties and 51 units of
supported living accommodation designed to meet the individual and unique
needs of adults with learning disabilities, mental health issues and physical
or sensory disabilities. The portfolio is leased to Westmoreland Supported
Housing Limited ('Westmoreland'), a Registered Provider of social housing.
From 2018, the Company recognised that the supported living sector had grown
rapidly and various RPs were failing to keep up with the
rapid growth they were experiencing, leading to management issues at some RPs.
Furthermore, the RSH indicated that the funding model used by the sector did
not align with its preferences. This model involved RPs taking out long leases
for properties they let to local authorities under exempt rents. The Company
has not made any further investments in the sector since then.
As a business that has grown very quickly, Westmoreland experienced
significant financial distress in 2019. This led the RSH to use its
statutory powers to elect new officers to Westmoreland's board at the end of
2019, closely followed by a board-directed change in the
executive team at the start of 2020.
In 2021, the Company's borrower entered into an agreement with Westmoreland to
provide a defined level of financial support while
Westmoreland worked to address their financial distress and improve their
governance and financial viability. In changing the board and
executive team, and restructuring the lease payment arrangements, Westmoreland
sought to address the wider concerns raised by the RSH.
The Company has supported Westmoreland over this period. Westmoreland is now
in a materially better financial position and has made significant progress in
improving its governance and financial viability, with historic issues
addressed as they look towards consolidation and future growth. As a result,
Westmoreland continues to provide high quality accommodation and care for
its vulnerable tenants.
Sustainability indicators
Environment
45% EPC rating A-C(1)
Social
23 FTEs at portfolio asset level(1)
Governance
4 Governance policies implemented(1)
Financial
£9.0m Valuation at 30 September 2023
1. Data at 30 June 2023 to facilitate inclusion in the annual report.
PPP/PFI
PPP/PFI enables the procurement of private sector infrastructure financing
through access to long‑term, public sector backed and availability-based
payments.
24%
Percentage of portfolio by value
£251.2m
Valuation of sector
Background
Partnerships between the public and private sectors to develop, build, own and
operate (or a combination thereof) infrastructure have taken a number of
forms, with the best known as PFI (Public Finance Initiative), which
originated in the UK in the mid-1990s. Since this time, over £60.0 billion
has been invested in the development of new projects across the healthcare,
education, leisure, transport and other sectors under such schemes. The design
and implementation of revenue support mechanisms such as PFI has been devolved
to the Scottish, Welsh and Northern Irish administrations. The Company has
exposure to a number of sectors within the PPP/PFI sector including education,
healthcare, waste, leisure and housing.
Current position
The PPP/PFI model for procuring infrastructure fell out of favour before 2020
and there are no material new projects expected to be procured this way in the
medium term, meaning there are currently limited opportunities for further
investments. During the year, the Company indirectly acquired equity in 13
Scottish hub projects engaged in the education, health, leisure and community
facilities in which it was already a lender, investing £885,000 in total.
Future outlook
There have been no indications that the UK or devolved governments intend to
reverse policies to procure new infrastructure using private sector finance
which is supported by long-term availability-based payments. To the extent
that there are any such opportunities in the future, the Company will consider
them as investment opportunities.
The Investment Adviser will continue to monitor any PPP schemes (or similar
structures) and secondary markets for potential opportunities.
Impact
c.26,688 School places in portfolio(1)
SDG alignment
4 - Quality education
3 - Good health and well-being
1.Twelve month period to 30 June 2023 to facilitate data inclusion in the
annual report.
Salford Social Housing PFI
Refurbishment of a portfolio of social housing accommodation
The Salford Social Housing PFI project was formed with the aim of delivering
the refurbishment and management of social housing accommodation consisting of
1,270 existing dwellings located in Greater Manchester and owned by Salford
City Council.
The Company invested £10.9 million in a junior bond on 17 September 2013. The
notes were issued by FHW Dalmore (Salford Pendleton Housing) plc. The senior
lender is Pension Insurance Corporation plc. Together Housing provided the
initial equity investment.
The refurbishment contract completed on 24 February 2017, ahead of the
scheduled contract date of 30 May 2017. From this date, Pendleton Together
Operating Limited became operational.
Following the tragic events at Grenfell, a comprehensive review of the
refurbishment works was undertaken to determine what action needed to be
undertaken on the accommodation. As a result, the cladding used on the
project's nine tower blocks was tested and failed to meet building safety
standards.
A detailed further works programme was developed and funded by the Company
after the Government stated it would not provide funding for the cladding
removal. The programme is currently being implemented with the involvement of
all project stakeholders to ensure the long-term fire safety of the
accommodation.
The Company agreed to pay 40% of the coupon it receives as junior bond holder
to Together Housing Association as they made additional funding available to
undertake the works.
Refurbishment started with remedial works undertaken across the nine
residential buildings. The works cover both internal and external remediation
and are progressing well and according to the plan agreed with contractors.
Completion is expected in 2025.
Sustainability indicators
Environment
73% EPC rating A-C(1)
Social
20 FTEs at portfolio asset level(1)
Financial
£9.7m Valuation at 30 September 2023
1.Data at 30 June 2023 to facilitate inclusion in the annual report.
Investment portfolio
The Company is exposed to a portfolio of 51 investments with a weighted
average annualised yield(1) of 7.9% and average life of ten years.
Portfolio performance
The portfolio has largely performed in line with expectations during the year.
For the renewables portfolio, rainfall was lower than expected over the key
winter period across large parts of Scotland, however it has since improved.
Lower rainfall can reduce the amount of revenue due to lower electricity
production from hydro-electric assets. Furthermore, wind speeds have been
slower than average, and increased maintenance times at wind farms has caused
generation to be below budget. Meanwhile, solar generation and operations have
been in line with expectations.
In relation to the supported living assets, the Company has no direct control
over the underlying occupancy level of the properties it has lent against, but
it continues to work with borrowers and the underlying RPs to ensure the
assets are maintained to a high quality to attract tenants
to the properties.
As part of an agreed refinancing of existing loans to two operational biomass
plants, the Company received £8.7 million in prepayment fees with the
existing loans repaid at par. This demonstrates the conservative valuation of
the portfolio and the Investment Adviser's ongoing efforts to maximise the
value for shareholders.
A total of £50.0 million of the proceeds were reinvested into the holding
company of the two plants, with a further operational biomass plant brought
into the security net, improving the seniority of the loan along with
increasing the level of security of the loan.
Last year, the Company noted that there were ongoing challenges at a portfolio
of gas-to-grid anaerobic digestion projects in Scotland. Upgrade works to
make the sites more resilient to storm damage have since been completed and to
date have addressed the issues. Furthermore, the Investment Adviser worked
closely with the landlords and operators of the sites, as well as the gas
network operator, to improve the sites' access to the local gas grid. This
resulted in the implementation of a more reliable method of injecting biogas
into the gas grid. Before the changes were made, if the demand for gas on the
network was low (for example, on warm summer nights), then the gas network
operator would restrict the amount of gas that could be injected into the grid
and sold. The improvements mean that it is less likely the output of the plant
will be constrained in the future.
The Company continues to have exposure to the outcome of ongoing Ofgem audits
relating to the accreditation and ongoing compliance of eight ground-mounted
commercial solar projects accredited under the Renewables Obligation. During
the year, Renewable Obligation Certificates ("ROCs") for one of nine projects
under audit were revoked by Ofgem. Three projects in total in the portfolio
have now had their ROCs revoked. Eleven projects have been audited and
retained their ROCs, while a further eight remain subject to audit.
The Company has made a claim in connection with its rights under the original
investment documentation in respect of the losses it has incurred due to the
revocation. The aggregate provisions in connection to the circumstances
relating to the audits total £6.3 million, of which £1.7 million has been
recognised during the year.
The Company remains confident that it will be able to either solely or
cumulatively: (i) address Ofgem's queries to prevent or mitigate any negative
impacts on the 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.
Portfolio by sector type
PPP/PFI 24%:
Healthcare 8%
Education 6%
Waste (PPP/PFI) 4%
Leisure 2%
Housing (PPP) 2%
Energy efficiency 1%
Justice 1%
Renewables 65%:
Wind (onshore) 17%
Solar (commercial) 15%
Solar (rooftop) 10%
Biomass 9%
Anaerobic digestion 9%
Hydro 2%
Geothermal 1%
Gas Peaking 1%
Electric vehicles 1%
SH 11%:
Supported living 11%
Portfolio by income type
PPP/PFI 24%:
Unitary charge 19%
Gate fee (contracted) 2%
Electricity (fixed/floor) 1%
Lease income 1%
ROC 1%
Renewables 65%:
ROC 24%
Electricity (merchant) 18%
FiT 14%
RHI 3%
Electricity (fixed/floor) 3%
Pay per mile 1%
Embedded benefits 1%
Gas (merchant) 1%
SH 11%:
Lease income 11%
Portfolio by annualised yield(1)
>10% 7%
8-10% 32%
<8% 61%
Portfolio by average life (years)
>20 12%
10-20 6%
<10 82%
Portfolio by investment type
Subordinated 49%
Senior 40%
Equity 9%
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 12.0%
3 Unitary charge
2 Gravis Solar 1
1 Commercial solar
2 9.6%
3 ROC/PPA/FiT
3 GCP Programme Funding S14
1 Biomass
2 4.8%
3 ROC/RHI
4 GCP Bridge Holdings(2)
1 Various
2 4.7%
3 ROC/Lease/PPA
5 GCP Programme Funding S3
1 Anaerobic digestion
2 4.5%
3 ROC/RHI
6 Gravis Asset Holdings H
1 Onshore Wind
2 4.5%
3 ROC/PPA
7 Gravis Asset Holdings I
1 Onshore Wind
2 4.4%
3 ROC/PPA
8 GCP Biomass 2
1 Biomass
2 3.9%
3 ROC/PPA
9 GCP Programme Funding S10
1 Supported living
2 3.8%
3 Lease
10 GCP Green Energy 1 Ltd
1 Commercial solar/onshore wind
2 3.6%
3 ROC/PPA
Top ten revenue counterparties % of total portfolio Top ten project service providers % of total portfolio
Viridian Energy Supply Limited 9.2% PSH Operations Limited 13.3%
Statkraft Markets Gmbh 8.9% Vestas Celtic Wind Technology Limited 12.0%
Electricity Limited 8.5% Solar Maintenance Services Limited 9.9%
Office of Gas and Electricity Markets 6.6% A Shade Greener Maintenance Limited 8.5%
Npower Limited 5.8% 2G Energy Limited 5.8%
Smartestenergy Limited 4.8% Pentair 4.5%
Power Ni Energy Limited 4.5% Thyson 4.5%
Total Gas & Energy Limited 4.5% Atlantic Biogas Ltd 4.5%
Good Energy Limited 4.2% Urbaser Limited 3.9%
Bespoke Supportive Tenancies Limited 4.0% Colbat Energy Limited 3.9%
1.The Cardale loan is secured on a cross-collateralised basis against 18
individual operational PFI projects.
2.GCP Bridge Holdings is secured against a portfolio of six infrastructure
investments in the renewable energy and PPP/PFI sectors.
Portfolio overview
In the reporting year, the valuation of the portfolio decreased from
£1,087,331,000 in the prior year to £1,046,568,000. The principal value of
the portfolio at 30 September 2023 was £1,001,077,000. Investments made and
repayments received during the year are summarised in the chart below:
Investment analysis for year ended 30 September 2023
Investments and repayments £m
New investments 9.2
Further advances 129.5
Scheduled repayments (41.3)
Unscheduled repayments (86.7)
Net investment/(repayment) 10.7
Sector analysis
Investments (£m) Repayments (£m)
4.7 Anaerobic digestion (0.9)
60.3 Biomass (93.9)
1.1 Hydro (1.2)
- Offshore wind -
2.2 Onshore wind (15.1)
36.1 Commercial solar (2.2)
0.2 Rooftop solar (3.3)
10.5 PPP/PFI (10.4)
3.7 Supported living -
0.9 Geothermal -
7.8 Flexible generation -
10.4 Electric vehicles (1.1)
0.8 EV charging -
Investments and repayments post period end £m
New investments -
Further advances 0.1
Scheduled repayments (5.6)
Unscheduled repayments -
Net investment/(repayment) (5.5)
Sector analysis post period end
Investments (£m) Repayments (£m)
- Anaerobic digestion -
- Biomass -
- Hydro -
- Offshore wind -
- Onshore wind (0.3)
- Commercial solar (0.8)
0.1 Rooftop solar (1.6)
- PPP/PFI (2.7)
- Supported living -
- Geothermal -
- Flexible generation -
- Electric vehicles (0.2)
- EV charging
Capital structure
As part of its investment portfolio, the Company has targeted investments
across a number of asset classes and within different elements of the capital
structure: senior, subordinated or equity.
Discount rates
The independent Valuation Agent carries out a fair market valuation of the
Company's investments on behalf of the Board on a quarterly basis. The
valuation principles used by the independent Valuation Agent are based on a
discounted cash flow methodology. A fair value of each asset acquired by the
Company is calculated by applying an appropriate discount rate (determined by
the independent Valuation Agent) to the cash flow expected to arise from each
asset. Further information is included in note 19.3 to the financial
statements.
The weighted average discount rate used across the Company's investment
portfolio at 30 September 2023 was 7.69%, compared to 7.47% at
30 September 2022. Increases to discount rates were applied by the
independent Valuation Agent during the year, as a result of the changes in
gilt and wider credit markets, and with reference to market transactions. The
third party independent valuation of the Company's portfolio at 30 September
2023 was £1.0 billion (30 September 2022: £1.1 billion). The principal value
was £1.0 billion (30 September 2022: £986.4 million) at the year end..
The valuation of investments is sensitive to changes in discount rates and
sensitivity analysis detailing this is presented in note 19.3 to the financial
statements.
Performance updates
The specific factors that have impacted the valuation in the reporting year
are summarised in the table below.
Valuation performance attribution
Driver Description Impact (£m) Impact (pps)
Inflation forecast Higher actual inflation and higher OBR medium-term inflation forecast 11.3 1.30
Principal indexation Contractual inflationary adjustment to loan principal 4.0 0.46
Other indexation Other inflationary mechanics across the portfolio 5.7 0.65
REGOs Higher REGO prices locked in and higher forecast 1.5 0.17
prices
Other upward movements Other upward movements across the portfolio 2.0 0.23
Total upward valuation movements 24.5 2.81
Discount rates Increase in discount rates across the portfolio (24.3) (2.79)
Actuals performance Impact of renewables actual generation lower than forecast (14.3) (1.64)
Power prices(1) Power price movements in the year (13.6) (1.56)
Electricity Generator Levy Effect on valuation of incorporating the Electricity Generator Levy (8.2) (0.94)
legislation
Social housing Valuation adjustment reflecting continued uncertainty in the sector (7.0) (0.80)
Solar audits Adjustments relating to the ongoing Ofgem audits (1.7) (0.20)
Tax computations Impact of the latest tax computations (1.2) (0.14)
Other downward movements Other downward movements (2.8) (0.32)
Total downward valuation movements (73.1) (8.39)
Interest receipts Net valuation movements attributable to the timing of debt service (2.9) (0.33)
payments between periods
Net realised gains Historic indexation realised on loan repayment 0.1 0.01
Total other valuation movements (2.8) (0.32)
Total net valuation movements before hedging (51.4) (5.90)
Commodity swap(2) - unrealised Derivative financial instrument entered into for the purpose of 4.1 0.47
hedging electricity price movements
Commodity swap2 - realised 8.7 1.00
Total net valuation movements after hedging (38.6) (4.43)
1.Refer to commodity swap below.
2.The derivative financial instrument is utilised to mitigate volatility in
electricity price movements as detailed above, refer to note 18 for further
details.
Pipeline of investment opportunities
The Company maintains an attractive pipeline of new investments across
existing sectors and emerging infrastructure sectors, and follow-on
investments in the existing portfolio, at returns that are accretive to
dividend coverage and 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(1) to the NAV, buying back shares. As a result, new investments are
considered only in this context and where there is a compelling reason to
invest.
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 view of the
changes in risk, can be found above. Sensitivity analysis to changes in
discount rates on the valuation of financial assets is presented in note 19.3
to the financial statements.
Renewables valuations
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 the market compensates such
differences in assumptions 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 below, on a pence per share basis.
Assumption Company approach Lower valuations Estimated NAV impact (pence per share) Higher valuations
Electricity price forecast Futures (three years) and Afry four quarter average long term. Electricity Afry Q3 2023 (0.08) / 5.21 Aurora Q3 2023
Generator Levy applied to 31 March 2028
Capture prices (wind, solar) Asset-specific curve applied to each project Higher capture prices (0.40) / 5.76 No capture prices
Asset life Lesser of planning, lease, technical life (20-25 years) Contractual limitations - / 2.75 Asset life of 40 years (solar) and 30 years (wind)
Taxation Long-term corporation tax assumption of 25% from 1 April 2023 Long-term corporation tax assumption of 25% from 1 April 2023 - / 1.59 Short-term corporation tax assumption of 25% then 19% thereafter
Indexation OBR forecast in the short term, followed by long term RPI of 2.5% and long OBR forecast in the short term, followed by long term RPI of 2.5% and long - / 0.97 0.5% increase to inflation forecasts
term CPI of 2.0% term CPI of 2.0%
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Inflation
A total of 41% of the Company's investments by 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
renewable assets) and 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 associated with a movement in inflation.
Sensitivity applied to base case inflation forecast (2.0%) (1.5%) (1.0%) (0.5%) 0% 0.5% 1.0% 1.5% 2.0%
assumption
NAV impact (pence per share) (8.39) (6.44) (4.39) (2.26) - 2.29 5.00 7.98 10.94
Electricity prices
A number of the Company's investments rely on market electricity prices for a
proportion of their revenues. Changes in electricity prices may therefore
impact a borrower's ability to service debt or, in cases where the Company has
taken enforcement action and/or has direct exposure through its investment
structure, it may impact overall returns.
During the year, the Company applied the impact of the UK Government's
Electricity Generator Levy on energy generators. The impact of the policy on
the NAV at 31 December 2022 was 0.93 pence per share. Other than this
implementation of new Government policy, the Company's approach of using the
quoted futures price for the three year period immediately after a valuation
date, and the Afry average thereafter, has not changed year on year. Both the
near-term futures prices and longer-term Afry projections have changed over
the year, impacted by short-term supply shocks following Russia's invasion of
Ukraine. Meanwhile, longer-term projections are now higher than when the
renewable energy generating investments were made. This is due to a structural
increase in the expectations of long-term power prices from the
decarbonisation of the economy as transport and industry move away from
traditional fossil fuels and towards renewables for their main source of
energy, as well as the costs and challenges associated with achieving this
goal.
The table below shows the forecasted impact on the portfolio of a given
percentage change in electricity prices over the full life of the forecast
period, the impact on hedging arrangements in the period to expiry (March
2024), and the subsequent net impact on a pence per share basis. Further
information on the Company's hedging arrangements is detailed below and in
note 18 to the financial statements.
Sensitivity applied to base case electricity price forecast assumption (10%) (5%) 0% 5% 10%
Portfolio sensitivity (pence per share) (9.20) (4.31) - 4.17 8.34
Hedge sensitivity (pence per share) 0.03 0.01 - (0.01) (0.03)
Net sensitivity (pence per share) (9.17) (4.30) - 4.16 8.31
Hedging
As further detailed in note 18 to the financial statements, the Company
entered into financial derivative arrangements to hedge a portion of its
financial exposure to electricity prices during the year. The Company will
continue to lock in attractive electricity prices by fixing prices under PPAs
at an asset level and mitigating volatility through hedging arrangements at a
Company level.
The Investment Adviser and Board will continue to review the hedging strategy
on an ongoing basis with the objective of mitigating excessive NAV volatility
and managing risks relating to hedging, including credit and cash flow
impacts, and any required responses to the implementation of a price cap.
Financial review
The Company's total profit for the year was £30.9 million. Dividends of 7.0
pence per share were paid. Total shareholder return(1) for the year of -25.2%
reflects the widening of the discount between the Company's net assets and its
market capitalisation.
Financial performance
It has been a challenging financial year for the Company, with investment
revaluations negatively impacting profitability. Over recent years, the
Company has benefited from positive investment revaluations. However, the past
twelve months have seen a period of significant economic volatility. This
backdrop has led to a decrease in electricity prices and increases to discount
rates due to changes in gilts and wider credit markets. Refer to above for
analysis of valuation movements.
Total income generated by the Company was £51.7 million (30 September 2022:
£157.5 million), comprising loan interest of £80.8 million, net unrealised
valuation losses on investments of £51.6 million, net realised gains on
investment disposal of £0.1 million and other income of £9.5 million
(30 September 2022: loan interest of £74.5 million, net unrealised
valuation gains on investments of £77.1 million and net realised gains on
investment disposal of £5.5 million). Refer to note 3 for further
information.
The comparative period last year included material upward revaluations
resulting from increased electricity price forecasts; this year saw increased
volatility but with lower short‑term prices and lower long-term forecasts
than last year. The realised gains were attributable to the disposal of loans
advanced to the owners of two biomass plants. The loans were redeemed at par
along with the Company receiving prepayment fees of £8.7 million.
Net gains on derivative financial instruments at year end were £12.9 million
(30 September 2022: £0.4 million), reflecting the electricity price hedging
arrangements which locked in attractive price levels for the Company, refer to
note 18 for further information.
Total income was offset by operating costs for the year of £11.4 million (30
September 2022: £12.5 million) which include the Investment Adviser's fees,
the Administrator's fees, the Directors' fees and other third party service
provider costs.
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), as these are now being borne by the
underlying SPV and are reflected in the valuation.
The Company remains modestly geared at the year end, with £104.0 million
drawn on its RCF, representing a loan to value(1) of 10.8%. Finance costs have
increased year on year due to increases in SONIA, with £9.4 million incurred
(30 September 2022: £4.7 million).
Total profit and comprehensive income has decreased from £140.3 million in
the prior year to £30.9 million. As previously noted, the year‑on‑year
reduction was primarily attributable to investment revaluations in the year.
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Ongoing charges
The Company's ongoing charges ratio1, calculated in accordance with AIC
methodology, was 1.1% for the year ended 30 September 2023 (30 September
2022: 1.1%).
Revolving credit facility
The Company has credit arrangements of £190.0 million across five lenders:
RBSI, Lloyds, AIB, Mizuho and Clydesdale. At year end, £104.0 million was
drawn and the terms in place are summarised below:
Facility Size Margin 2024 Expiry
RCF £190.0m SONIA +2.0% March 2024
The RCF is due to expire in March 2024. The Investment Adviser has liaised
with the existing lending group to agree heads of terms for a new reduced
facility of £150.0 million in line with the Board's stated intention to
reduce leverage by the end of 2024.
Further details are disclosed in note 15 to the financial statements.
Net assets
The net assets of the Company have decreased from £998.1 million at 30
September 2022 to £956.6 million at 30 September 2023. The Company's NAV per
share has decreased from 112.80 pence at the prior year end to 109.79 pence at
30 September 2023, a decrease of 2.7%. This is primarily due to downward
revaluations of investments as detailed above.
Cash generation
The Company received debt service payments of £136.8 million (30 September
2022: £206.2 million) during the year, comprising £58.8 million of cash
interest payments and £78.0 million of loan principal repayments
(30 September 2022: £52.1 million and £154.1 million). The Company paid
cash dividends of £61.8 million during the year (30 September 2022: £59.0
million). The Company aims to manage its cash position effectively by
minimising cash balances, whilst maintaining the financial flexibility to
pursue a pipeline of investment opportunities. This is achieved through the
active monitoring of cash held, income generated from the portfolio and
efficient use of the Company's RCF
Hedging
The Company entered into two separate arrangements to hedge its financial
exposure to electricity prices during the year. The Investment Adviser
recommended hedging c.75% of the Company's exposure to the GB market for
summer 2022/23 at a fixed price of £140.5 per MWh and winter 2023/24 at a
fixed price of £106.5 per MWh. The mark‑to-market of the hedge at 30
September 2023 was an asset of £0.3 million. Further detail on the Company's
electricity price exposure and hedging strategy can be found above and in note
18.
Share price performance
Against a challenging economic backdrop, the Company's total shareholder
return(1) was -25.2% for the year (30 September 2022: 3.8%) and 57.1% since
IPO in 2010. During the year, the Company's shares have generally traded at a
discount(1) to NAV, with an average of 14.3% for the year and a discount(1) of
38.3% at the year end. The shares have traded at an average premium(1) of 7.9%
since IPO (30 September 2023: 8.8% premium(1) since IPO). The share price at
29 September 2023 was 67.70 pence per share (30 September 2022: 97.80
pence).
Further details on share movements are disclosed in note 16 to the financial
statements.
Dividends
The Company aims to provide shareholders with regular, sustained, long-term
dividends. For the year ended 30 September 2023, the Company paid a dividend
of 7.0 pence per ordinary share (30 September 2022: 7.0 pence).
The Board and Investment Adviser do not believe there have been any material
changes in the Company's ability to service sustained and long‑term
dividends since the assessment in early 2021 that established a dividend
target(2) of 7.0 pence per share. As such, the Company has set a target(2) at
the same level, 7.0 pence per ordinary share, for the forthcoming financial
year.
1.APM - for definition and calculation methodology, refer to the APMs section
below
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.
Dividend cover
In determining the dividend target(1) for the forthcoming financial year, the
Board and Investment Adviser reviewed the sustainability of the dividend level
against various metrics, most notably the APM based on interest income
accruing to the benefit of the Company from the underlying investment
portfolio; loan interest accrued(2).
The Board recognises there are various methods of assessing dividend coverage.
The Board and the Investment Adviser consider this metric to be a key measure
in relation to the ongoing assessment of dividend coverage alongside earnings
cover(2) calculated under IFRS. The loan interest accrued(2) metric adjusts
for the impact of pull‑to‑par, which is a feature of recognising earnings
from the investment portfolio presented under IFRS.
30 September 2023 30 September 2022
Earnings cover Notes £'000 pps £'000 pps
Total profit and comprehensive income 30,905 3.50 140,319 15.88
Dividends paid in the year(3) 9 61,785 7.00(4) 61,826 7.00
Earnings cover(2) (times covered) 0.50 2.27
30 September 2023 30 September 2022
Adjusted earnings cover(5) Notes £'000 pps £'000 pps
Loan interest accrued(2) 86,911 9.86 90,360 10.23
Other income 3 9,544 1.08 60 0.01
Total expenses 5, 20 (11,422) (1.30) (12,450) (1.41)
Finance costs 6 (9,378) (1.06) (4,716) (0.53)
Adjusted net earnings(2) 75,655 8.58 73,254 8.30
Dividends paid in the year 9 61,785 7.00(4) 61,826 7.00
Adjusted earnings cover(2) (times covered) 1.23 1.11
30 September 2023 30 September 2022
Cash earnings cover(5) Notes £'000 pps £'000 pps
Adjusted loan interest received(2) 69,613 7.89 75,214 8.52
Total expenses paid(2) (11,016) (1.25) (12,093) (1.37)
Finance costs paid (8,716) (0.99) (3,985) (0.45)
Total net cash received(2) 49,881 5.65 59,136 6.70
Dividends paid in the year (including dividends settled in shares) 9 61,785 7.00(4) 61,826 7.00
Cash earnings cover(2) (times covered) 0.81 0.96
30 September 2022 30 September 2021
Notes Shares Shares
Weighted average number of shares 10 881,850,353 883,394,897
Further analysis on dividends is shown in note 9 to the financial statements.
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.
3.Including dividends settled in shares in 2022, see note 16 for further
information.
4.Includes 2022 fourth interim dividend of 1.75 pence per share paid in the
2023 financial year.
5.Principal repayments are excluded for the purpose of calculating dividend
cover.
Sustainability
The Company's portfolio has a positive environmental and social impact by
contributing towards the generation of renewable energy and financing
infrastructure that has clear benefits to end users within society.
Introduction
Infrastructure, by definition, has a core social purpose. With long-term
investments in renewable energy, PFI assets such as schools and hospitals, and
social housing for vulnerable adults, the Company's portfolio has an overall
positive impact on the environment and society.
The Company's investment philosophy is centred on the long‑term
sustainability of its portfolio. The Board and the Investment Adviser
continually seek to improve the way ESG criteria is embedded, integrated,
monitored and measured within the portfolio.
In 2020, the Company was awarded the Green Economy Mark by the LSE. The Green
Economy Mark recognises London‑listed companies and funds that derive more
than 50% of their revenues from products and services that contribute to
environmental objectives such as climate change mitigation and adaptation,
waste and pollution reduction, and the circular economy.
The Company is committed to the transition to net zero through its investments
in assets that support the decarbonisation of the economy. It invests in
renewable assets that provide alternative energy sources to fossil fuels. With
65% of the portfolio invested in renewable energy projects, and 1,398 GWh of
renewable energy exported during the year(1). This is enough to power 450,889
average homes. The Company also invests in biomass and anaerobic digestion
projects, which, along with producing green energy, produce sustainable
fertilisers from waste.
By investing in the supported living sector, the Company has funded properties
across the UK that benefit vulnerable adults. The properties are a mixture of
specially adapted residential stock and new purpose-built properties offering
high-quality accommodation for people with disabilities. This is an excellent
example of effective partnerships with service providers that create quality
supported living services. The Investment Adviser is focused on operating to
the highest ethical standard in this area due to the vulnerability of
stakeholders.
The Company's activities impact thousands of people across the UK through its
investments in assets in the PPP/PFI sector. These assets are integral to UK
society and provide long-term partnerships with the public sector.
The Company has exposure to a number of sub-sectors within PPP/PFI, including
education, healthcare, waste, leisure and housing. Projects financed include
49 schools offering c.27,000 school places and 40 healthcare facilities
providing beds to c.2,000 patients.
ESG highlights
- Achieved a GRESB score of 90 out of 100 for Blackcraig Wind Farm
- Improvements in climate risk reporting under TCFD(4)
- Carbon footprint data externally reviewed(4)
- Operations run on a carbon‑neutral basis(2)
- Eden Geothermal Project opened in June 2023
- Implementation of formal diversity policy(3)
- Funding of three ESG internships(3)
- Updated Modern Slavery statement(4)
1.Twelve month period to 30 June 2023 to facilitate inclusion in the annual
report.
2.Company and Investment Adviser.
3.Investment Adviser.
4.The Company
Responsible Investment
Investment process
The Investment Adviser has been a signatory to the Principles for Responsible
Investment ("PRI") since 2019. The PRI, established in 2006, is a global
collaborative network of investors working together to put the six principles
of the PRI into practice. The Investment Adviser recognises that applying
these principles better aligns investment activities with the broader
interests of society and has committed to their adoption and implementation.
ESG is at the core of the Company's investment decisions and is led by the
investment team.
The Investment Adviser has over a decade of investing in assets with a core
environmental and social benefit for the Company. ESG investment processes are
overseen by the Investment Adviser's Responsible Investment committee.
Responsible Investment policy
The Investment Adviser's Responsible Investment policy is integrated into
investment management processes and incorporates pre-investment, active
ownership and governance processes, as detailed below.
Pre-investment Active ownership
Deal screening ESG due diligence processes Monitoring and engagement Reporting
Investment management processes positively screen Prior to a new investment Following execution and investment, key relevant The Investment Adviser
for investments that promote sustainability, conform with being approved, the relevant investment team assess ESG indicators are monitored reports on an annual basis,
the Investment Adviser's how the investment fares by the Investment Adviser's portfolio management team. with its Responsible Investment report published each year.
values and benefit society, including, but not limited to, against key relevant ESG The Investment Adviser The Responsible Investment report sits alongside a PRI
the areas of climate change mitigation and adaptation, criteria and includes an assessment of ESG characteristics in every investment seeks to engage with equity owners and/or operators of projects to understand report, which summarises its Responsible Investment
proposal the
energy transition, critical infrastructure, decarbonising transportation,
activities.
affordable submitted ESG factors relevant to
living, social housing, to the Company's Investment committee for approval. those projects or properties,
The Investment Adviser
education and healthcare. and, where relevant, use influence as a lender of
applies the recommendations
The assessment typically capital or investor to manage exposure to ESG risks.
of the TCFD in its own reporting and encourages the application
The screening excludes investments which focus on non‑medical animal covers ESG-related risks
testing, armaments, alcohol production, pornography, tobacco, coal production
of the TCFD framework in its funds in line with reporting requirements.
and power, and nuclear fuel production. Investments with ongoing or persistent and opportunities, and, to ESG indicators are reported
involvement in
the extent applicable, to the Board for consideration as part of the quarterly Board reporting cycle.
human rights abuses are also excluded.
relevant policies and
procedures, alignment with industry or investment‑specific standards and
ratings, and compliance with relevant ESG‑related regulation and
legislation.
This year, the Company added biodiversity to the ESG due diligence process, as
well as diversity, equity and inclusion. A climate risk assessment was
also added for all new investments.
Governance and responsibilities
The Investment Adviser operates a Responsible Investment committee which In addition to its board, the Investment Adviser employs a team of
comprises senior personnel from across the business, including two professionals with in-depth experience in the investment industry and asset
representatives from the team that provide investment advice to the Company. classes.
The committee is responsible for all aspects of the Investment Adviser's
Responsible Investment policy, including oversight of ESG initiatives,
reporting, regulatory compliance, staff training and making recommendations to
the board of the Investment Adviser. The Investment Adviser's approach to stewardship and engagement is based on
the Principles of the UK Stewardship Code 2020 and is in line with its
philosophy on responsible investing.
The Investment Adviser has a clearly defined governance structure with
detailed processes that cover business operations, including investment
management and portfolio monitoring and reporting.
Corporate ESG initiatives
The Board maintains and monitors a positive dialogue with its key service
providers regarding social and environmental areas. All key service providers,
including the Investment Adviser and the Administrator, regularly report on
their efforts and progress in areas such as diversity, the environment and
social impact. Service provider initiatives include policies such as promoting
paid rather than unpaid internships, charitable donations, volunteering days
and encouraging low carbon office environments as well as business travel.
The Company and Investment Adviser run their operations on a carbon-neutral
basis to support the transition to net zero. As part of its corporate social
responsibility the Board supports a local Jersey charity 'Jersey Trees for
Life' as well as using their scheme to offset its carbon emissions from
flights to and from the UK. Whilst not a verified carbon offsetting assurance
scheme, the offsetting benefits 'Jersey Trees for Life' which is the only
charity that is dedicated solely to the protection and preservation of trees
in Jersey. The charity's aim is to encourage the protection, preservation and
planting of trees, and to foster an appreciation of trees through community
education for their amenity, ecological preservation and social importance.
The Investment Adviser's premises in London hold a BREEAM 'Excellent' rating
and the offices are powered by renewable energy. The Investment Adviser
encourages the use of public transport and minimisation of flight travel in
its business travel policy and operates an electric vehicle scheme and a bike
to work scheme. All staff are provided with stainless steel, BPA-free,
reusable water bottles and insulated cups to reduce the impact of single‑use
plastic and the Investment Adviser operates an office consumables and paper
recycling scheme.
Furthermore, the Investment Adviser fully offsets carbon emissions by
contributing to a portfolio which is run by provider Climate Impact Partners,
whose aim is to reduce one billion tonnes of CO(2) by 2030.
Whilst the Board and the Investment Adviser do not consider offsetting to be
by any means a perfect solution to the impact its activities have on the
environment, both parties believe that it is a useful starting point. The
ultimate aim is to reduce emissions with the intention of continuing to
investigate and follow best practice in this area.
In 2022, the Investment Adviser was awarded an 'Investors in People'
accreditation. The Investment Adviser has committed to working with Investors
in People over a three year time frame, with the aim of improving its
accreditation level over that time. It encourages everyone in the business to
reach their potential and provides regular training to staff, including
funding for specific industry qualifications. The Investment Adviser also
operates a range of measures to support the physical and mental health of its
employees, including a private healthcare package, weekly fitness classes and
guidance on healthy working practices. This year, the Investment Adviser held
two training sessions for employees on improving mental health at work.
It also offers hybrid working arrangements for all employees.
This year, the Investment Adviser introduced a formal diversity policy and
diversity and equality training for all employees. The Investment Adviser also
carried out an anonymous questionnaire to help understand the makeup of its
workforce. This means the data can be monitored over time as the Investment
Adviser strives for improvements in diversity, equality and inclusion, while
also considering specific areas of focus. A broad range of data was collected,
including ethnicity, disability, neurodivergence, sexual orientation, gender
identity, social background and caring responsibilities of employees. This has
helped the Investment Adviser establish a baseline and will facilitate
improved diversity reporting going forward.
The Investment Adviser also participated in the 10,000 Black Interns programme
this year, which offers paid internship opportunities across more than 25
sectors, along with training and development opportunities. The Investment
Adviser offered two paid internships as part of the programme, with both
interns working across the Company. It also facilitated a paid internship for
a student as part of the Young Women in Finance programme. Young Women in
Finance is an organisation dedicated to the eradication of gender bias for new
graduates entering the finance industry, with a goal of achieving a 50/50
gender split in graduate recruitment figures by 2030. The intern worked across
teams at the Investment Adviser with a particular focus on the Company's
climate risk assessment and the SBTI.
Furthermore, the Investment Adviser operates a volunteering initiative which
encourages employees to volunteer for charitable or not‑for-profit purposes
by giving an additional two days' paid leave plus two days' unpaid leave per
year. It continues to operate its charity of the year scheme, and engage with
fundraising, events and through volunteering. This year, for the second
consecutive year, the charity chosen was Little Village, a charity that
supports local low-income families. A total of 34 employees participated with
more than 160 hours spent volunteering over the year. This provided employees
with an opportunity to work as a team, engage with the local community and
understand more about the hardships low-income families with young children
face. Total amounts raised for Little Village to date are over £55,000. The
Investment Adviser also made donations to the charities shortlisted as part of
its charity of the year initiative.
34 Employees volunteered
160 Hours spent volunteering
£55,000 Raised for Little Village
Portfolio governance
Governance at the Company level is clearly managed and articulated and is
essential in achieving the investment strategy, managing risks, and creating a
positive environmental and societal impact. The Investment Adviser engages
with the underlying assets' boards to improve and enhance governance at the
portfolio level. The investment documentation issued by the Company includes
standard provisions to ensure effective governance within investee companies
and the compliance of those companies with applicable environmental, health
and safety, anti-money laundering, know your customer and employment
requirements.
During the year, the Investment Adviser continued to develop its climate risk
assessment process for each underlying portfolio asset. The process assesses
the actual and potential impacts of climate‑related risks and opportunities
across the portfolio and considers both physical and transition risks and
transition opportunities for each asset. This year, additional analysis was
developed based on Met Office and UK forestry agency climate data, as well as
publicly available data on flood risk and EPC ratings. Further information can
be found below.
The directors and employees of the Investment Adviser sit on the boards of,
and control, the 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. The Company has started to collate
diversity data on new investment opportunities and the Investment Adviser has
added diversity data to its responsible investment checklist, collecting data
from potential borrowers that approach the Company.
The Board and the Investment Adviser value relationships with borrowers,
ensuring time is spent building and maintaining these relationships.
Engagement takes the form of regular interaction with the borrowers by the
portfolio management teams, including periodic site visits to the underlying
assets and their managers. Site visits are an important aspect of the
portfolio management role and have both technical and commercial benefits.
They allow the Investment Adviser to assess the performance of both asset and
contractor and investigate any important project issues that arise.
Furthermore, site visits give the Investment Adviser the opportunity to
understand the operations and relationships important to each project and its
long-term success. Where the Company is exposed to RPs that have been graded
as non-compliant in respect of governance, the Investment Adviser has been
working with the RPs to improve processes, people and systems in seeking to
address the RSH's governance concerns. Refer above for further information.
In the financial year, 28 site visits were conducted, representing 11% of the
portfolio by value and 27% of of all SPV companies, including visits to the
Eden Geothermal project (refer below), Pates Hill Wind farm (refer below) and
renewables and PPP/PFI assets in various UK locations.
SDR
The Investment Adviser and the Company are preparing to comply with the UK
FCA's Sustainable Disclosure Requirements ("SDR") legislation, which is due
to be introduced in the fourth quarter of 2023 or early 2024. The SDR
legislation will introduce a set of sustainability‑related product labels,
product level and entity level disclosures and additional rules regarding
sustainable investing in the UK. Subject to changes to the draft SDR
legislation prior to enactment and coming into effect, the Company anticipates
meeting the requirements for the SDR 'Sustainable Focus' label.
Data collection project
This year, the Investment Adviser continued to progress its data collection
project to collect material ESG metrics from the underlying portfolio for the
twelve month period to 30 June 2023(1).
The process involves the Investment Adviser's portfolio management team
liaising with each asset operator to obtain relevant ESG data on the
underlying portfolio assets. The data points that are considered material by
the Investment Adviser are detailed in the table below.
Several challenges continued to be faced in respect of the availability of the
data requested, insofar as the Company is a debt provider and does not own or
control c.90% of assets in the portfolio.
1.Period chosen to facilitate data inclusion in the annual report.
In the drive for more consistent reporting across the industry, the Company
has actively sought to improve its data collection project by obtaining an
external review of its carbon footprint data.
The Company engaged with Aardvark, an external ESG certification service who
provide independent and impartial auditing and certification services.
Aardvark reviewed the outputs from the data collection project, verifying the
calculated carbon emissions were correct. As part of this, Aardvark reviewed
primary evidence supporting the data collection and where this was absent,
they reviewed the reliability of secondary data.
Where the Company was unable to collect data, Aardvark assisted in developing
and verifying estimates. Aardvark have also made recommendations on how the
Company may improve its data collection so that it can prepare for a limited
assurance process in future.
The Company also appointed MJ Hudson to advise on the data collection project.
They advised on the ESG data collection approach based on industry frameworks.
They also conducted an independent review of the Company's disclosures for any
significant inconsistencies and provided recommendations for areas where
additional data could be presented.
The data collection project enabled the Investment Adviser to compare data
with the previous year. From this, it was noted that renewable energy exported
reduced during the year. This was primarily due to lower wind speeds across
the UK. Similarly, the percentage of SPVs with at least one female board
member decreased from 45% to 36% year-on-year. However, this was due to
increased coverage in the data sample collected compared to the previous year.
Portfolio data coverage
ESG area Data points Portfolio coverage Portfolio coverage Increase/(decrease) year-on-year:
30 June 2023(1) 30 June 2022(1)
Environmental Air pollutants emitted, water consumption, waste generated/disposed, energy 72% 61% 11%
conservation strategies and net habitat gain or loss.
Social Total FTEs, hours worked, satisfaction surveys, absenteeism rates, H&S 74% 70% 4%
metrics, community benefit fund contribution and key engagement initiatives
with local community/stakeholders.
Governance Gender diversity, Board reporting, ISO alignment/certification, green building 86% 86% -
certificates, governance and regulatory policies in place and audited
accounts.
Carbon footprint Fuel combusted, imported energy use, water, waste, biogenic emissions, 84% 56% 28%
mitigated emissions (landfill), renewable energy and biogas exported,
buildings' EPC ratings and energy efficiency plans.
Carbon footprint with primary and secondary data 53% 56% (3%)
Carbon footprint with estimated data 31% - 31%
Carbon footprint with no data 16% 44% (28%)
Impact People housed, school places, hospital beds and renewable energy and biogas 92% 96% (4%)
exported.
1.Percentage of data entries for applicable KPIs per ESG area weighted by
portfolio value.
Impact
The Company has strong environmental credentials with 65% of its portfolio
invested in renewable energy projects which provide alternative energy sources
to fossil fuels. Additionally, biomass and anaerobic digestion projects within
the portfolio produce sustainable fertilisers from waste along with the
production of green energy.
The Company has a further 11% of its portfolio invested in supported living
and 23% in PPP/PFI. The carbon impact of infrastructure contributes to a
significant proportion of the UK's national emissions from a construction,
operation and maintenance perspective. In many cases, the UK's existing
infrastructure was not originally designed and constructed with global warming
in mind. The Investment Adviser has sought to introduce energy efficiency
projects at portfolio assets where there were opportunities to do so. These
included the installation of LED lighting at certain Scottish schools in the
portfolio. Along with this, the schools also introduced motion detection smart
lighting and heating systems, which are expected to reduce utility consumption
and its associated costs.
The Company and the Investment Adviser's approach to responsible investment is
integrated in its investment decisions and ongoing portfolio management.
Investing in renewables, PPP/PFI and social housing projects indirectly
creates job opportunities which benefit local communities across the UK.
These projects require contractors and specialist staff during the
labour-intensive construction and/or installation phase, as well as in
operations, maintenance and decommissioning where applicable. Every project
supports jobs in local communities.
Renewables projects not only have a positive impact on the environment but
also have wider benefits for society, improving local communities through
CBFs. A CBF is a voluntary commitment by a developer to provide funds which
are then made available to local community projects. By way of example, the
accepted standard commitment for a wind farm is £5,000 per MW. These funds
can be used to finance any initiative a community deems appropriate and
necessary for their local area, including community-owned renewable energy
projects, recreational facilities or equipment for local schools. Benefits
under the protocol are negotiated directly with host communities and tailored
to their needs to ensure a positive legacy is achieved.
UN SDGs
By investing in assets integral to society, including those which contribute
to a greener economy, the Company's activities align with certain Sustainable
Development Goals ("SDGs"), as outlined by the UN. These goals were created
in 2015 by the UN to create a better and more sustainable world by 2030.
Examples include clean and affordable energy, gender equality and sustainable
cities and communities.
The Company makes a positive contribution to the provision of renewable
energy, to the development of infrastructure to support economic growth and
provides high-quality and safe buildings for vulnerable adults, healthcare
patients and students. Furthermore, the Company's approach to governance, and
to labour and health and safety, makes a positive contribution to the
employees, customers, suppliers and local communities in which the assets
operate.
UN SDG alignment of the Company's portfolio:
UN SDG target 3.8
1,676 Hospital beds provided by portfolio(1) / 2022: 1,969(5)
40 Healthcare facilities in portfolio(1) /2022: 41(5)
UN SDG target 4.1
49 Schools in portfolio(1) /2022: 49(5)
26,688 School places provided by portfolio(2) /2022: 26,499(5)
UN SDG target 5.5
50% Board gender and ethnic diversity(3) /2022: 50%(6)
36% Gender diversity of SPV company boards(3/) 2022: 45%(6)
UN SDG target 7.2
1,398 GWh Renewable energy exported by portfolio assets(1 /)2022: 1,429GWh(4)
450,889 Equivalent homes powered by portfolio assets(1) /2022: 438,122(4)
UN SDG target 8.3
55,280 Number of underlying assets in portfolio(3) /2022: 54,433(6)
856 FTEs at portfolio assets(2) /2022: 727(5)
UN SDG target 9.3
£1.7bn Total investment in infrastructure projects since IPO/ 2022: £1.6bn
UN SDG target 9.4
42% SPVs reporting energy conservation strategies(2/) /2022: 48%(5)
UN SDG target 11.1
£166.7m Investment in social housing projects since IPO /2022: £166.7m
905 Number of social housing units(2) /2022: 905(5)
UN SDG target 15.5
65% Renewables portfolio reporting habitat gain or loss(2) /2022: 43%(5)
60% SPVs reporting ESG as a board agenda item(2) /2022: 35%(5)
UN SDG target 17.2
£428.1m Investments in PPP/PFI since IPO /2022: £418.7m
47% SPVs reporting local community initiatives(2) /2022: 43%(5)
1.Twelve month period to 30 June 2023
2.At 30 June 2023.
3.At 30 September 2023.
4.Twelve month period to 30 June 2022.
5.At 30 June 2022.
6.At 30 September 2022.
GRESB
SDG alignment
7 - Affordable and clean energy
This year, the Investment Adviser completed a GRESB assessment for Blackcraig
Wind Farm, an underlying asset in the Company's portfolio. GRESB is an
independent organisation that provides validated ESG performance data and is a
global benchmark of ESG performance. GRESB data is now used by 170
institutional and financial investors with more than $51 trillion in AUM. As
such, the Investment Adviser identified GRESB as a benchmark to measure ESG
performance as part of the annual GRESB assessment process.
Blackcraig Wind Farm is a 52.9 MW onshore wind farm consisting of 23 wind
turbines located 7km north-east of Galloway in Scotland. It is 50% co-owned
with Temporis Capital Ltd ('Temporis'), who are the day-to-day asset manager.
The wind farm consists of 23 Siemens SWT-2.3/93 turbines, each with a capacity
of 2.3 MW.
In January 2023, the Investment Adviser and Temporis began gathering
information and data using data collection templates and scoring tools for the
GRESB 2023 Infrastructure Asset Assessment. The assessment was submitted in
June 2023, after six months of data collection and review, assisted by
professional advisers ITPEnergised.
In October 2023, the Company received the final rating, with Blackcraig Wind
Farm receiving an overall rating of four green stars and a score of 90 out of
100, placing fourth out of eight in its peer group of onshore wind power
generation in Northern Europe.
The GRESB submission and subsequent score for Blackcraig Wind Farm marks the
first step in the Company's external assurance journey. The Board and the
Investment Adviser were very pleased with Blackcraig's GRESB score, and intend
to share the lessons learned through the submission across the appropriate
portfolio assets. They also intend to replicate policies and the management
approach for other assets in the portfolio.
Blackcraig Wind Farm has inherent ESG objectives. It creates renewable energy,
contributes to CBFs and educational trusts, and implements best industry
practices with industry-leading contractors, including O&M and site
managers. Additionally, all staff receive training on responsible investment
practices.
The wind farm contributed £275,000 to the local community benefit funds this
year. The CBF provides funding for community centres, habitat preservation and
training and education opportunities to residents of the local area.
As part of the GRESB submission, ESG risk assessments were undertaken on
Blackcraig to identify material risks to the assets. These risks are currently
reviewed and monitored on a monthly basis, and the Company intends to continue
taking part in these assessments.
Sustainability indicators
Environment
130 GWh Energy exported in 2022/23(1)
Social
£275,000 Contribution to CBFs this year(1)
Governance
7 Governance policies implemented(1)
Financial
£32.3m Valuation at 30 September 2023
1.Data at 30 June 2023 to facilitate inclusion in the annual report.
2023 GRESB Infrastructure Asset Benchmark Report
Blackcraig Wind Farm (Scotland) Limited
GRESB rating
4/5 stars
Participation and score
90/100>2023
Peer comparison
4(th) Northern Europe | On-shore Wind Power Generation | Maintenance
and operation (out of 8)
Geothermal
SDG alignment
7 - Affordable and clean energy
The first deep geothermal energy project in the UK since 1986, and operational
since June 2023, the Eden geothermal energy plant in Cornwall is the deepest
geothermal well in the UK, measuring 5km in length. Commercial funding for the
project was secured from the European Regional Development Fund, Cornwall
County Council and the Company.
The Eden Geothermal Project harnesses naturally occurring renewable energy
from the ground to provide heat for its biomes, plant nursery and offices.
Geothermal energy is obtained from heat located beneath the surface of the
earth. The depth of the well allows it to harness water heated by the Earth's
core, which can reach temperatures of up to 200°C. Energy is created by
lifting water from below the earth's surface through a vacuum-insulated tube
which is inserted into the well. The water then passes through a heat
exchanger, and cooled water is re-injected into the well via the outer ring,
as detailed below.
The project was delivered through a three-way partnership between the Eden
Project Limited, EGS Energy Limited (a geothermal development and consultancy
group) and BESTEC (UK) Limited (a specialist geothermal developer and drilling
adviser). Sustainable construction methods were practised to both enhance and
protect the environment after the installation of the heat main. Erosion
control methods were used, and all soft ground trenches were reinstated with
topsoil and seeded flower mix. A hibernaculum was also constructed to provide
a habitat for insects.
Prior to the completion of the Eden Geothermal Project in June 2023, the only
deep geothermal heating plant in the UK was the Southampton District Energy
Scheme, constructed in 1986. As a result, geothermal energy currently
delivers less than 0.3% of the UK's heating demand, which is low when compared
with other European countries. In the Netherlands, geothermal plants are
already used to heat greenhouses, and the Dutch Government is aiming for
geothermal energy to contribute to a quarter of their heating needs by 2050.
Sustainability indicators
Environmental
1 Energy conservation strategy(1)
Social
8 FTEs at portfolio level(1)
Governance
6 Governance policies implemented(1)
Financial
£6.1m Valuation at 30 September 2023
1.Data at 30 June to facilitate inclusion in annual report.
Heating is responsible for one-third of the UK's total energy consumption and
almost 17% of the UK's carbon emissions. For the UK to meet its net zero
targets by 2050, it needs to drastically reduce its carbon emissions.
Geothermal energy presents an important option for the decarbonisation of
heat and power, as it has a low spatial footprint and is scalable, meaning it
can be used to heat individual homes. Currently, the UK is using only a small
fraction of its geothermal heat resources, meaning there is considerable
potential to increase its market share in the UK's energy mix.
Increased uptake of geothermal energy could also contribute towards reaching
the UK's net zero targets. As a result, the Eden Geothermal Project is
expected to bolster the case for the use of deep geothermal energy in the UK.
"In other countries, like the Netherlands and France, geothermal energy is
making a serious contribution to achieving net zero and energy security
targets. With the right policy support, the UK has a huge opportunity to
benefit from a resource that can meaningfully contribute to the
decarbonisation and improved security of our electricity and heat systems."
Philip Kent, CEO, Investment Adviser
Education
SDG alignment
4 - Quality education
In April 2023, Pates Hill Wind Energy Ltd, an SPV company in the portfolio,
donated £10,000 to Kirknewton Primary School to help improve their green
initiatives and promote green activity and culture among students. The
donation was used to improve their outdoor spaces and create different green
areas dedicated to agricultural activities and gardening. The school also used
the funding to build wooden structures that the children can play in
regardless of weather conditions, encouraging them to socialise outside with
different year groups. Alongside the donation, the Investment Adviser
facilitated a trip to a nearby portfolio asset, Pates Hill wind farm.
The Pates Hill wind farm lies around 10 miles south-east of Kirknewton Primary
School. It is comprised of seven 2 MW turbines and is located between Glasgow
and Edinburgh in West Lothian, Scotland on a former mining site. Operational
since March 2010, it generates enough energy to power c.8,000 households
annually.
As a generator of renewable energy, Pates Hill wind farm has inherent
environmental and social benefits. This year, Pates Hill Wind Energy Ltd
contributed £70,000 to the West Lothian Development Trust, with contributions
to Community Development Funds totalling £430,000 since the
Company's initial investment.
Wind power is the fastest-growing renewable energy technology in Scotland,
with wind generating 78% of all renewable electricity output in 2022. Scotland
currently has c.9 GW of onshore wind capacity and c.2 GW of offshore wind
capacity.
In the Scottish Government's Energy Strategy and Just Transition Plan, it aims
to deploy 20 GW of onshore wind by 2030, with the intention of making Scotland
net zero using renewable energy sources. For offshore wind, the Government is
targeting an increase of 8-11 GW by 2030. Scotland has already hit the
milestone of creating an excess supply of wind energy. In 2022, its renewable
projects generated the amount needed to power homes in the country for three
and a half years. This has become increasingly important, with energy supply
and security a critical issue in the wake of the war in Ukraine.
Sustainability indicators
Environment
31 GWh Energy exported in 2022/23(1)
Social
3.7 FTEs at portfolio asset level(1)
Governance
6 Governance policies implemented(1)
Financial
£10.9m Valuation at 30 September 2023
1.Data at 30 June 2023 to facilitate inclusion in the annual report.
In April 2023, the Investment Adviser gave an educational presentation on wind
energy and functionalities of wind turbines to 150 schoolchildren from
Kirknewton Primary school and hosted a smaller group of c.40 children,
accompanied by their teachers to visit Pates Hill wind farm, where they learnt
about wind power and its role in energy generation. The children spent the day
at the wind farm with employees from the Investment Adviser, WPO (the
operating team) and Vestas (the turbine manufacturer).
The children were divided into three groups, with one group of children taken
inside a turbine. Another was taken to the engine rooms, and the final group
was shown how the wind turbines operate by the WPO team, with each group
rotating throughout the day. From the visit, the children learnt about wind
turbine operation and construction, environmental monitoring, and habitat
management. The feedback from both the children and the school staff was
positive with several of the children wanting to learn more about a career in
the industry. The Investment Adviser hopes to be able to host similar events
in the future.
Biodiversity
SDG alignment
15 - Life on land
Infrastructure investors are becoming increasingly concerned with
biodiversity, supported by legislation promoting its development. With more
than half of global GDP linked to nature, there are many investment
opportunities in the area of biodiversity.
Biodiversity encompasses the different types of life found in one ecosystem,
with each species and organism working together to maintain balance and
support life. It is a key element in providing critical health, economic and
cultural benefits and is essential to the safeguarding of food and medicine
production as well as habitats.
Following the introduction of The Environment Act in December 2021, developers
have a planning obligation to deliver a minimum of 10% net increase in
biodiversity from all new developments. While there is a two year grace period
(ending in November 2023), many local authorities have already declared
climate emergencies and now require biodiversity net gains of up to 25% as
part of their requirements. Additionally, investments in preserving
biodiversity need to triple by 2030 to meet the sustainability standards set
out by the UN.
This has led the Company to review biodiversity opportunities within the
portfolio, and as such, it has identified two existing assets that have the
potential to achieve biodiversity improvements or biodiversity net gain. The
Company has carried out impact assessments for both locations, as well as a
biodiversity net gain feasibility study. For biodiversity improvements to be
achieved in both locations, various enhancements need to be implemented.
These enhancements include introducing a native hedgerow, increasing the
native grassland in the area, and introducing species rich pond edge mix. The
site operator is implementing a management plan to adopt the recommendations
from the ecologist for this site.
Enhancement potential primarily comes from the accrual and sale of
Biodiversity Net Gain units ("BNG units"). BNG units are bespoke to the
habitat being destroyed and created; for example, if a developer is destroying
a wetland, and it isn't possible to avoid habitat loss or dedicate an area on
the site to biodiversity they will then need to acquire wetland BNG units.
Sites that have biodiversity net gain can sell these BNG units to developers
to offset this loss. Revenues from selling BNG units can generate cash in
three to four years with the costs of maintaining the habitat banks over the
30 year life of the obligation.
In September 2023, the Taskforce on Nature-related Financial Disclosures
("TNFD") published its final recommendations. The Investment Adviser has
undertaken training for its investment team on the inclusion of biodiversity
in investment and portfolio management processes, and as such has started to
consider how it can apply TNFD recommendations into its investment process.
The Investment Adviser includes an analysis of biodiversity impact from new
investments as part of the Investment committee process. Biodiversity
considerations are included within the Investment Adviser's responsible
investment checklist which is presented to the Investment committee.
The Investment Adviser is reviewing the portfolio and new investment
opportunities for the potential to create BNG units.
Sustainability indicators
Environment
42% Portfolio with energy conservation plans(1)
Environment
33% SPVs with habitat management plans(1)
Environment
65% SPVs reporting habitat gain or loss(1)
Environment
21% SPVs conducting a biodiversity assessment(1)
1.Data at 30 June 2023 to facilitate inclusion in the annual report.
Modern slavery
SDG alignment
8 - Decent work and economic growth
As part of its due diligence responsibilities, the Company worked to update
its Modern Slavery statement this year. The Company's Modern Slavery statement
is an integral part of its investment and lending process. The statement
covers screening, due diligence, transaction, ongoing monitoring and
engagement and best practice aspects of the investment process. The updated
statement was reviewed by the Management Engagement committee to ensure the
statement was appropriate for the Company.
In updating the statement, the Investment Adviser reviewed the investment
process as it applies to the Company. Key additions to the statement from this
review included supply chain considerations for human rights and modern
slavery abuses, particularly in respect of technical due diligence processes.
This includes projects with potential risks or exposure to human rights abuses
in the procurement of materials for electric vehicles, batteries or
solar panels.
For example, when considering investment in a fleet of electric taxis, the
Company undertook an analysis of potential human rights abuses that could
occur from the procurement of high-risk minerals in the supply chains of
Chinese cobalt refining companies where production of the batteries for the
taxis occur. The investment team reviewed the battery manufacturer's
sustainability report, responsible sourcing policy and supplier code of
conduct.
Such monitoring is applied continuously throughout the period when trigger
events occur, for example the acquisition of an existing subcontractor or
supplier by a much larger organisation with some negative media coverage. In
such a case the Investment Adviser, on behalf of the Company, will seek to
engage directly with the new owners.
The potential for adverse impacts on human rights and the environment exists
throughout the renewable energy value chain. Addressing the human rights risks
will help provide the momentum for change and the further development of
alternative supply chain choices. The Company has clear Board responsibility
and oversight functions for human rights policies.
Sustainability indicators
Governance
81% of SPVs with a modern slavery policy(1)
1.Data at 30 June 2023 to facilitate inclusion in the annual report.
The Company's Modern Slavery statement is available on the website.
Governance
Disclose the organisation's governance around climate‑related risks and
opportunities.
Compliance statement
The Company has voluntarily and partially reported against all four core
elements of the TCFD and the eleven recommended disclosures, taking into
account the TCFD 'Guidance for All Sectors', as well as the supplemental
guidance for the financial sector.
This year, the Company has partially reported against 'Strategy (c)' in
respect of different climate‑related scenarios, including a 2ºC or lower
scenario. The Company has also broadened its Scope 3 reporting under 'Metrics
and Targets (b)' to encompass emissions for the purchase of goods and
services.
The Company has omitted to report against 'Metrics and Targets (c)' as the
Company continues to develop and refine its data collection exercise this
year, including the use of external consultants and review of its carbon
emissions. The Board is committed to a thoughtful process of establishing
material, accurate and relevant climate-related metrics and targets. It
intends to continue to develop its approach in the coming year, which includes
selecting an external consultant to partner with on this project. It is
envisaged that this engagement will also progress the Board's intentions for
third party assurance over its ESG metrics.
For this reason, the Company is not in full compliance with the TCFD
requirements at this stage. It will continue to work towards full compliance
within the next one to two years.
A. The Board's oversight of climate‑related risks and opportunities
The Board considers best practice application of ESG principles as paramount
to the Company's operations, the assets within its investment portfolio and
the operation of its advisers. It is responsible for setting the strategy
for the Company, including climate‑related risks and opportunities.
The Board is informed about relevant climate‑related issues as part of the
quarterly reporting cycle by the Investment Adviser and the Company's
committees.
The Company's committees contribute as follows:
· Audit and Risk committee: responsible for climate‑related
disclosures and risk assessment
· ESG committee: establishing and monitoring ESG policies and
activities
· Investment committee: reviewing ESG impacts during the investment
process
· Management Engagement committee: ensuring suppliers operate in a
socially responsible manner
The ESG committee formally meets at least once a year, however it engages
informally with the Investment Adviser and other service providers on a
regular basis, including participating in briefings and new initiatives. It
reports to the Board at each quarterly Board meeting. This quarterly
engagement includes relevant training and ESG updates for the Board, both
regulatory and Company specific.
The Board and the Investment Adviser use external consultants and acquire
expertise where needed, including through recruitment. This year, the
Investment Adviser funded three ESG-focused internships to support the work
the Board is carrying out on its ESG strategy and to assist the Investment
Adviser with the climate risk assessment process and SBTIs. The internships
enabled the Company to benefit from a fresh, more diverse perspective with
enthusiasm and expertise in environmental matters.
Furthermore, from engaging with shareholders at regular opportunities,
including at the October 2022 Capital Markets day, commissioning specific
perception studies and responding to shareholders' letters, it is apparent
that many shareholders utilise ESG ratings agencies. The Investment Adviser
has continued to engage with ESG ratings agencies this year to understand how
the ratings industry affects investor perceptions of the Company and its share
price. The UK Government published a revised Green Finance Strategy in the
first quarter of 2023, alongside a consultation on a regulatory regime for ESG
ratings providers. The Company intends to return to this area of focus once
the results of the consultation are published and as these agencies increase
their coverage of investment companies.
B. Describe management's role in assessing and managing climate‑related
risks and opportunities
The Investment Adviser has over a decade of experience in identifying assets
with a core environmental and/or social benefit for the Company. ESG is at the
core of its investment decisions and is led by the investment team. ESG
investment processes are overseen by the Responsible Investment committee,
which reports to the board of the Investment Adviser. Further information is
provided above.
Climate risks are considered at each stage of the investment process,
including the initial deal screening of opportunities and investment due
diligence processes. Risk assessment takes the form of both quantitative
analysis and qualitative assessments which look at the ESG approach of
investee companies. Environmental impact assessments are carried out where
appropriate as part of the due diligence process to identify potential
transition and physical short, medium and long-term impacts on costs and
viability across service providers and investments.
This information is presented to the Investment committee as part of the
investment approval process with the Board of Directors directly or indirectly
addressing climate-related risks and opportunities when evaluating and
approving new investments. This includes climate-related risks. The Investment
Adviser provides fortnightly, ad‑hoc and quarterly updates to the Board on
asset performance, including the response of assets to climate events.
During the year, the Investment Adviser updated its climate risk assessment
for each underlying asset in the portfolio to assess climate‑related risks
and opportunities. Further information can be found below.
Following execution and investment, key relevant ESG indicators are monitored
by the portfolio management teams. The Investment Adviser seeks to engage with
investees to understand relevant ESG factors and to manage exposure to risks.
ESG indicators are reported to the Board for consideration as part of the
quarterly reporting cycle.
Strategy
Disclose the actual and potential impacts of climate‑related risks and
opportunities on the organisation's businesses, strategy and financial
planning where such information is material.
A. Describe the climate‑related risks and opportunities the organisation has
identified over the short, medium and long term
The Investment Adviser, through its climate risk assessment, has identified,
based on current climate conditions, that the portfolio is exposed to physical
risks arising from extreme weather events, with examples such as Storm Eunice
in February 2022, which caused damage to solar panels at a solar farm in the
portfolio. However, the overall financial impact to the Company is not
material and various mitigants are in place such as comprehensive insurance
policies which cover physical damage due to weather‑related events. It is
recognised, however, that such insurance policies may not always be available
at a reasonable cost or at all and physical resilience or protection of
assets is kept under review.
The Company defines short, medium and long‑term risk time horizons as
follows: short term: zero to three years; medium: four to eight years; long
term: more than eight years. When considering materiality, the Investment
Adviser considered the financial impact each risk could potentially have on
the asset were it to materialise. Further information can be found below.
The main short-term physical risk exposures for the portfolio are to
wildfires, heat stress and flood risk. However, there are mitigants in place.
For example, the likelihood of these assets experiencing damage at the same
time is low due to their geographical dispersion. The Investment Adviser has
investigated mitigation plans to strengthen the weather resistance of certain
assets during the year.
These involve actively managing the maintenance of trees and tall structures
located in the vicinity of projects to reduce the possibility of falling
objects on solar sites, as well as undertaking work to strengthen solar panel
structures at three sites that have previously suffered storm damage.
The Investment Adviser will continue to monitor and review mitigation plans
to avoid physical damage to the portfolio assets.
Medium to long term, more frequent extreme weather will place significant
pressure on energy infrastructure, including renewables, and may cause damage
to components, power lines and transmission grids, including potential
disruption to supply chains. Significant impacts may arise in the social
infrastructure sector, leading to localised strain on public services, and the
potential closure of facilities. Higher temperatures may also impact key
components of renewables projects and could also lead to the overheating of
buildings, which particularly affects vulnerable people.
The Company is also exposed to transition risks in the short term from sudden
and unexpected changes to Government policy. For example, in November 2022,
the UK Government announced the introduction of an Electricity Generator Levy
to tax certain renewable energy generating assets from January 2023. The
impact of this levy was 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.
As a result of the levy, there was increased volatility in calculating the
value of the Company's investments, indicative of the continuing risk in
further changes being made to the legal or regulatory framework in which the
Company's assets operate.
In the medium to long term, any policy changes to the Minimum Energy
Efficiency Standards ("MEES") would impact properties in the social housing
sector. The ability to claim MEES exemption caps the maximum exposure to
£10,000 per property. Overall, 45% of the social housing portfolio has an EPC
rating equal to a C or above, whilst 42% has an EPC rating of D or below, with
the remainder either unavailable or unrated. The obligation to improve the
energy efficiency of the properties below a 'C' rating sits with the third
party RPs under fully repairing and insuring leases, and this will be closely
monitored with borrowers.
An increased focus on the ESG aspects of the investment process presents a
significant opportunity for the Company. At IPO, ESG considerations were not
as prominent for investors as they have become in recent years. Whilst many
investment funds and companies are seeking to quantify and reduce their
negative environmental and social impact, the Company finds itself in a
position where all of its investments have a positive environmental or social
contribution, meaning ESG considerations are an inherent aspect of the
Company's central investment thesis.
As the UK embarks on the largest transformation of its infrastructure in
recent history as part of the transition to net zero, there will be a
significant private sector investment requirement to support this, and public
sector support will be needed across a range of asset classes.
B. Describe the impact of climate‑related risks and opportunities on the
organisation's businesses, strategy and financial planning
The primary physical impacts of climate change on the business will be
experienced by the Project Companies the Company lends to: firstly, by
increased operating costs or reduced revenues due to physical risks
materialising. In many cases, physical mitigation measures exist and there is
a degree of contractual protection built into loan agreements from these
increased costs. Secondly, the credit quality of the Project Companies may
deteriorate. For example, extreme weather events might materially increase the
cost of insuring some assets, or they might make some assets uninsurable.
These impacts, if material, may lead to a reduction in the valuation of the
portfolio.
Regarding the Company's strategy, the portfolio benefits from its geographic,
technological and market diversification. Conversely, opportunities may arise
which enable the Company to deploy capital to a wider range of asset classes,
providing further diversification into new sectors and thereby increasing
revenues.
For financial planning, one potential transitional impact of climate change
arises from the increased deployment of renewable power generation reducing
the marginal cost of electricity and impacting revenue. A mitigating factor
for this is an increased use of direct PPAs, which will thereby secure steady
revenue streams. The Investment Adviser, on behalf of the Company, has
successfully implemented a number of these agreements. Further information on
the Company's electricity price exposure can be found above. Based on the
climate risk analysis undertaken, referred to below, the Investment Adviser
does not currently propose to make any changes to financial forecasts due
to climate risk.
C. Describe the resilience of the organisation's strategy, taking into
consideration different climate‑related scenarios, including a 2ºC or
lower scenario
The climate change risk assessment carried out by the Investment Adviser has
concluded that the Company's strategy is relatively resilient to both the
physical and transition risks associated with climate change. This year, the
Investment Adviser has included a partial analysis of a 2ºC or lower
scenario, and in doing so has noted resilience to the identified physical
risks associated with climate change.
The results of the assessment demonstrated that whilst there are physical and
transitional risks in the context of the Company's diversified portfolio, the
financial impacts were not material. For example, a storm might generate
strong winds which could have a negative impact on revenue from wind turbines
causing them to shut down in stormy conditions, but might not have an adverse
impact on other assets in the portfolio, illustrating the resilience of a
diversified portfolio.
Risk Management
Disclose how the organisation identifies, assesses and manages
climate‑related risks.
A. Describe the organisation's processes for identifying and assessing
climate‑related risks
The Board of Directors directly or indirectly addresses climate-related risks
and opportunities when evaluating and approving new investments, including a
climate risk assessment for each new investment.
As part of the Investment Adviser's due diligence process, climate risk
assessments are carried out on each portfolio asset where appropriate. The
Investment Adviser also carries out ongoing performance monitoring, including
asset site visits by experienced personnel; further information is given
above. Fortnightly updates and quarterly detailed reports on asset performance
are also provided to the Board.
Climate change has become a key risk faced by infrastructure investors. The
Company continues to focus on ESG, with a particular focus on the potential
impacts of climate change and the risk factors associated with rising global
temperatures. As such, the Investment Adviser has conducted a detailed
portfolio-wide climate risk assessment across each of the 445 projects in the
portfolio. This risk assessment includes an analysis of the impact of a 2ºC
or lower global warming scenario.
The risk assessment considers nine risk factors divided between physical and
transition risks:
· Physical risks: these are events that are driven by a shift in
temperatures and weather patterns. The assessment considers five risks: flood
risk; heat stress; water stress; fires and wildfires; severe winds and storms.
These events have been chosen based on their materiality to the overall
portfolio. Refer to the table below for further detail on materiality.
· Transition risks: these are the risks related to the transition to
a low-carbon economy. Four areas were considered: policy or regulatory;
technological; market; and reputational risks.
External and internal data points were used to assess the portfolio. EPC
ratings and flood risk data were obtained from UK Government databases for all
available sites within the portfolio. Met Office and UK forestry agency
climate data from 2000 to 2017 was also used for temperature, wind, wildfires
and drought metrics in each area local to the portfolio assets. The data
points were used to calculate the portfolio exposure to changes to energy
efficiency standards and to flooding resulting from climate change.
An asset-by-asset assessment was also undertaken internally by the Investment
Adviser's portfolio management team to consider the specifics of each
investment and to understand the overall exposure to climate change and any
mitigating factors. The results from the risk assessment form part of the
portfolio management decision-making process, and help identify further
mitigation strategies and inform whether any change is required to the
underlying financial forecasts of the Company.
The climate risk assessment was completed by evaluating the impact and
likelihood of a climate change event happening within the remaining lifetime
of each asset, divided between physical and transition risks. This assessment
assumes an increase in extreme weather events due to climate change. The risk
assessment scores were calculated by multiplying impact and likelihood metrics
to form a total score for each asset.
For physical and transition risk, the impact metric indicates the financial
impact each risk could potentially have on the asset. This metric is scored
from a scale of 1 to 5, with 5 being the highest and 1 having a lower impact.
Each score indicates a specific financial impact as shown in the table below:
Score Materiality Impact
5 Significant >£5 million
4 Major £2 million - £5 million
3 Moderate £501,000 - £2 million
2 Minor £51,000 - £500,000
1 Negligible <£50,000
The likelihood score for physical risk is based on past Met Office data and
future weather projections to determine the probability of a specific weather
event happening, based on the specific location of the asset.
For transition risk, the likelihood score was rated between 0% and 100% based
on the probability of a climate event happening within the remaining lifetime
of the asset. This probability was converted to a score between 1 and 5 to
keep consistency between the physical and transition risk likelihood scores,
seen in the table below:
Probability Score
<5% 1
5% - 15% 2
15% - 25% 3
25% - 35% 4
>35% 5
The impact and likelihood metrics were multiplied with each other to give a
score for each risk identified, which led to each physical and transition risk
metric being given a total rating out of 25. These individual ratings were
then weighted by the portfolio valuation of each asset to give an aggregated
score by sub-sector and sector. A final rating between 0 and 25 was then
obtained by combining total physical and transition risks scores.
The chart on page 64 of the full annual report on the Company's website shows
the output of this process, indicating the sectors that are most vulnerable to
climate change. The placement of each sector highlights its risk exposure,
with a low risk between 0-33%, medium risk between 33-66% and high risk
between 66-100%. Each sector is plotted based on the risk percentage for each
physical and transition risk. The chart is based on the weighted average
rating for each sector.
Under physical risks, the biggest exposure is to fires/wildfires and heat
stress. An increase in the frequency of fires/wildfires and heat stress is
most likely to impact the renewables sector, with fires and wildfires most
impacting the PPP/PFI sector. Wildfires are becoming a bigger threat for the
UK, with England averaging 30,000 wildfires a year, according to data from the
Forestry Commission. However, it is important to recognise that when running
the scenario, more data points were available for wildfire and heat stress
than other physical risks, which has impacted scoring.
Under transition risks, the portfolio is most exposed to market and policy or
regulatory change. Within the renewables portfolio, biomass projects account
for some 9% of portfolio value and are likely to be most influenced by
regulatory and market changes. While the Investment Adviser views the biomass
sector as well placed to benefit from the transition to net zero as a form of
low-carbon baseload power, current uncertainty around the possible
participation in the UK Emissions Trading Scheme ("UK ETS") along with future
power price caps for renewable generators, is reflected in the regulatory and
market risk scores.
The Investment Adviser also undertook the partial analysis of a 2ºC or lower
global warming scenario. This analysis concluded that the Company's strategy
is relatively resilient to the physical risks associated with climate change.
In the 2ºC scenario, the Investment Adviser considered changes in the
likelihood of the occurrence of physical climate risks and focused on the
impact from a 2ºC change in heat stress and fire/wildfire metrics likelihood
scores in the physical risk section. Other physical and transition risks were
not included due to difficulty in obtaining independent data points. The
Company recognises it has further to go in achieving full compliance with a
2ºC increased temperature scenario as a result of this, and is committed to
including more physical and transition risk data points in future years.
The likelihood score for heat stress and fires and wildfires in a 2ºC
temperature increase scenario was based on the probability of each metric
occurring, using past Met Office data and future weather projections to
determine the probability of a specific weather event happening based on the
location of the asset. A multiplier of 1.8 for heat stress and 1.1 for
wildfires was then used to calculate the likelihood in a 2ºC scenario. This
multiplier was based on data from the Met Office and the UN environment
programme, which is responsible for co-ordinating responses to environmental
issues within the UN.
After running the 2ºC scenario, it was determined that heat stress risk would
rise from nine points to 13 out of a possible 75 points in a 2ºC scenario.
Fire and wildfire risk also increased, but only by one point from 14 to 15
points, indicating it would have less of an impact on the portfolio in the
case of rising global temperatures.
The Investment Adviser and the Board recognise that the prioritisation of
climate change requires a change of Government approach, primarily through
regulation. Regulatory changes in UK ETS, power price caps, energy efficiency
standards and the implementation of windfall taxes on renewable energy
generators may impact the portfolio.
Based on the analysis undertaken, the Investment Adviser does not currently
propose to make any changes to its financial forecasts due to climate risk. As
detailed above, in the medium to long term, any changes to MEES for buildings
could impact certain assets, and these will be closely monitored with
borrowers. The Investment Adviser also intends to closely monitor the impact
of rising global temperatures on its investments, as the increasing likelihood
of rising temperatures could adversely impact the portfolio, as shown through
the 2ºC rising temperature scenario. The Investment Adviser intends to update
the climate risk assessment on an annual basis.
For details on the Portfolio exposures - climate change risk - see page 64
of the full annual report on the Company's website
The Company will continue to refine its approach to materiality as the
availability, completeness and accuracy of data improves over time. The
Investment Adviser aims to continue improving all areas of its climate risk
assessment, including the data collection process, controls around this
process and creating meaningful disclosures.
Whilst the Investment Adviser has concluded that the portfolio is exposed to
low physical and transition risk, the opportunities for each asset have not
been quantified in this exercise. This is an area that will be considered
further in future assessments.
The Investment Adviser has identified several transition opportunities for the
Company. These surround optimisation, expansion and life extension
opportunities for the portfolio following growing demand for renewable energy
and energy security. This is expected to cause renewable energy demand to
increase, driven by the decarbonisation of transport and heating amongst other
factors.
While opportunities related to physical and transition risk have not been
quantified to date, the Board and the Investment Adviser hope to include this
in future reports.
The Investment Adviser intends to continually improve the climate change risk
assessment process for future years to help monitor and mitigate exposure to
climate change. Areas for improvement may include:
· including more physical and transition risks in a 2ºC or lower
scenario; and
· combining climate opportunities into the assessment.
B. Describe the organisation's processes for managing climate‑related risks
The portfolio is diversified across a number of asset classes and ESG
processes are embedded into investment decision making. The importance of the
Investment Adviser's engagement and influence in helping portfolio companies
improve their ESG performance is crucial. Further information is given in the
risk section below.
C. Describe how processes for identifying, assessing and managing
climate‑related risks are integrated into the organisation's overall risk
management
The way in which the Company manages risk and principal risks and
uncertainties is described below. The Board does not consider
climate‑related risk as a principal risk, however it does recognise
climate-related risk as an emerging risk. Refer below for further information.
Metrics and Targets
Disclose the metrics and targets used to assess and manage the relevant
climate‑related risks and opportunities where such information is material.
A. Disclose the metrics used by the organisation to assess climate‑related
risks and opportunities in line with its strategy and risk management process
The Investment Adviser includes an assessment of ESG characteristics in every
investment proposal submitted to the Company's Investment committee for
approval. Prior to the approval of a new investment, the Investment Adviser
assesses how the investment rates against relevant ESG criteria, laid out in
an ESG checklist tailored to the Company. The checklist typically covers the
counterparty's commitment and capability to effectively identify, monitor and
manage potential ESG-related risks and opportunities and, to the extent
applicable, the availability of relevant policies and procedures, alignment
with industry or investment-specific standards and ratings, and compliance
with relevant ESG‑related regulation and legislation.
During the year, the Investment Adviser carried out a climate risk assessment
for each underlying asset. Further information on the methodology used to
complete the climate risk assessment is included above.
B. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas
emissions and the related risks
As an investment company, the Company does not have a significant
environmental impact in its own right. With no employees or property and an
outsourced services model, there are no Scope 1 (direct) and Scope 2 (indirect
through power demand) climate‑related emissions to report, and as an
investment fund specifically, its Scope 3 (other indirect) emissions fall
under two categories within Scope 3 as defined by the GHG Protocol:
Category 1: Purchased goods and services
The emissions from services provided by the Company's top ten third party
service providers and emissions from travel of the Board. The top ten third
party service providers represent 90% of the annual expenditure of the Company
and therefore these were deemed most material in the context of the Company's
outsourced service model.
The Company used a supplier-specific approach whereby expenditure for each
service provider is multiplied by the service provider's organisational carbon
footprint intensity in tCO2e (market‑based Scope 1 and 2 plus upstream Scope
3 emissions) as disclosed through publicly available data. Using this
approach, the Company was able to report attributable supplier emissions
covering 79% of its annual spend across six of its top ten suppliers.
In the prior year, the Company only reported supplier emissions from the
Investment Adviser and the Administrator. This year, the Company expanded
Category 1 reporting to include other service providers in the top ten
suppliers.
Category 15: Investments
The emissions of the underlying portfolio. As this is only the second year a
detailed data collection exercise has been undertaken, there are still
challenges faced in respect to the availability of the data requested, insofar
as the Company is a debt provider and does not own or control c.90% of assets
in the portfolio. As such, emissions data points were obtained from 53%
of portfolio assets by value, with a further 31% calculated with estimated
data.
Where no data had been provided, data was estimated using a consistent
methodology, advised by Aardvark, an external ESG certification service who
provide independent and impartial company auditing and certification services.
Estimated data was observed for a number of rooftop solar assets where the
data collection was challenging to support through primary evidence or
aggregated data. Estimated data was also used for a number of small anaerobic
digestion plants where site level data had not been provided. Here, averages
for equivalent sized plants were used to obtain a holistic data set for the
anaerobic digestion assets.
The Investment Adviser will continue to liaise with asset operators to improve
and refine the availability of future ESG data which will continue to be
collected and reported on an annual basis. Further information on the data
collection exercise can be found above.
The Company has measured and disclosed the emissions from the underlying
portfolio in accordance with the GHG Protocol. Emissions from investments
(Category 15) comprise proportional Scope 1 and Scope 2 and limited Scope 3
emissions of the underlying portfolio and have been allocated based on the
Company's proportional share of total enterprise value (total equity plus
debt) in accordance with the guidance for debt investments and project
finance.
The Company has not reported total projected lifetime Scope 1 and Scope 2
emissions of any new projects financed during the year. It will seek to
include this information for future years where possible.
Greenhouse gas emissions
The Company has measured its emissions in accordance with the GHG Protocol. An
operational control approach was used to define the organisational boundary
and responsibility for GHG emissions. Emissions have been measured over the
twelve month period to 30 June 2023. The period chosen was to facilitate data
inclusion in the Company's annual report.
Year ended Year ended
30 September 2023 30 September 2022
Absolute Attributable Absolute Attributable Absolute Attributable
emissions emissions emissions emissions emissions emissions
tCO(2)e tCO(2)e tCO(2)e tCO(2)e tCO(2)e tCO(2)e
GHG emissions Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
Scope Scope Scope Scope Scope Scope
1, 2 & 3 1, 2 & 3 1, 2 & 3 1, 2 & 3 1 & 2 1 & 2
Scope 1 Direct GHG emissions - occur from sources that are owned or controlled by the - - - - - -
organisation
Scope 2 Indirect GHG emissions - occur from the generation of purchased electricity, - - - - - -
heating, cooling and steam
Energy consumption used to calculate above emissions: /(kWh) - - - - - -
Total gross Scope 1 and Scope 2 emissions /tCO2e - - - - - -
Scope 3 Category 1, emissions from indirect purchased goods and services 124 124 12 12 12 12
Category 15, emissions from investments 36,752 13,030 28,526 14,597 17,205 9,520
Total gross Scope 3 emissions /tCO2e 36,876 13,154 28,538 14,609 17,217 9,532
Total gross Scope 1, Scope 2 and Scope 3 emissions /tCO2e 36,876 13,154 28,538 14,609 17,217 9,532
C. Describe the targets used by the organisation to manage climate‑related
risks and performance against targets
The Board and the Investment Adviser are committed to improving the Company's
data capture and disclosure to help drive more consistent reporting across the
industry. The Company has continued to make progress towards achieving
compliance with TCFD and has expanded its reporting this year to include a
climate risk assessment for a 2ºC or lower global warming scenario, as well
as expanding its emissions data for Scope 3 reporting.
The Company intends to continue to develop its approach in relation to
targets. After reviewing the framework of the SBTI, the Company is considering
targets for implementation that align with the initiative, where appropriate.
However, as a debt provider that doesn't own or control c.90% of the assets in
the portfolio, certain challenges remain around setting climate-related
targets at a portfolio level.
The Company has thoroughly considered the implementation of the SBTI,
particularly regarding target setting. However, there is currently no existing
guidance from the SBTI on the infrastructure sector which assists with
formulating targets. Formally submitting targets comes at a cost to the
Company and it is therefore important to ensure it is good value for
stakeholders. The first step is to establish internal targets, and the Company
is in the process of ensuring robust and reliable data to establish a target
base year.
The data collection exercise undertaken this year continues to provide the
Company with useful portfolio-level data. This allows the Board and the
Investment Adviser to focus on areas that are material. When considering
materiality, the Company was advised by an external consultant, MJ Hudson,
using framework guidance provided by SASB, GRESB and the UN SDGs.
The data will also assist the Board in selecting relevant targets to manage
risk and performance and inform other mitigations such as regular engagement,
oversight and review.
The Company has also engaged with Aardvark, an independent and external
provider, to advise on the necessary next steps to enable it to commission
independent assurance of its ESG data collection process in due course.
The Investment Adviser has achieved its goal of running its operations on a
carbon-neutral basis by 2023. The Company is also committed to achieving
carbon neutrality by offsetting emissions generated by business travel,
therefore supporting the transition to net zero. The Investment Adviser and
the Board believe this is the right thing to do as a business to meet the
international target set out by the 2015 Paris Agreement to limit global
warming to below 2°C.
ESG integration
The Company and the Investment Adviser have made considerable progress with
ESG integration over the past years.
Governance
2022
· ESG committee formed by the Company to define ESG strategy and
ensure it is integrated in the Company's policies and procedures.
· Investment Adviser held formal ESG training and carried out a
staff survey to monitor progress on integrating ESG across the organisation.
· Improved gender diversity of SPV boards where the Company has
direct influence.
· Carbon offsetting schemes launched at the Investment Adviser and
the Company.
· The Investment Adviser worked with borrowers to implement ESG
policies and procedures.
· Investment Adviser committed additional resource by recruiting a
senior member of staff to lead on ESG and legal matters.
2023
· The ESG committee reviewed the updated Modern Slavery statement.
· Blackcraig Wind Farm achieved GRESB rating of four green stars
and 90 out of 100 points.
· Investment Adviser achieved aim of carbon neutrality by 2023.
· Investment Adviser considered the application of the SFDR to the
Company and undertook training on the topic.
2024 (and further)
· The Company to implement a formal ESG policy which will encompass
all aspects of ESG including the Investment Adviser's Responsible
Investment policy.
· The Company and Investment Adviser apply lessons learned and best
practice across the portfolio where appropriate.
· Work with borrowers to understand where the Company can support
them in their diversity ambitions.
· The Company to consider further initiatives to reduce carbon
emissions across the portfolio and Investment Adviser.
Reporting
2022
· The Company completed data collection project to quantify,
develop and finalise ESG metrics and targets.
· The Company partially and voluntarily reported against the eleven
recommendations of TCFD.
· The Company completed climate risk assessment for each portfolio
asset.
2023
· The Company continued to develop data collection project and ESG
metrics and targets.
· The Company appointed an external consultant to review carbon
emissions data.
· The Company broadened TCFD reporting to include a partial 2ºC
warming scenario under strategy c) disclosures.
· The Investment Adviser reviewed potential biodiversity impact for
two portfolio assets and undertook training on biodiversity net gain
opportunities.
· The Company expanded climate risk assessment to include
opportunities and a partial 2ºC climate scenario.
2024 (and further)
· The Company to develop further ESG metrics and targets and
improve data collection coverage and quality at portfolio level.
· The Company to obtain limited assurance over its carbon emissions
data.
· Set specific ESG targets for the Company under TCFD metrics and
targets c) disclosures.
· The Company to continue to develop climate risk assessment in
line with best practice recommendations.
Awareness
2022
· The Company engaged with ESG rating agencies during the year.
· Investment Adviser launched dedicated area for responsible
investment on its website.
· The Company incorporated the recommendations from the stakeholder
survey, particularly in regard to the reporting of sustainability matters.
· Investment Adviser revised its business travel policy to further
encourage use of public transport and minimise flight travel.
2023
· The Company introduced biodiversity considerations into
investment process and ran biodiversity training for staff members.
· Investment Adviser expanded Responsible Investment report to
include information under TCFD.
· Investment Adviser funded three ESG-focused internships to
support the work on the Company's ESG strategy and to assist with the data
collection project.
2024 (and further)
· The Company to implement biodiversity net gain reporting for
portfolio assets.
· The Company to expand its TCFD disclosures.
· Continue to work with partners to offer further internships with
the Investment Adviser.
Stakeholders
Stakeholders are integral to the long‑term success of the Company. They
include shareholders, borrowers, lenders, the public sector, suppliers and
local communities.
Stakeholders
As a member of the AIC, the Company reports against the AIC Code on a comply
or explain basis. Whilst the Company is not domiciled in the UK, voluntarily
reporting against the AIC Code allows the Company to meet any obligations
relating to the 2018 UK Corporate Governance Code, specifically section 172 of
the UK Companies Act 2006.
The Directors seek to understand the needs and priorities of the Company's
stakeholders in accordance with the UK Companies Act 2006. All Board
discussions involve careful consideration of the longer‑term consequences of
any decisions and their implications for stakeholders.
The Board believes that the Company's key stakeholders comprise shareholders,
borrowers, lenders, the public sector, suppliers and local communities. This
section sets out why and how the Company engages with these stakeholders and
the actions taken by it to ensure that their interests are considered by the
Board.
The Board always aims to be fair and balanced in its approach. The needs of
different stakeholders are considered as well as the consequences of any
long-term decisions.
The stakeholder model on page 72 of the full annual report on the Company's
website demonstrates how the Company interacts with its stakeholders. These
relationships provide the foundation for the Company's longevity, which is
beneficial to all parties. The Board understands the value of maintaining a
high standard of business conduct and stakeholder engagement, whilst also
ensuring the Company positively impacts the environment in which it operates.
The Directors recognise that, both individually and collectively, their
overarching duty is to act in good faith and in a way that promotes the
success of the Company as set out in section 172 of the UK Companies Act 2006.
The Directors act for the benefit of shareholders and in the interests of
stakeholders as a whole, having regard, amongst other matters, for the likely
consequences of any decision in the long term to the below considerations.
Section 172: Promoting the success of the Company
The Board of Directors consider, both individually and together, that they
have acted in the way they consider, in good faith, is likely to promote the
success of the Company for the benefit of its members as a whole in the
decisions taken during the year as set out below.
The interests of the Company's employees Refer to stakeholder engagement section below and to the governance section in
the full annual report on the Company's website.
The Company has no employees but has close working relationships with the
employees of the Investment Adviser and the Administrator to which it
outsources its main functions.
The need to foster the Company's business relationships with suppliers, Refer to stakeholder engagement section below.
customers and others
The Board has a close working relationship with all its advisers and regularly
engages with all parties.
The impact of the Company's operations on the community and the environment Refer to sustainability section above.
The Company's activities are beneficial to the environment as they comprise,
in part, renewable energy investments that positively impact the environment
and climate change, regulatory and UK Government targets.
The desirability of the Company maintaining a reputation for high Refer to Board values and culture in the governance section in the full annual
standards of business conduct report on the Company's website.
Under the leadership of the Chairman, the Board operates with core values of
integrity and impartiality with
an aim of maintaining a reputation for high standards in all areas of the
business it conducts.
The need to act fairly between shareholders of the Company Refer to stakeholder engagement section below.
The Board actively engages with shareholders and considers their interests
when setting the Company's strategy.
This section sets out why and how the Company engages with stakeholders and
the actions taken to ensure that their interests are taken into account in the
Board's decision making.
Shareholders
All investors in the Company, be they institutional, such as pension funds or
wealth managers, or retail, such as private individuals.
Why engage
The Company generates earnings that benefit shareholders through dividend
income. The Board and the Investment Adviser recognise the importance of
engaging with shareholders on a regular basis to maintain a high level of
transparency and accountability, acting fairly and to inform the Company's
decision making and future strategy.
How the Company engages
The Company, primarily through its Investment Adviser and Corporate Broker,
engages in ongoing communication with its shareholders via market
interactions, analyst and marketing presentations and they regularly provide
feedback to the Board. The feedback received from shareholders during the
course of these interactions is taken into consideration when setting the
future strategy of the Company and any Board decisions which impact
shareholders.
The Board encourages shareholders to attend and vote at general meetings of
the Company so that they may discuss governance and strategy with them and
understand their issues and concerns. The Chairman of the Board and the Chair
of each committee attend general meetings of the Company to answer any
questions posed by shareholders.
The Board recognises that the Company is required to have its formal
shareholder meetings in Jersey, which may preclude shareholders from
attending. To address this issue, on 12 October 2022, the Company held its
first 'Capital Markets day' in London, providing an opportunity for investors
to meet the Board, the Investment Adviser and investee companies, as well as
hearing in greater detail the work being undertaken to drive value within the
portfolio. The presentation from the event is available on the Company's
website. The Investment Adviser is planning to hold a second Capital Markets
day in January 2024. Further information will be published by the Company in
due course.
Further communication with shareholders is achieved through the annual and
half‑yearly reports, news releases via the LSE and the Company's website.
This information is supplemented by the quarterly calculation and publication
of the NAV per share on the LSE and the publication of a quarterly factsheet
by the Investment Adviser.
The Company's annual report is dispatched to shareholders by post (where
requested) and is also available to download from the Company's website,
together with the half-yearly report. In the annual report, the Directors seek
to provide shareholders with sufficient information to allow them to obtain a
reasonable understanding of developments affecting the business and the
prospects for the Company in the year ahead.
The strategic report above provides further information. Communication of
up-to-date information is provided through the Company's website.
The Board and the Investment Adviser have continued to engage with ESG ratings
agencies during the year and intend to engage further to understand how ESG
ratings impact investor perceptions of the Company.
Key Board decision:
Buyback programme
On 14 March 2023, the Company launched a proactive buyback programme of shares
up to a maximum aggregate value of £15.0 million, as a result of the
prevailing discount(1) to NAV at which the Company's ordinary shares were
trading.
The Directors have the authority to repurchase up to 14.99% of the Company's
share capital (132,631,170 ordinary shares at the date of the last authority)
if they believe it to be in the Company's best interest as a whole and as a
means of correcting any imbalance between supply and demand of the shares. The
latest authority was granted at the 2023 AGM and the Board will be seeking a
renewal of the authority at the 2024 AGM.
At the date the buyback programme was launched, the share price offered value
to shareholders with the shares trading at a significant discount(1) to NAV,
meaning any buybacks would be NAV accretive.
Process:
A Board meeting was held in March 2023 to discuss a recommendation from the
Investment Adviser and the Broker that the Board initiate a buyback programme.
During this meeting, the Board considered, amongst other matters, the (i)
share price discount(1) to NAV, (ii) potential NAV accretion from buybacks
against the investment pipeline, and (iii) available cash resources.
It was recognised that the repurchase of shares does not necessarily have a
significant impact on the share price.
During the year, the Chairman, the Investment Adviser and the Broker met with
a number of the Company's shareholders to understand their views on a buyback
programme and the Company as a whole. The shareholders expressed their support
for a buyback programme.
Outcomes:
Based on the buyback programme being in the best interests of the Company, and
as an appropriate means of returning value whilst maximising sustainable
long-term growth for shareholders, the Board authorised the initiation of a
buyback programme of shares up to a maximum aggregate value of £15.0 million.
The programme is authorised in increments in order for it to be monitored by
the Board against the Company's cash position and share price.
During the year, the Company repurchased 13.6 million shares. Post year end,
a further 3.4 million shares have been repurchased. All shares repurchased are
held in treasury.
Key Board decision:
Strategic opportunities
On 11 August 2023, the Company announced that it had signed heads of terms
with GCP Asset Backed in respect of a proposed combination of the Company with
GCP Asset Backed (the "Scheme") and that it was in separate discussions with
RM Infrastructure with the intention of agreeing a potential combination of
the enlarged Company with RM Infrastructure.
Process:
On 6 September 2023, the Company announced that it had been unable to agree on
structure and terms with RM Infrastructure in respect of a potential
combination that was acceptable to both parties and, therefore, the Company
notified RM Infrastructure of the termination of discussions on the matter.
A significant shareholder consultation exercise was undertaken for the Scheme
with GCP Asset Backed.
The majority of the Company's shareholders recognised the Company's efforts to
put forward constructive options that sought to accelerate: (i) the reduction
of the Company's outstanding debt; (ii) the return of capital to shareholders;
and (ii) the reset of return and risk being generated by the Company's
portfolio of investments. The Board was made aware of a divergence of views
regarding the merits of the Scheme amongst shareholders of GCP Asset Backed.
The Board had no desire, if the Scheme was successful, to create an enlarged
entity with a significant minority of investors opposed to it. The Board
considered that such circumstances would risk the ability of the Scheme to
achieve its intended purposes.
On 18 September 2023, the Company announced that it was no longer in
discussions with GCP Asset Backed regarding the Scheme. As part of the heads
of terms, the Investment Adviser underwrote the costs incurred by the Company
of progressing the Scheme up to a capped amount, and therefore there was
minimal cost to the Company and its shareholders for the consideration and
development of the Scheme.
Outcomes:
Notwithstanding the cessation of the Scheme, the Company remains committed to
delivering a strategy that accelerates the Company's capital reallocation. The
Company's priorities for the use of its available cash reserves remain, in the
first instance, a combination of reducing the Company's outstanding debt
balance from the current £104.0 million; and buying back shares whilst the
Company's share price trades at a material discount(1) to its NAV. Given these
alternatives, the threshold for new investment activity remains a high hurdle.
The Board continues to work with the Investment Adviser to accelerate the
return of capital to the Company in addition to scheduled amortisation through
refinances, disposals and other means that may be available to the Company
from time to time.
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Key Board decision:
Electricity price hedging
At a Board meeting held in April 2023, the Investment Adviser recommended to
the Board a new hedging policy for residual electricity price exposure. This
recommended entering rolling seasonal commodity swap agreements to mitigate
volatility in valuation caused by movements in electricity prices.
Process:
In recent years, the Company has increased its exposure to investments where
the value of such investments was linked to merchant electricity prices, with
valuations changing on a quarterly basis as power price forecasts were
refreshed. Whilst recent changes to forecasts have benefited the Company, the
volatility of such prices remains a risk to the Company.
Following the maturity of the electricity prices commodity swap agreement with
Axpo Solutions AG entered into by the Company on 13 July 2022. For summer 2022
and winter 2022/23, on 15 February 2023, the Investment Adviser recommended
that the Company enter into a new swap agreement for summer 2023, which
expired on 30 September 2023. The Investment Adviser further recommended
entering into a new swap agreement with Axpo Solutions AG for the 2023 winter
season, and executed this trade on 28 September 2023, which is still in place
at the date of the report.
The commodity swap agreement is a derivative financial instrument utilised for
the purpose of hedging market price volatility.
Outcomes:
Following a review of the Company's cash flow forecasts, the Board concluded
that the proposed hedging arrangement was in the interest of shareholders as
it would help reduce volatility in the valuation of investments impacted by
electricity power price fluctuations. This would in turn help support the
share price and total returns for investors going forward.
The Board therefore approved entering into the commodity swap agreements and
adopted a hedging policy in April 2023.
Further information on the commodity swap can be found in note 18 to the
financial statements.
Borrowers
Owners of the Project Companies to which the Company advances loans.
Why engage
The Company values its relationships with borrowers, ensuring time is spent
building and maintaining these relationships. By engaging with borrowers and
understanding their needs, the Company can build long-lasting relationships
that are beneficial to both parties. Borrower contact enables direct feedback
and informs strategic decision making at the Board level.
How the Company engages
The Company has been able to advance a further £129.5 million to existing
borrowers in the financial year under review with a further £0.1 million post
year end.
The Investment Adviser is closely engaged with borrowers on an ongoing basis.
Engagement takes the form of regular interaction with the borrowers by its
dedicated portfolio management team. Refer above for further details and
information on site visits carried out during the year.
The Board takes advantage of all available opportunities to engage with
borrowers. This includes participating in site visits led by the Investment
Adviser.
Suppliers
Suppliers across the UK and Jersey who provide administrative services to the
Company.
Why engage
The Company's suppliers include third party service providers engaged to
provide corporate or administration services, in addition to the investment
advisory services provided by the Investment Adviser. These services are
critical to the ongoing operational performance of the Company. It relies on
the performance of third party service providers to perform its main
functions.
The Board has a close working relationship with all its advisers and regularly
engages with all parties. The Management Engagement committee regularly
monitors the performance and reviews the terms of each service contract.
This informs decision making at the Board level in regard to the continuing
appointment of service providers. Further information on the activities of the
Management Engagement committee can be in the full annual report on the
Company's website.
The Audit and Risk committee also conducts an annual review of the internal
controls of the Investment Adviser and the Administrator; this includes a
visit to the offices of both service providers, refer to the full annual
report on the Company's website for further details.
Public sector
Organisations owned and operated by the UK Government that exist to provide
public services for society.
Why engage
Governments and regulators play a central role in shaping the renewable
energy, PFI and social housing sector policy. Changes in UK Government policy
may adversely affect the ability of the Company to successfully pursue its
investment policy and meet its investment objective or provide favourable
returns to shareholders.
How the Company engages
The Company engages with local government and regulatory bodies at regular
intervals and participates in focus groups and research projects on the
infrastructure sector through the Investment Adviser. UK infrastructure policy
informs strategic decision making at Board level with consideration given to
the impact the Company has on the sector.
The Company has historically benefited from co-investment alongside public
bodies seeking to 'crowd-in' private sector capital and will continue to seek
and evaluate such opportunities. In addition, the Company is helping in
efforts to mobilise private capital to support decarbonisation efforts. The
Company's focus remains on investing in UK infrastructure debt in project
companies that own and operate assets that benefit from public sector backed
revenues.
The UK Government remains committed to its aggressive decarbonisation targets:
net zero by 2050 and the decarbonisation of the electricity system by 2035.
The Investment Adviser's extensive track record in certain sectors and proven
ability to target emerging sectors means the Company is well placed to benefit
from investment opportunities associated with the transition to net zero.
Society
The Company makes a positive impact through its investments in renewables and
assets such as schools and hospitals which are integral to society.
Why engage
Through its investments in renewable energy projects and assets such as
schools and hospitals, the Company's activities indirectly impact the lives of
many thousands of people across the UK. The Company is committed to being
socially responsible and the Directors consider community involvement to be an
important part of that responsibility.
How the Company engages
The Company indirectly provides benefits to society through its investing
activities, by contributing towards the generation of renewable energy and
providing financing for infrastructure that has clear benefits to end users
within society.
Investing in renewables, PPP/PFI and social housing projects indirectly
creates job opportunities in supply chains that benefit local communities
across the UK. Renewables projects not only have a positive impact on the
environment but also have wider benefits for society, for example, improving
local communities through Community Benefit Funds.
The Company's investments in supported living have helped fund many social
housing properties across the UK, offering high-quality accommodation for
people living with disabilities. The Investment Adviser has a particular focus
on operating to the highest ethical standards in this area due to the
vulnerability of some stakeholders.
Lenders
Financial institutions and providers of the Company's credit facilities.
Why engage
The Company's facilities are used to make investments in accordance with the
investment policy. These arrangements provide the Company with access to
flexible debt finance, enabling it to take advantage of investment
opportunities as they arise as opposed to holding cash awaiting investment.
Access to these facilities is important in the efficient capital management
of the Company.
How the Company engages
Lenders are financial institutions that provide debt finance in the form of a
RCF. The Company, through its Investment Adviser, engages with its lenders on
an ongoing basis.
The Company has in place a RCF of £190.0 million total commitments which will
expire on 29 March 2024. The Investment Adviser on behalf of the Company has
engaged positively with its lenders during the year. Post year end, in
December 2023, the Company signed heads of terms for a new the debt facility
at a reduced amount of £150.0 million, in line with the Board's stated
intention of reducing Company leverage.
Given the transaction costs involved in renewing any debt facility, the
existing facility has not been renewed ahead of expiry.
These arrangements are anticipated to provide 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.
Further details on the Company's RCF can be found in note 15 to the financial
statements.
Risk management
The Board and the Investment Adviser recognise that risk is inherent in the
operation of the Company and are committed to effective risk management to
protect and maximise shareholder value.
Approach to risk management
The Board has ultimate responsibility for risk management and internal
controls within the Company. The Board has adopted a risk management framework
to govern how it identifies existing and emerging risks, determines risk
appetite, identifies mitigation and controls, and how it assesses, monitors
and measures risk and reports on risk.
Risk review process
The Board, with the assistance of the Audit and Risk committee, undertakes a
formal risk review twice a year to assess the effectiveness of the Company's
risk management process and internal control systems. During the year, the
Board continued to track its most material risks ('A' risks) on a risk matrix
showing relative probability and impact. This allowed the Board to identify
the twelve principal risks facing the Company as described below. During the
year, risks relating to the share price discount(1) to NAV and the Company's
strategic positioning were elevated to principal risks. Additional, less
material risks ('B' risks) are monitored by the Board on a watchlist.
In addition to the Audit and Risk committee, the Company's Investment
committee and Management Engagement committee have a key role and contribute
to the overall risk management and governance structure. Consideration is
given to the materiality of risks in designing systems of internal control;
however, no system of control can provide absolute assurance against the
incidence of risk, misstatement or loss.
The following are the key components the Company has in place to provide
effective internal control:
Execution risk
· The Board and the Investment committee have agreed clearly defined
investment criteria, which specify investment characteristics, authority and
exposure limits.
· The Board and the Audit and Risk committee receive and review
assurance reports on the controls of the Investment Adviser and Administrator
undertaken by a professional third party service provider.
· The contractual agreements with the Investment Adviser and other
third party service providers, and their adherence and ongoing performance,
are regularly reviewed by the Board and at least annually by the Management
Engagement committee.
Portfolio risk
· The Investment Adviser prepares quarterly reports which allow the
Board to assess the performance of the Company's portfolio and more general
market conditions.
Financial risk
· The Investment Adviser and the Administrator prepare financial
projections and financial information which allow the Board to assess the
Company's activities and review its financial performance.
· The Company has policies and procedures in place to ensure
compliance with legal and regulatory requirements which are monitored by the
Board.
Other risks
· The Board monitors the outputs from the Company's and the
Investment Adviser's compliance officers.
Emerging risks
· Emerging risks are a standard item on the Board's agenda with
continual focus and scanning of the regulatory horizon to ensure early
awareness and engagement.
· Climate risk is now a key consideration for the stability of future
risk-adjusted financial returns, with both physical and transition risks
considered.
· The Board of Directors directly or indirectly addresses
climate-related risks and opportunities when evaluating and approving new
investments, including an ESG risk and impact assessment completed for each
new investment.
· More detail on how the Board of Directors identifies, assesses and
manages emerging risks, including climate change risk, is provided below.
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Risk appetite
As an investment company, the Company seeks to take investment risk. The
Company's investment policy above sets out the key components of its risk
appetite. The Company and the Board seek to manage investment risk within set
risk and return parameters. Information on the Investment Adviser's view on
current asset risk characteristics for each risk sector is included in the
Investment Adviser's report above.
Role of the AIFM
The Investment Adviser is the appointed AIFM to the Company and is required to
operate an effective and suitable risk management framework to allow the
identification, monitoring and management of the risks to which the Investment
Adviser and the AIFs under its management are exposed.
The Investment Adviser's permanent risk management function has a primary role
alongside the Board in shaping the risk policy of the Company. It also has
responsibility for risk monitoring and risk measuring to ensure that the risk
level complies with the Company's risk profile on an ongoing basis.
The principal risks faced by the Company detailed below are categorised under
the headings of execution risk, portfolio risk, financial risk(1) and other
risks.
1.The principal financial risks, the Company's policies for managing these
risks and the policy and practice with regard to financial instruments are
summarised in note 19.
Changes to the principal risks as a result of the risk review
This year, strategic positioning risk and share price discount or premium(1)
to NAV risk have been elevated from 'A' risks to principal risks due to the
level and persistence of the share price discount(1) to NAV. There have been
no further movements between categories.
Category 1: Execution risk
Change in residual risk over the year
Risk Impact How the risk is managed
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 Stable
principal received on the investment may be Board and
Investment due diligence may not reveal all the facts relevant to an
The current macro-economic environment is uncertain, and the future outlook
investment and may not highlight issues that could affect that investment's lower than envisaged, negatively impacting the performance of the the Investment Adviser, various third party financial, technical, insurance for inflation and interest rates is difficult to predict with accuracy. The
performance. This risk is likely to be greater in new investment sectors such
and legal experts are engaged to advise on specific project risks. war in Ukraine, along with unrest in the Middle East post year end has caused
as geothermal, hydrogen storage, forestry and electric vehicles. Company. volatility in energy prices, however the Board does not intend to increase
this risk from its existing heightened level.
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 engaging with the market, seeking new Decreased
appropriate deals,
There is no guarantee that the Company will be able to identify suitable
The Company made limited new loans of £9.2 million in the year. Portfolio
investments with risk manner, the uninvested cash balance will have a negative impact on the and building a specifically identified investment pipeline before the Company investments of £129.5 million focused on restructuring and management. This
Company's returns. If the only available investments with an seeks to raise additional capital in order was offset by repayments of £128.0 million, giving a net investment in the
and return characteristics that fit within the investment strategy of the
existing portfolio of £1.5 million. The Company maintains an attractive
Company. Where suitable investments can be identified, appropriate risk profile yield lower rates of return than to ensure that it is deployed in a timely fashion. Consideration is also given pipeline of investments at returns that would be accretive to dividend
to any scheduled capital repayments. coverage and that reflect the current market pricing. However, the Company
the Company may face competition in closing a transaction. This is a risk when have historically been achievable, the Company's overall returns may be recognises that the use of cash resources for pipeline investments must be
raising capital and when reinvesting capital repaid to the Company under adversely affected. Furthermore, if loans are prepaid earlier than expected weighed against repayment of the Company's RCF or, whilst the Company's share
existing loan agreements. the repayment of capital is accelerated, leading to price trades at a material discount(1) to the NAV, buying back shares.
potential cash drag.
Link to strategy: 1, 2, 3 Ultimately, this risks the sustainability of the dividend.
3 Reliance on the Investment Adviser Failure by the Investment Adviser to carry out its obligations in accordance The performance of the Investment Adviser is Increased
The Company is heavily reliant on third party service providers with the terms of its appointment, or to exercise monitored closely by the The Investment Adviser continues to provide adequate resources and act with
due skill, care and diligence in its responsibilities as Investment Adviser
to carry out its main functions. due skill and care, could Board. In addition, at least and AIFM to the Company.
In particular, the Company depends on the Investment Adviser and the have a material effect on once a year the Management Engagement committee
expertise of
the Company's performance. Any poor performance, misconduct or performs a formal review The Company's shares are trading at a significant discount(1) to NAV, in
its key personnel and staff to implement the Company's strategy and investment misrepresentation by the Investment Adviser may manifest itself in direct
line with the wider market, which means that new investment deals are not
policy,
process to consider the being actively pursued. The Investment Adviser is following the Board's policy
financial losses or result in damage to reputation,
of paying down debt and buying back shares to narrow this discount before
to deliver its objectives and to maintain sufficient day-to-day oversight of
ongoing performance of the Investment Adviser and the considering new investments.
the investments. Should any key personnel causing longer-term financial consequences to the performance of the Company.
Audit and Risk committee conducts an annual control review.
leave the employment of the Investment Adviser (and it is unable to recruit
other The relationship between the Investment Adviser and the Board remains strong,
open and collaborative and the Directors gain additional comfort from the fact
individuals of similar The Investment Adviser has industry and asset knowledge that the Investment Adviser is part of the wider ORIX Corporation group, a
global financial services company.
experience and credibility), of specific use and importance
this may have a negative impact on the performance of both the Investment to the Company. The Company has entered into a contractual agreement with the
Adviser and the Company. Investment Adviser on terms that it
considers to be mutually fair
The Company is also reliant on the effectiveness of the Investment Adviser's and reasonable. The Investment Adviser monitors its key personnel to ensure
control environment. that their experience fits the role and proper training is provided for
continued professional development.
Link to strategy: 1, 3
The Investment Adviser
obtains assurance of its
controls processes annually through the completion of an ISAE 3402 audit by
external auditor Deloitte LLP.
Category 2: Portfolio risk
Change in residual risk over the year
Risk Impact How the risk is managed
4 Changes in laws, regulations and/or UK Government policy impacting on Potential adverse effect on the performance of the Company's investment Any changes in laws, regulations and/or policy, or the application thereof, Stable
investments portfolio and the returns achieved by the Company. are monitored by the Board on an ongoing basis.
The implementation of the Electricity Generator Levy in January 2023 has
Changes in laws, regulations and/or UK Government policy, impacted the short-term profitability of certain assets in the portfolio. The
levy will be in place until 31 March 2028.
in particular those relating to Price capping or other intervention in the energy The Investment Adviser
the PPP/PFI and renewable energy markets, may have an adverse effect on the market may impact returns. engages with industry bodies
Company.
Longer term, the UK Government has confirmed that offering
to understand and influence Government policy options. contracts‑for-difference is the Government's main mechanism to support new
low-carbon electricity generation projects in the UK. Whilst the most recent
Reduced support for private sector finance of infrastructure and/or a material auction failed to secure any bids to build new offshore wind capacity, lower
Link to strategy: 1, 2, 3 change in
offshore wind capacity in the UK is likely to lead to higher prices in the
Given the UK Government's reliance on private capital for, inter alia, the medium to long term, which will benefit the existing portfolio.
the approach to infrastructure delivery (such as nationalisation) represent funding of new social and economic infrastructure and renewable energy
risks to the projects, it is the view
Company's ability to reinvest capital. of the Investment Adviser
and the Board that, despite potential short-term intervention in the energy
market, the risk
of any future significant
changes in policy is low and
is more likely to have a prospective impact rather than a retrospective
effect.
5 Performance of, and reliance on, subcontractors If a key subcontractor was to The competence and financial strength of subcontractors, as well as the terms Stable
and feasibility
The performance of the Company's investments is typically, to a considerable be replaced due to the
The concentration of credit risk to any individual project did not exceed 10%
degree, dependent on the performance of subcontractors, most notably
of their engagements, are a key focus of investment due diligence. The Board of the Company's portfolio at the year end, which is the maximum amount
facilities insolvency of that subcontractor or for any other reason, the replacement and the Investment Adviser monitor the Company's exposure to any given permissible per the Company's investment policy. Notwithstanding these issues,
subcontractor may charge a higher price for the relevant services than subcontractor and ensure that the risk of underperformance is mitigated there has been no evidence of insolvency indicators in the subcontractor
managers and operations and maintenance subcontractors. previously paid. The resulting increase through diversification. group.
The Company is heavily reliant on subcontractors to carry out their in costs may result in the Company receiving lower
obligations in accordance with the terms of their appointment and to exercise
interest and principal payments than envisaged.
due skill and care.
Link to strategy: 1, 2
6 Technological, operational or construction issues In the event of material operational or construction issues, the interest and The Investment Adviser undertakes extensive due diligence on all projects Stable
principal payments received by the Company may be lower than expected or regarding expected performance. A full package of insurance and manufacturer
The Company's investments are exposed to construction and/or operational risks forecast and/or additional costs may be incurred. guarantees is put in place to protect the Company from unforeseen events. The The Company continues to face challenges in its gas-to-grid anaerobic
or utilise relatively new or developing technologies and may not perform as Board ensures that the Company has security over the assets against which it digestion projects in Scotland. This year, upgrades have been made to enhance
expected. Over the life of a project, components of a project may need to be is lending, so in the instance of a borrower default it can enforce security site resilience to storm damage, addressing previous issues. The Investment
replaced or undergo a major refurbishment; these costs may be higher than over the assets and implement performance improvement plans. Adviser collaborated with landlords and operators to implement a more reliable
projected. Operational risks also include cyber risks.
biogas injection method into the local gas grid.
The Investment Adviser's dedicated portfolio management team monitors the
In addition, climate change, in the form of changes to weather patterns, can performance of investments on an ongoing basis. Monitoring takes the form of Construction exposure was 1% at 30 September 2023 (30 September 2022: 1%).
also have an impact on assets in relation to their operation and/or regular interaction with borrowers, including periodic site visits to the
construction, especially in relation to wind and solar assets. underlying assets. The Investment Adviser reports to the Board on asset
performance on a quarterly basis.
Link to strategy: 1, 3
Category 3: Financial risk
Change in residual
Risk Impact How the risk is managed risk over the year
7 Valuation Such changes to valuations may negatively impact the value of the Company's The Company's infrastructure investments are generally low volatility Stable
investment portfolio. investments with stable, pre-determined, very long‑term, public sector
The value of the investments made by the Company will change from time to time
backed revenues. Nearly half of the Company's investment portfolio is exposed The Company is exposed to a number of shareholder interests, c.9% of the
according to a variety of factors, including actual and anticipated movements to some form of inflation protection mechanism. The Company's investments are portfolio by value, either as a result of the specific targeting of these
in energy prices, interest rates, inflation and/or discount rates and general
valued by an independent Valuation Agent with reference to duration-matched positions or through enforcing its security as a result of the occurrence of
market pricing of similar investments. There can be no assurance that assumptions will turn out to be accurate, and interest rates, typically between 15 and 25 year rates. The discount rates defaults. Such exposures are more sensitive to changes in market factors, such
actual data could have an adverse impact on the performance of the Company's currently used to value the Company's investments include a premium to the as electricity prices, and the operational performance of projects, and are
investments. risk-free rate that offers protection in the event of rate rises. therefore likely to result in increased volatility in the valuation of the
portfolio.
The Company makes investments which rely on detailed financial models based on
certain assumptions, estimates and projections of each investment's future
cash flow. Such assumptions include, inter alia, inflation, power prices, Errors may occur in the calculation of an investment valuation with a When modelling future cash flows and structuring debt profiles, the Investment
interest rates, feedstock costs, asset productivity, taxation, lifecycle and potential corresponding impact upon the Company's published financial Adviser uses assumptions considered to be conservative by third party experts. There is uncertainty regarding potential future Government intervention in the
insurance costs. There is a risk these assumptions may be incorrect. statements. The Investment Adviser constantly monitors the actual performance of projects energy market, therefore forecast power prices may not be realisable in
and takes action where appropriate. reality. Consequently, there is a greater element of subjectivity in the
year‑end valuation. This uncertainty, together with higher interest rates
and the pricing of transactions in the market, has led the independent
Link to strategy: 3 Valuation Agent to increase the discount rates on certain portfolio assets
during the year.
8 Company liquidity and balance sheet risk If the Company is unable to secure borrowing facilities this may adversely The RCF is in place to fund potential investments in the near term and to Decreased
affect the Company's investment returns and may have a material adverse effect avoid holding material amounts of uninvested cash awaiting investment.
The Company requires cash flows from investment income and loan repayments to on the Company's financial position and its operating results. Consideration may also be given to other forms of credit as part of the The Board and the Investment Adviser continue to pay close attention to cash
fund its investment activities. Company's future funding strategy. Through the use of forecasting and flow modelling and cash cover to finance acquisitions and to pay dividends.
modelling techniques, the Investment Adviser has the capability to plan in
advance the sale of assets if required for liquidity purposes. The Company refinanced two existing loan notes secured against two waste-wood
biomass projects. This refinancing generated £50.0 million of net cash
The Company utilises borrowing facilities to finance and/or part‑finance proceeds that were used to repay the Company's RCF, which along with other
further acquisitions in accordance with the Company's investment policy. routine repayments, provided additional liquidity in the year.
However, there can be no guarantee that any such facility will be available to
the Company on commercially acceptable terms or at all.
The Investment Adviser has liaised with the existing lending group and post
year end, in December 2023, signed heads of terms with Lloyds, AIB, Mizuho and
Link to strategy: 1 Clydesdale for a new reduced facility of £150.0 million in line with the
Board's stated intention to reduce leverage by the end of 2024.
Category 4: Other risks
Risk Impact How the risk is managed Change in residual risk over the year
9 Litigation or legal risk Any material legal claims or regulatory action against the Company or its The Board is kept informed by the Investment Adviser regarding any litigation Stable
underlying assets may adversely damage the Company's reputation and affect the or regulatory action relating to the portfolio. If necessary, a
Litigation or legal action either by the Company or against it or its assets, Company's ability to successfully pursue its investment policy, meet its sub‑committee of the Board is constituted to oversee a specific matter. Previously disclosed litigation and regulatory proceedings regarding a number
which involve legal costs, management time and resources with potential asset investment objective and/or provide favourable returns to shareholders.
of solar assets have continued to progress during the year. Further details
impairment consequences, notwithstanding possible mitigation through insurance are set out in the Investment Adviser's report above.
schemes.
Insurance regarding representations and warranties is considered on its merits
by the Investment Adviser for each transaction.
The Company is required to disclose material litigation to shareholders and/or
the Company's regulators.
Link to strategy: 1, 3
10 Geopolitical Impacts on supply chains, inflation, interest rates, and adverse exchange rate Regular engagement with the public sector through the Investment Adviser. The Stable
movements. Potential volatility on long-term power prices affecting the Investment Adviser conducts quarterly reviews on important and/or emerging
Risk of a sustained shift in the geopolitical environment. For instance, Company's exposure to shareholder interests. Increase in the volume of capital topics for the Board's consideration. Monitoring of key emerging issues is Although the geopolitical landscape remains turbulent, with the ongoing war in
international conflict, a winding back of globalisation, trade wars and the flowing into infrastructure and renewable projects creating downward pressure undertaken by the Directors on an ongoing basis. Ukraine and increased unrest in the Middle East post year end driving higher
desire to be more self-sufficient in energy, and increased migrant flows. on yields and difficulty in sourcing investments within the required risk energy prices and inflation, the Board does not consider that this risk needs
return parameters of the Company's investment strategy. Potential for to be increased from its existing heightened level.
increased uncertainty around investment valuations if Government subsidy or
support is unpredictable.
Link to strategy: 1, 2, 3
The Board, along with the Investment Adviser, continues to closely monitor the
impact of these issues on the portfolio.
11 Share price discount or A significant discount(1) may prevent the Company raising more capital. If the The level of discount(1) that the Company's shares are trading at has meant New
Company was unable to secure further capital for investment, this may that buybacks have become an attractive option from an investment point of
premium(1) to NAV adversely affect the Company's ability to achieve its investment policy and view relative to other opportunities. Consequently, during the period, the The Company's shares have traded at an average discount(1) of 14.3% during the
strategy and/or maintain a diversified portfolio of investments. Company has commenced a share buyback programme of shares up to an aggregate year and an average premium(1) of 7.9% since IPO. The level of share price
The Company's share price discount(1) to NAV will persist and widen to a value of £15.0 million. The decision to buy back shares is subject to ongoing discount(1) is being closely monitored by the Board. The Company has
significant level, or will remain at an insufficiently large or consistent evaluation by the Board of the Company's share price, the investment pipeline undertaken a share repurchase scheme as part of its ongoing investment
premium(1). and the available cash resources of the Company. The level of discount(1) strategy, particularly given the high discount(1) to NAV it has experienced.
relative to the NAV per share is closely monitored by the Board. These purchases are an attractive use of shareholders' funds relative to the
pipeline of potential new investments, and they are expected to enhance
earnings per share and dividend cover going forward.
Link to strategy: 1, 2, 3
12 Strategic positioning Implementation of the wrong strategy or poor execution of it will damage The Board is prioritising the allocation of capital to pay down the balance New
sentiment in the Company, exacerbating the issue with the discount(1). drawn under its RCF alongside the buyback of shares. Select sales of portfolio
The Company's shares are trading at a persistent discount(1) to the NAV. In assets are under consideration. At the same time, the Investment Adviser This risk has been elevated from an 'A' risk to a principal due to the level
this environment there is a strong argument to prioritise de-levering and continues to develop a pipeline of new investment opportunities and is and persistence of the share price discount(1) to NAV at the year end, refer
buying back shares over making any new investments. The Board has to determine considering the refinance of existing positions to improve returns and/or to risk 11 above.
the right balance and set the strategy accordingly. Shareholders may disagree reduce risk, whilst acknowledging the current high hurdle for new investment.
with the strategy, or it may not work as intended.
Link to strategy: 1, 2, 3
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Key to strategy references
1 Dividend
income
2 Diversification
3 Capital preservation
Emerging risks
Emerging risks need to be managed differently than 'business as usual' risks.
Emerging risks are, by their nature, more challenging to identify, assess and
manage. There is a lack of data to assess and to base the risk response on.
The relevant emerging risks for the Company are described below. Emerging
risks is an area that the Board will continue to consider.
Emerging risks
Change in residual
Risk Impact How the risk is managed risk over the year
1 Climate change If renewable assets are damaged by extreme weather events, with subsequent The portfolio is diversified across a number of asset classes and physical Stable
inability to connect to the grid, or suffer reduced availability, this would locations and ESG processes are embedded in investment decision making. The
a) Physical impact revenue. Investment Adviser has a Responsible Investment policy and a Responsible The Board considers this to be a long-term issue; the impact of climate change
Investment committee to monitor and implement ESG initiatives. Environmental on the Company's portfolio will continue to be closely monitored by the Board,
Higher frequency and severity of extreme weather conditions, for example impact assessments are carried out as part of the due diligence process. The the ESG committee and the Investment Adviser.
intense heat waves, storm surges and higher water levels on coasts. Investment Adviser also carries out ongoing performance monitoring, including
site visits (when possible) by experienced personnel. Regular fortnightly
updates, ad hoc and quarterly detailed reports on asset performance are
provided to the Board. During the year, 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
analysis considered both physical and transition risks for each asset. Further
information is given above.
2 Climate change Increased focus on sustainability and ESG factors amongst governments, The Board is very focused on this area. Compliance with both new and existing Stable
regulators, shareholders and the wider community. Any associated consequences reporting requirements and best practice is managed by the Investment Adviser
b) Transition arising from this risk, such as regulatory or legal sanction including and monitored by the Audit and Risk committee. Government climate policy, transition planning frameworks, and standards of
financial and reputational damage. Governmental availability, sufficiency and best practice are all nascent and will continue to evolve for some time.
Risks associated with the long‑term trends arising from climate change and consistency of support mechanisms to enable the transition to a low carbon
the energy transition required. This includes increasing regulation, insurance economy. Potential increase in costs to the Company.
availability and price, governmental inertia or over‑reaction, failure of
business models, and changing consumer and business preferences. The ESG committee and the Investment Adviser will continue to monitor and
assess the impact of these policies on the investment portfolio and the
Company as whole.
Going concern assessment and viability statement
Going concern
The Directors have considered the financial prospects of the Company for the
next twelve months and made an assessment of the Company's ability to continue
as a going concern. The Directors' assessment included consideration of the
availability of the Company's RCF, including the refinancing of the current
facility before its scheduled maturity in March 2024 (refer to note 15), in
line with heads of terms signed post year end, hedging arrangements, cash flow
forecasts and stress scenarios.
The Directors are satisfied that the Company has the resources to continue in
business for the foreseeable future and furthermore are not aware of any
material uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern.
Viability statement
At least twice a year, the Board carries out a robust assessment of the
principal and emerging risks facing the Company, including those that may
threaten its business model, future performance, solvency and liquidity.
The Directors have considered each of the Company's principal risks and
uncertainties, detailed above, that could materially affect the cash flows of
the underlying projects that support the Company's investments. This included
an assessment of the impact of the new risks; share price discount or
premium(1) to NAV and strategic positioning, on the viability of the Company.
The potential impact of a further increase in power prices and, in particular,
the consequent cash requirements of the Company's hedging programme, has been
considered in the context of each project in the portfolio.
The Directors also considered the Company's policy for monitoring, managing
and mitigating its exposure to these risks.
The Directors have assessed the prospects of the Company over a longer period
than the twelve months from the date of signing the report required by the
going concern provision. The Board has conducted this review for a period
covering the next five years as, over this period, it believes the risk of
changes in UK Government policy that would result in retrospective adjustments
to public sector backed cash flows is low.
This assessment involved an evaluation of the potential impact on the Company
of these risks occurring. Where appropriate, the Company's financial model was
subject to a sensitivity analysis involving flexing a number of key
assumptions in the underlying financial forecasts in order to analyse the
effect on the Company's net cash flows and other key financial ratios. The
assumptions used to model these scenarios included:
· an increase in the cost of debt by 3% over the all-in margin or
operating expenses of 50%;
· the impact of a significant proportion of the portfolio, 50%, not
yielding, which is a worst case scenario and would require a number of the
principal risks materialising in parallel; and
· the potential impact of a short-term increase in electricity prices
over the period to maturity of the financial derivatives by a 99% worst case
scenario and, in particular, the consequent cash requirements of the Company's
hedging programme.
Alongside this analysis, reverse stress testing was carried out in order to
further assess the Company's viability.
The sensitivity analysis was based on a number of assumptions, including that
the Company's RCF is refinanced in advance of the date of expiry and it
remains in place to provide short-term finance.
Given the projects that the Company's investments are secured against are all
UK infrastructure projects that generate long-dated, public sector backed cash
flows, the Board considers the revenue of the Company over that period to be
dependable. This is supported by a diversified portfolio of investments,
reducing exposure to risks affecting a single sector.
Additionally, the Company primarily invests in long-dated UK infrastructure
debt that earns a fixed rate of interest and is repaid over time according to
a pre-determined amortisation schedule. As such, assuming that the underlying
projects perform as expected, the Company's cash inflows are predictable.
Based on this assessment of the principal risks facing the Company, stress
testing and reverse stress testing undertaken to assess the Company's
prospects, the Directors have a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they fall due
over the five year period of assessment.
Approval
The strategic report has been approved by the Board and signed on its behalf
by:
Andrew Didham
Chairman
12 December 2023
1.APM - for definition and calculation methodology, refer to the APMs section
below.
Statement of Directors' responsibilities
In respect of the annual report and financial statements
The Directors are responsible for preparing the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under Jersey Company Law they have elected to prepare the
financial statements in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the EU and applicable law.
Under Jersey Company Law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period. In preparing these financial statements, the Directors are
required to:
- select suitable accounting policies and apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
- use 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.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with Jersey Company
Law. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
misstatement, whether due to fraud or error, and have general responsibility
for taking such steps as are reasonably open to them to safeguard the assets
of the Company and to prevent and detect fraud and other irregularities.
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 where the
financial statements are published on the internet.
Directors' responsibility statement
In accordance with the FCA's Disclosure Guidance and Transparency Rules, each
of the Directors on the Board at the date of this report, whose names are set
out in the full annual report on the Company's website, confirms that to the
best of his or her knowledge:
- the financial statements have been prepared in accordance with IFRS as
adopted by the EU, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
- the strategic report, including the Directors' report, includes a
fair, balanced review of the development and performance of the business and
the position of the Company, together with a description of the principal
risks and uncertainties that the Company faces.
The annual report and financial statements, taken as a whole, are considered
by the Board to be fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's position and
performance, business model and strategy.
On behalf of the Board
Andrew Didham
Chairman
12 December 2023
Independent Auditor's report
To the members of GCP Infrastructure Investments Limited
Our opinion is unmodified
We have audited the financial statements of GCP Infrastructure Investments
Limited (the "Company"), which comprise the statement of financial position as
at 30 September 2023, the statements of comprehensive income, changes in
equity and cash flows for the year then ended, and notes, comprising
significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
- give a true and fair view of the financial position of the Company as
at 30 September 2023, and of the Company's financial performance and cash
flows for the year then ended;
- are prepared in accordance with International Financial Reporting
Standards as adopted by the EU; and
- have been properly prepared in accordance with the Companies (Jersey)
Law, 1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of, the Company in accordance with UK ethical requirements,
including the FRC Ethical Standard as applied to listed entities. We believe
that the audit evidence we have obtained is a sufficient and appropriate basis
for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the key audit matter was as
follows (unchanged from 2022):
Key audit matters The risk Our response
Valuation of financial assets at fair value through profit or loss Basis: Our audit procedures included:
£1,046,568,000 or 98.3% of total assets (30 September 2022: £1,087,331,000 98.3% of the Company's total assets is represented by the fair value of a Internal controls:
or 98.5% of total assets). portfolio of unquoted infrastructure investments domiciled in the United
Kingdom (the 'Investments'). The Company's estimation of the fair value of the We tested the design, implementation and operating effectiveness of the
Investments primarily involves using a discounted cash flow methodology, where controls adopted by the Company over the valuation of the Investments.
the inputs and assumptions, such as the amounts and timings of cash flows, the
Refer to the Audit and Risk committee report in the full annual report on the use of appropriate discount rates and the selection of appropriate assumptions
Company's website, note 2.2 - significant accounting judgements and estimates, surrounding uncertain future events are subjective.
and note 11 - financial assets at fair value through profit or loss and note Evaluating experts engaged by management:
19 - financial instruments
We performed enquiries of the Investment Adviser and Valuation Agent to update
our knowledge of the valuation process and methodology and reassessed its
appropriateness against industry practice and IFRS.
We evaluated the competency of the Company's third-party Valuation Agent in
the context of their ability to appropriately challenge and review the fair
value of the Investments prepared by the Company, by assessing their
professional qualifications, experience and independence from the Company.
Use of KPMG specialists:
We challenged, with the support of our KPMG valuation specialist, the
reasonableness of discount rates applied in the valuation by benchmarking
these to independent market data, including discount rates used by peers,
recent market transactions and our KPMG valuation specialist's experience in
valuing similar investments.
Risk:
There is a risk of error associated with: Challenging managements' assumptions and inputs:
- estimating the timing and amounts of long‑term forecasted cash We performed substantive procedures in relation to the Company's determination
flows; and of fair value on a risk-based selection of Investments, which included:
- the selection and application of appropriate assumptions, such as
discount rates and other inputs.
- for new Investments during the year, compared the long-term forecasted
cash flows included in the discounted cash flow model to the terms of the loan
agreements, such as the repayment profile, prepayment premium, loan term and
Changes to long-term forecasted cash flows and/or the selection and the coupon;
application of different assumptions and inputs may result in a materially
different fair value being attributed to the Investments. - assessed the recoverability of outstanding cash flows by considering
financial performance of underlying assets, the general economic environment
and reviewing the repayment history;
- assessed the reasonableness of key general and project‑specific
inputs and assumptions into the cash flow projections for equity linked loan
notes, to corroborate key revenues and costs with reference to relevant market
data, underlying contracts, agreements and management information; and
- assessed the reliability of the Company's cash flow forecasts included
in the valuation models by appraising the completeness and accuracy of the
retrospective review analysis performed by the Investment Adviser.
Assessing disclosures:
We considered the adequacy of the Company's disclosures in note 19.3 in
respect of the fair value of Investments for compliance with IFRS,
specifically the estimates and judgements made by the Company in arriving at
that fair value and the disclosure of the degree of sensitivity of the fair
value to a reasonably possible change in the discount rate.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £11,200,000,
determined with reference to a benchmark of total assets of £1,064,275,000,
of which it represents approximately 1.0% (30 September 2022: 1.0%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (30 September 2022: 75%) of materiality for the
financial statements as a whole, which equates to £8,400,000. We applied this
percentage in our determination of performance materiality because we did not
identify any factors indicating an elevated level of risk.
We reported to the Audit and Risk committee any corrected or uncorrected
identified misstatements exceeding £560,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
Going concern
The Directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded, that the Company's financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval
of the financial statements (the 'going concern period').
In our evaluation of the Directors' conclusions, we considered the inherent
risks to the Company's business model and analysed how those risks might
affect the Company's financial resources or ability to continue operations
over the going concern period. The risks that we considered most likely to
affect the Company's financial resources or ability to continue operations
over this period were:
- availability of capital to meet operating costs and other financial
commitments;
- availability of credit facilities and the ability of the Company to
comply with debt covenants;
- the ability to successfully refinance or repay debt which is due to
mature; and
- the recoverability of financial assets subject to credit risk.
We considered whether these risks could plausibly affect the liquidity in the
going concern period by comparing severe, but plausible downside scenarios
that could arise from these risks individually and collectively against the
level of available financial resources indicated by the Company's financial
forecasts.
Our procedures also included:
- we performed enquiries of the Investment Adviser and Directors of the
Company in relation to the existing credit facility and the current status of
plans to repay or renew this facility;
- we inspected signed head of terms with the lenders for a new credit
facility at a reduced amount of £150.0 million to replace the existing credit
facility;
- we inspected a draft credit facility agreement with the lenders to
assess the progress of the credit renewal negotiations and the terms of the
draft credit facility agreement for any restrictions on the use of funds and
non‑standard terms which may impact the going concern conclusion; and
- we assessed the completeness of the going concern disclosures in the
financial statements.
We considered whether the going concern disclosure in note 2.1 to the
financial statements gives a full and accurate description of the Directors'
assessment of going concern.
Our conclusions based on this work:
- we consider that the Directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
- we have not identified, and concur with the Directors' assessment
that there is not, a material uncertainty related to events or conditions
that, individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for the going concern period;
and
- we have nothing material to add or draw attention to in relation to
the Directors' statement in the notes to the financial statements on the use
of the going concern basis of accounting with no material uncertainties that
may cast significant doubt over the Company's use of that basis for the going
concern period, and that statement is materially consistent with the financial
statements and our audit knowledge.
However, as we cannot predict all future events or conditions, and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ('fraud risks'), we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
- enquiring of management as to the Company's policies and procedures to
prevent and detect fraud, as well as enquiring whether management have
knowledge of any actual, suspected or alleged fraud;
- reading minutes of meetings of those charged with governance; and
- using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, we perform procedures to address the risk
of management override of controls, in particular the risk that management may
be in a position to make inappropriate accounting entries. On this audit we do
not believe there is a fraud risk related to revenue recognition because the
Company's revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or
agreements with little or no requirement for estimation from management. We
did not identify any additional fraud risks.
We performed procedures including
· identifying journal entries and other adjustments to test based on
risk criteria and comparing any identified entries to supporting
documentation; and
· incorporating an element of unpredictability in our audit
procedures.
Identifying and responding to risks of material misstatement due to
non‑compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company's regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment, including the entity's procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements, including financial reporting legislation and taxation
legislation, and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company's ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company's activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore, if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The Directors are responsible for the other information. The other information
comprises the information included in the annual report but does not include
the financial statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and we do not
express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the Directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements and
our audit knowledge. We have nothing material to add or draw attention to in
relation to:
- the Directors' confirmation within the Going Concern Assessment and
Viability Statement above that they have carried out a robust assessment of
the emerging and principal risks facing the Company, including those that
would threaten its business model, future performance, solvency or liquidity;
- the emerging and principal risks disclosures describing these risks
and explaining how they are being managed or mitigated; and
- the Directors' explanation in the Going Concern Assessment and
Viability Statement above as to how they have assessed the prospects of the
Company, over what period they have done so and why they consider that period
to be appropriate, and their statement as to whether they have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to review the Going Concern Assessment and Viability
Statement, set out above, under the Listing Rules. Based on the above
procedures, we have concluded that the above disclosures are materially
consistent with the financial statements and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the Directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
- the Directors' statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and understandable,
and provides the information necessary for shareholders to assess the
Company's position and performance, business model and strategy;
- the section of the annual report describing the work of the Audit and
Risk committee, including the significant issues that the Audit and Risk
committee considered in relation to the financial statements, and how these
issues were addressed; and
- the section of the annual report that describes the review of the
effectiveness of the Company's risk management and internal control systems.
We are required to review the part of Corporate Governance Statement relating
to the Company's compliance with the provisions of the UK Corporate Governance
Code specified by the Listing Rules for our review. We have nothing to report
in this respect.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:
- adequate accounting records have not been kept by the Company; or
- the Company's financial statements are not in agreement with the
accounting records; or
- we have not received all the information and explanations we require
for our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out above, the Directors are
responsible for: the preparation of the financial statements, including being
satisfied that they give a true and fair view; such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error; 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.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) .
The purpose of this report and restrictions on its use by persons other than
the Company's members as a body
This report is made solely to the Company's members, as a body, in accordance
with Article 113A of the Companies (Jersey) Law 1991 and, in respect of any
further matters on which we have agreed to report, on terms we have agreed
with the Company. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to them in an
auditor's 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 and the Company's members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Andrew Quinn
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors Jersey
12 December 2023
Statement of comprehensive income
For the year ended 30 September 2023
Year ended Year ended
30 September 30 September
2023 2022
Notes £'000 £'000
Income
Net income/gains on financial assets at fair value through profit or loss 3 29,301 157,039
Net gains on derivative financial instruments at fair value through profit or 3 12,860 386
loss
Other income 3 9,544 60
Total income 51,705 157,485
Expenses
Investment advisory fees 20 (8,670) (8,558)
Operating expenses 5 (2,752) (3,892)
Total expenses (11,422) (12,450)
Total operating profit before finance costs 40,283 145,035
Finance costs 6 (9,378) (4,716)
Total profit and comprehensive income for the year 30,905 140,319
Basic and diluted earnings per share (pence) 10 3.50 15.88
All of the Company's results are derived from continuing operations.
The accompanying notes below form an integral part of these financial
statements.
Statement of financial position
As at 30 September 2023
As of As of
30 September 30 September
2023 2022
Notes £'000 £'000
Assets
Cash and cash equivalents 14 16,867 15,981
Other receivables and prepayments 12 575 185
Derivative financial instruments at fair value through profit or loss 18 265 -
Financial assets at fair value through profit or loss 11, 19 1,046,568 1,087,331
Total assets 1,064,275 1,103,497
Liabilities
Other payables and accrued expenses 13 (4,048) (3,570)
Derivative financial instruments at fair value through profit or loss 18 - (3,861)
Interest bearing loans and borrowings 15 (103,674) (98,009)
Total liabilities (107,722) (105,440)
Net assets 956,553 998,057
Equity
Share capital 16 8,712 8,848
Share premium 16 861,118 871,606
Capital redemption reserve 17 101 101
Retained earnings 86,622 117,502
Total equity 956,553 998,057
Ordinary shares in issue (excluding treasury shares) 16 871,232,650 884,797,669
NAV per ordinary share (pence per share) 109.79 112.80
The financial statements were approved and authorised for issue by the Board
of Directors on 12 December 2023 and signed on its behalf by:
Andrew Didham Steven Wilderspin FCA
Chairman Director
The accompanying notes below form an integral part of these financial
statements.
Statement of changes in equity
For the year ended 30 September 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 year - - - 140,319 140,319
Equity shares issued 16 26 2,793 - - 2,819
Share issue costs 16 - (54) - - (54)
Dividends 9 - - - (61,826) (61,826)
At 30 September 2022 8,848 871,606 101 117,502 998,057
Total profit and comprehensive income for the year - - - 30,905 30,905
Share repurchases 16 (136) (10,467) - - (10,603)
Share repurchase costs 16 - (21) - - (21)
Dividends 9 - - - (61,785) (61,785)
At 30 September 2023 8,712 861,118 101 86,622 956,553
1.The share premium reserve is a distributable reserve in accordance with
Jersey Company Law. Refer to note 9 for further information.
The accompanying notes below form an integral part of these financial
statements.
Statement of cash flows
For the year ended 30 September 2023
Year ended Year ended
30 September 30 September
2023 2022
Notes £'000 £'000
Cash flows from operating activities
Total operating profit before finance costs 40,283 145,035
Adjustments for:
Loan interest income 3 (80,750) (74,479)
Net losses/(gains) on financial assets at fair value through profit or loss 3 51,449 (82,560)
Net gains on derivative financial instruments at fair value through profit 3 (12,860) (386)
or loss
(Decrease)/increase in other payables and accrued expenses (33) 357
Increase in other receivables and prepayments (390) (69)
Total (2,301) (12,102)
Loan interest received 3 58,791 52,079
Purchase of financial assets at fair value through profit or loss 11 (66,739) (39,917)
Repayment of financial assets at fair value through profit or loss 11 78,012 154,101
Proceeds/(settlement) on derivative financial instruments at fair value 3 8,734 (16,604)
through profit or loss
Net cash flows generated from operating activities 76,497 137,557
Cash flows from financing activities
Proceeds from revolving credit facility 15 55,000 11,000
Repayment of revolving credit facility 15 (50,000) (77,000)
Share issue costs 16 - (54)
Share repurchases (10,090) -
Share repurchase costs (20) -
Dividends paid 9 (61,785) (59,007)
Finance costs paid (8,716) (3,985)
Net cash flows used in financing activities (75,611) (129,046)
Increase in cash and cash equivalents 886 8,511
Cash and cash equivalents at beginning of the year 15,981 7,470
Cash and cash equivalents at end of the year 14 16,867 15,981
Net cash flows used in operating activities includes:
Loan fee income 3 9,143 51
Deposit interest received 3 401 9
The accompanying notes below form an integral part of these financial
statements.
Notes to the financial statements
For the year ended 30 September 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 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 LSE.
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
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies, except for those
changes discussed in this note, have been consistently applied throughout the
years presented.
2.1 Basis of preparation
These financial statements are prepared in accordance with IFRS as adopted by
the EU. The financial statements have been prepared under the historical cost
convention, as modified by the revaluation of financial assets and liabilities
held at fair value through profit or loss.
New standards, amendments and interpretations adopted in the year
In the current year 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 financial statements of the Company are measured in the
currency of the primary economic environment in which the Company operates,
which is Pound Sterling.
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 twelve
months from the date of approval of these 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 potential impact of continuing volatility in power prices and, in
particular, the consequent cash requirements of the Company's hedging
programme;
- revenues and costs incurred by the Company and how these may change in
the future given the variables to which they are exposed; and
- the availability of the Company's RCF.
The Company has in place a RCF which is due to expire in March 2024. The
Investment Adviser has liaised with the existing lending group and post year
end, in December 2023, signed heads of terms with Lloyds, AIB, Mizuho and
Clydesdale for a new reduced facility of £150.0 million in line with the
Board's stated intention to reduce leverage by the end of 2024.
The Directors are therefore satisfied that the Company will be able to
refinance its RCF as it has done in previous years and that the refinance does
not cause significant doubt from a going concern perspective.
Furthermore, the Directors are not aware of any material uncertainties that
may cast doubt upon the Company's ability to continue as a going concern.
Therefore, the financial statements have been prepared on a going concern
basis.
2.2 Significant accounting judgements and estimates
The preparation of 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 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 financial statements
taking into account the structure of the Company and the extent of its
investment activities (refer to note 19 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 for further
information).
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 analysis of
the Company as one segment. The financial results from this segment are
equivalent to the 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.
30 September 30 September
2023 2022
£'000 £'000
Channel Islands 401 9
United Kingdom 51,304 157,476
Total 51,705 157,485
Significant shareholders are disclosed in the Directors' report in the full
annual report on the Company's website
3. Operating income
The table below analyses the Company's operating income for the year by
investment type:
30 September 30 September
2023 2022
£'000 £'000
Interest on cash and cash equivalents 401 9
Loan fee income 9,143(1) 51
Other income 9,544 60
Net changes in fair value of financial instruments at fair value through 42,161 157,425
profit or loss
Total 51,705 157,485
1.Includes prepayment fees of £8,715,000 and restructuring fee income of
£375,000.
The table below analyses the Company's net changes in fair value of financial
assets and financial liabilities at fair value through profit or loss:
30 September 30 September 30 September 30 September
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Loan interest received 58,791 52,079
Loan interest capitalised 21,959 22,400
Total loan interest income 80,750 74,479
Unrealised gains on financial assets at fair value through profit or loss 15,017 89,606
Unrealised losses on financial assets at fair value through profit or loss (66,603) (12,540)
Total net unrealised (losses)/gains on financial assets at fair value through (51,586) 77,066
profit or loss
Net realised gains on disposal of financial assets at fair value through 137 5,494
profit or loss
Total net (losses)/gains on financial assets at fair value through profit or (51,449) 82,560
loss
Total net income/gains on financial assets at fair value through profit or 29,301 157,039
loss
Unrealised gains on derivative financial instruments at fair value through 4,126 16,990
profit or loss
Realised gains/(losses) on settlement of derivative financial instruments at 8,734 (16,604)
fair value through profit or loss
Total net gains on derivative financial instruments at fair value through 12,860 386
profit or loss
Net changes in fair value of financial instruments at fair value through 42,161 157,425
profit or loss
Accounting policy
Interest income and interest expense, other than interest income received on
financial assets at fair value through profit or loss, are recognised on an
accruals basis in the statement of comprehensive income. Interest income on
financial assets is included in net income/gains on financial assets at fair
value through profit or loss in the statement of comprehensive income.
Gains or losses on disposal of financial assets at fair value through profit
or loss represent the difference between the proceeds received on the
repayment of loan notes and the carrying value of loan notes at the time of
sale or disposal. Net gains or losses on disposal of financial assets at fair
value through profit or loss are included in net income/gains on financial
assets at fair value through profit or loss in the statement of comprehensive
income.
Other operating income includes unscheduled (early) prepayment fees which are
recognised in the financial statements when the contractual provisions are met
and the amounts become due.
The Company holds derivative financial instruments comprising a commodity swap
to hedge its exposure to the volatility of the electricity prices in the
market. It is not the Company's policy to trade in derivative financial
instruments. Commodity swaps are held at fair value through profit or loss,
being the difference between the fixed legs with a fixed price and floating
legs that are indexed. The Company does not apply hedge accounting and
consequently all gains or losses in the fair value of the derivative financial
instruments are recognised in the statement of comprehensive income, refer to
note 18.
4. Auditor's remuneration
30 September 30 September
2023 2022
£'000 £'000
Audit fees 169 145
Non-audit fees - review of half‑yearly report and financial statements 47 47
Total 216 192
5. Operating expenses
30 September 30 September
2023 2022
£'000 £'000
Corporate administration and Depositary fees 1,034 1,021
Legal and professional fees 18 1,019
Independent Valuation Agent fees 260 290
Directors' remuneration and expenses(1) 432 421
Advisory fees 114 96
Registrar fees 74 69
Other expenses 820 976
Total 2,752 3,892
1.Refer to note 7 for further information.
Key service providers other than the Investment Adviser (refer to note 20 for
disclosures in respect of the Investment Adviser)
Administrator and Company Secretary
The Company has appointed Apex Financial Services (Alternative Funds) Limited
as Administrator and Company Secretary. Fund accounting, administration
services and company secretarial services are provided to the Company pursuant
to an agreement dated 31 January 2014 and amended and restated on 20 November
2023. All Directors have access to the advice and services of the Company
Secretary, who provides guidance to the Board, through the Chairman, on
governance matters. The fee for the provision of administration and company
secretarial services during the year was £735,000 (30 September 2022:
£727,000), of which £182,000 remains payable at year end (30 September 2022:
£187,000).
Depositary
Depositary services are provided to the Company by Apex Financial Services
(Corporate) Limited pursuant to an agreement dated 21 July 2014. The fee for
the provision of these services during the year was £299,000 (30 September
2022: £294,000) of which £74,000 remains payable at year end
(30 September 2022: £76,000).
Accounting policy
All operating expenses are charged to the statement of comprehensive income
and are accounted for on an accruals basis.
6. Finance costs
30 September 30 September
2023 2022
£'000 £'000
Finance costs 9,378 4,716
Accounting policy
Finance expenses in the statement of comprehensive income comprise loan
arrangement fees, loan commitment fees, loan interest expense and agency fees
which are accounted for on an accruals basis along with interest accrued on
the facility incurred in connection with the borrowing of funds. Arrangement
fees are amortised over the life of the facility.
7. Directors' remuneration
The Directors of the Company are remunerated on the following basis:
30 September 30 September
2023 2022
£'000 £'000
Andrew Didham 92 62
Ian Reeves CBE(1) 5 79
Julia Chapman 58 56
Michael Gray 72 69
Steven Wilderspin 70 67
Dawn Crichard 70 59
Paul De Gruchy(2) - 12
Alex Yew(3) 55 -
422 404
Directors' expenses 10 17
Total 432 421
1.Ian Reeves CBE stepped down as Chairman of the Company effective from 20
June 2022 and retired from the Board on 31 October 2022.
2.Paul De Gruchy retired as a Director of the Company on 17 December 2021.
3.Alex Yew joined as a non-executive Director and became a member of the
Investment committee, the Management Engagement committee and the ESG
committee on 1 November 2022.
Full details of the Directors' remuneration policy can be found in the
Directors' remuneration report on page 116 of the full annual report on the
Company's website.
8. Taxation
Profits arising in the Company for the year ended 30 September 2023 are
subject to tax at the standard rate of 0% (30 September 2022: 0%) in
accordance with the Income Tax (Jersey) Law 1961, as amended.
9. Dividends
Dividends for the year ended 30 September 2023 were 7.0 pence per share (30
September 2022: 7.0 pence per share) as follows:
30 September 30 September
2023 2022
Quarter ended Dividend Pence £'000 £'000
Current year dividends
30 September 2023 2023 fourth interim dividend 1.75 - -
30 June 2023 2023 third interim dividend 1.75 15,365 -
31 March 2023 2023 second interim dividend 1.75 15,452 -
31 December 2022 2023 first interim dividend 1.75 15,484 -
Total 7.0 46,301 -
Prior year dividends
30 September 2022 2022 fourth interim dividend 1.75 15,484 -
30 June 2022 2022 third interim dividend 1.75 - 15,474
31 March 2022 2022 second interim dividend 1.75 - 15,464
31 December 2021 2022 first interim dividend 1.75 - 15,449
Total 7.0 15,484 46,387
30 September 2021 2021 fourth interim dividend 1.9 - 15,439
Dividends in statement of changes in equity 61,785 61,826
Dividends settled in shares(1) - (2,819)
Dividends in cash flow statement 61,785 59,007
On 2 November 2023, the Company declared a fourth interim dividend of 1.75
pence per share amounting to £15.2 million, which was paid on
5 December 2023 to ordinary shareholders on the register at 10 November
2023.
For the forthcoming financial year, the Directors have concluded the Company
will target(2) a dividend of 7.0 pence per share.
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
offer of future scrip dividends under review.
Accounting policy
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, buybacks, 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.
1.The dividends settled in shares are where shareholders have elected to take
the scrip dividend alternative.
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.
10. Earnings per share
Basic and diluted earnings per share are calculated by dividing total profit
and comprehensive income for the year attributable to ordinary equity holders
of the Company by the weighted average number of ordinary shares in issue
during the year.
Weighted average number of ordinary shares
Total profit Pence per share
£'000
Year ended 30 September 2023
Basic and diluted earnings per ordinary share 30,905 881,850,353 3.50
Year ended 30 September 2022
Basic and diluted earnings per ordinary share 140,319 883,394,897 15.88
11. Financial assets at fair value through profit or loss
The table below analyses the movements in financial assets at fair value
through profit or loss during the year by the type of movement:
30 September 30 September
2023 2022
£'000 £'000
Opening balance 1,087,331 1,096,555
Purchases of financial assets at fair value through profit of loss 138,698 127,380
Repayments of financial assets at fair value through profit of loss (128,012) (219,164)
Net realised gains on disposal of financial assets at fair value through 137 5,494
profit or loss(1)
Unrealised gains on financial assets at fair value through profit or loss(2) 15,017 89,606
Unrealised losses on financial assets at fair value through profit or loss (66,603) (12,540)
Closing balance 1,046,568 1,087,331
1.The £137,000 in the current year related to principal indexation.
2.Includes principal indexation of £4.0 million (30 September 2022: £1.9
million) applied to certain loans.
All portfolio assets are held as security against the RCF (refer to note 15).
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:
30 September 30 September
2023 2022
Purchases £'000 £'000
Purchases of financial assets at fair value through profit or loss (138,698) (127,380)
Loan interest capitalised 21,959 22,400
Non-cash internal transfers 50,000(1) 65,063
Purchases of financial assets at fair value through profit or loss in (66,739) (39,917)
statement of cash flows
30 September 30 September
2023 2022
£'000 £'000
Repayments
Repayments of financial assets at fair value through profit or loss 128,012 219,164
Non-cash internal transfers (50,000)(1) (65,063)
Repayments of financial assets at fair value through profit or loss in 78,012 154,101
statement of cash flows
1.The non-cash items relate to the repayment of loans as part of the refinance
of two biomass projects, refer above for further information.
Accounting for subsidiaries
The Company's investments are made through a number of SPVs (refer to note 24)
which are domiciled in the UK. The Company owns 100% of the loan notes issued
by the SPVs with the exception of GCP Rooftop Solar 6 plc (37.2%), GCP Rooftop
Solar Finance plc (30.8%) and FHW Dalmore (Salford Pendleton Housing) plc
(13.6%).
The Directors have made an assessment in regard to whether the Company, as an
investor, controls or has significant influence in the SPVs under the criteria
within IFRS 10 and IAS 28, and whether the SPVs meet the definition of
subsidiary or associate companies in accordance with IFRS 10 and IAS 28.
The Directors are of the opinion that the Company demonstrates all three of
the criteria for all SPVs to be considered subsidiary companies within the
definition of control in IFRS 10, with the exception of GCP Rooftop Solar 6
plc, GCP Rooftop Solar Finance plc and FHW Dalmore (Salford Pendleton Housing)
plc, which are considered to be associates within the definition of IAS 28, as
the Company has significant influence over the relevant activities of the SPVs
through similar arrangements. Associates are measured at fair value through
profit or loss, as permitted by IAS 28.
Assessment as an investment entity
Entities that meet the definition of an investment entity within IFRS 10 are
required to measure their investments in subsidiaries at fair value through
profit or loss rather than consolidate the subsidiary companies. The criteria
which define an investment entity are as follows:
- an entity that obtains funds from one or more investors for the
purpose of providing those investors with investment services;
- an entity that commits to its investors that its business purpose is
to invest funds solely for returns from capital appreciation, investment
income or both; and
- an entity that measures and evaluates the performance of substantially
all of its investments on a fair value basis.
The Directors have concluded that the Company continues to meet the
characteristics of an investment entity, in that it has more than one investor
and its investors are not related parties; it holds a portfolio of
investments, predominantly in the form of loan securities which generate
returns through interest income and capital appreciation; and the Company
reports to its investors via quarterly investor information and to its
management, via internal management reports, on a fair value basis.
Accounting policy
The loan notes held by the Company are shown as financial assets at fair value
through profit or loss in the statement of financial position, which in the
opinion of the Directors represents the fair value of the SPVs, as any other
net assets held in the SPVs at year end are immaterial.
Principal indexation is applied to certain loan notes where applicable. The
indexation is a contractually allowable inflationary adjustment to loan
principal calculated where permitted by a predefined mechanism in a loan
agreement. The effect of the adjustment is to increase or decrease the fair
value of certain loan notes in line with the indexation factor which takes
account of the rate of inflation against a stipulated inflation threshold of
each relevant loan.
The Company recognises a financial asset or a financial liability when, and
only when, it becomes a party to the contractual provisions of the instrument.
Purchases or sales of financial assets that require delivery of assets within
the time frame generally established by regulation or convention in the
marketplace are recognised on the trade date, i.e. the date that the Company
commits to purchase or sell the asset. A financial asset (or, where
applicable, a part of a financial asset or part of a group of similar
financial assets) is derecognised where:
- the rights to receive cash flows from the asset have expired;
- the Company has transferred its rights to receive cash flows from the
asset or has assumed an obligation to pay the received cash flows in full
without material delay to a third party under a pass-through arrangement; and
- either (a) the Company has transferred substantially all the risks and
rewards of the asset, or (b) the Company has neither transferred nor retained
substantially all the risks and rewards of the asset but has transferred
control of the asset.
When the Company transfers a portion of its rights to receive cash flows from
an asset or has entered into a pass-through arrangement and has neither
transferred nor retained substantially all the risks and rewards of the asset
nor transferred control of the asset, the asset is recognised to the extent of
the Company's continuing involvement in the asset. The Company derecognises a
financial liability when the obligation under the liability is discharged,
cancelled or expired.
Financial assets and financial liabilities at fair value through profit or
loss are recorded in the statement of financial position at fair value. All
transaction costs for such instruments are recognised directly in the
statement of comprehensive income.
After initial measurement, the Company measures financial instruments which
are classified as fair value through profit or loss at fair value. Subsequent
changes in the fair value of those financial instruments are recorded in
profit or loss in the statement of comprehensive income.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. For all other financial instruments not traded in an
active market, the fair value is determined by using appropriate valuation
techniques. Valuation techniques used by the independent Valuation Agent
include using recent arm's length market transactions, referenced to
appropriate current market data, and discounted cash flow analysis, at all
times making as much use of available and supportable market data as possible.
An analysis of fair values of financial instruments and further details as to
how they are measured are provided in note 19.
12. Other receivables and prepayments
30 September 30 September
2023 2022
£'000 £'000
Other receivables and prepayments 575 185
Accounting policy
Receivables are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest method, less any provision for
impairment. The Company recognises a loss allowance for expected credit losses
on other receivables where necessary.
13. Other payables and accrued expenses
30 September 30 September
2023 2022
£'000 £'000
Investment advisory fees 2,132 2,234
Other payables and accrued expenses 1,916 1,336
Total 4,048 3,570
Accounting policy
Payables are recognised initially at fair value including transaction costs
and subsequently measured at amortised cost using the effective interest
method.
14. Cash and cash equivalents
Cash held by financial institutions at the year end is shown in the table
below:
30 September 30 September
2023 2022
£'000 £'000
Barclays account 8,482 8
BNYM account - 511
Lloyds Money Market Call account - 11,977
RBSI Capital and Interest account(1) 4,435 -
RBSI Cash Management account 3,950 3,485
Total 16,867 15,981
1.The £4,435,000 in the current year relates to capital and interest received
on 29 September 2023 which was transferred to the Barclays account on 2
October 2023.
Cash is held at a number of financial institutions in order to spread credit
risk. Cash awaiting investment is 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. It is
also recognised that with the advent of the ring-fenced bank concept, it has
become more difficult to interact with sufficiently well-rated counterparty
banks.
Accounting policy
Cash and cash equivalents in the statement of financial position and statement
of cash flows comprise cash on hand, demand deposits, short-term deposits in
financial institutions with original maturities of three months or less and
short-term, highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in
value.
15. Interest bearing loans and borrowings
30 September 30 September
2023 2022
£'000 £'000
Revolving credit facility 104,000 99,000
Unamortised arrangement fees (326) (991)
Total 103,674 98,009
The table below analyses the movement for the year:
30 September 30 September
2023 2022
£'000 £'000
Balance at the start of the year 98,009 163,412
Changes from cash flows
Proceeds from revolving credit facility 55,000 11,000
Repayment of revolving credit facility (50,000) (77,000)
Loan arrangement fees - (54)
Non-cash changes
Amortisation of loan arrangement fees 665 651
Balance at the end of the year 103,674 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, Lloyds, AIB, Mizuho and Clydesdale. The RCF has
£190.0 million total commitments and will expire on 29 March 2024. The
Investment Adviser has liaised with the existing lending group and post year
end, in December 2023, signed heads of terms with Lloyds, AIB, Mizuho and
Clydesdale for a new reduced facility of £150.0 million in line with the
Board's stated intention to reduce leverage by the end of 2024.
The current facility is secured against the portfolio assets held by the
Company of £1.0 billion and cash and cash equivalents of £16.9 million. 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 30 September
2023, the total amount drawn on the RCF was £104.0 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 30 September 2023.
Leverage
For the purposes of the UK AIFM Regime, leverage is any method which increases
the Company's exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a ratio between the Company's exposure and its
NAV and is calculated under the gross and commitment methods, in accordance
with the UK AIFM Regime.
The Company is required to state its maximum and actual leverage levels,
calculated as prescribed by the UK AIFM Regime, at 30 September 2023; the
figures are as follows:
30 September 30 September
2023 2022
Maximum Actual Actual
Leverage exposure limit exposure exposure
Gross method 1.20 1.10 1.10
Commitment method 1.20 1.11 1.12
The leverage figures disclosed above represent leverage calculated under the
UK AIFM Regime methodology as follows:
30 September 30 September 30 September 30 September
2023 2023 2022 2022
Gross Commitment Gross Commitment
£'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss 1,046,568 1,046,568 1,087,331 1,087,331
Cash and cash equivalents - 16,867 - 15,981
Derivative financial instruments at fair value through profit or loss(2) 2,324 2,324 15,235 15,235
Total exposure under the UK AIFM Regime 1,048,892 1,065,759 1,102,566 1,118,547
Total shareholders' funds (net assets) 956,553 956,553 998,057 998,057
Leverage (ratio) 1.10 1.11 1.10 1.12
The Company's leverage limit under the UK AIFM Regime is 1.20, which equates
to a gearing limit of 20%. The Company has maintained sufficient headroom
against the limit throughout the year.
Accounting policy
Borrowings are recognised initially at fair value, less attributable costs.
Borrowings are subsequently stated at amortised cost. Any difference between
the proceeds (net of transaction costs) and the redemption value is recognised
in the statement of comprehensive income over the period of the borrowings
using the effective interest method. Transaction costs are spread over the
term of the RCF.
1.APM - for definition and calculation methodology, refer to the APMs section
below.
2.Refer to note 18 for further information on derivative financial instruments
at fair value through profit or loss.
16. Authorised and issued share capital
30 September 2023 30 September 2022
Number Number
Share capital of shares £'000 of 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 (13,565,019) (136) - -
Total shares repurchased and held in treasury (13,565,019) (136) - -
Total ordinary share capital excluding treasury shares 871,232,650 8,712 884,797,669 8,848
Share capital represents the nominal amount of the Company's ordinary shares
in issue. The Company is authorised in accordance with its Memorandum of
Association to issue 1.5 billion ordinary shares, 300 million C shares and 300
million deferred shares, each having a par value of one pence per share.
The Company's 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.
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.
30 September 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 charged to premium - (54)
Share repurchases(2) (10,467) -
Share repurchase costs(2) (21) -
Total 861,118 871,606
1.The dividends settled in shares are where shareholders have elected to take
the scrip dividend alternative.
2.At 30 September 2023, £10,089,000 of consideration (£9,961,000 of share
premium and £128,000 of share capital) in respect of share repurchases had
been paid, with £513,000 (£505,000 of share premium and £8,000 of share
capital) outstanding. At the same date, £20,000 of ordinary share repurchase
costs had been paid, with £1,000 outstanding.
Share premium represents amounts subscribed for share capital in excess of the
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.
Accounting policy
The Directors of the Company continually assess the classification of the
ordinary shares. If the ordinary shares cease to have all the features or meet
all the conditions set out to be classified as equity, they will be
reclassified as financial liabilities and measured at fair value at the date
of reclassification, with any differences from the previous carrying amount
recognised in equity. Transaction costs incurred by the Company in issuing,
acquiring or reselling its own equity instruments are accounted for as a
deduction from equity to the extent that they are incremental costs directly
attributable to the equity transaction that otherwise would have been avoided.
No gain or loss is recognised in the statement of comprehensive income on the
purchase, sale, issuance or cancellation of the Company's own equity
instruments.
17. Capital redemption reserve
30 September 30 September
2023 2022
£'000 £'000
Capital redemption reserve 101 101
The Company is required by Jersey Company Law to establish and maintain this
reserve on the redemption of its own shares.
18. Derivative financial instruments at fair value through profit or loss
On 13 July 2022, the Company entered into a new 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. The 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 expired on 30 September
2023. On 28 September 2023, the Company entered into a new commodity swap
agreement with Axpo Solutions AG under the same terms, which is due to expire
on 31 March 2024.
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 year
end provided by Axpo Solutions AG:
Total notional Notional quantity per
Derivative Maturity quantity hour
Commodity swap - electricity/baseload 'winter 2023/24' 31 March 2024 21,960 MWh 5 MW
Commodity swap - electricity/baseload 'summer 2023' 30 September 2023 4,320 MWh 6 MW
Commodity swap - electricity/baseload 'winter 2022/23' 31 March 2023 26,208 MWh 6 MW
30 September 30 September
2023 2022
£'000 £'000
Fixed
Fixed price:
Winter 2022/23 (maturity 31 March 2023) £434.0/MWh - 11,374
Summer 2023 (maturity 30 September 2023) £140.50/MWh 607 -
Winter 2023/24 (maturity 31 March 2024) £106.5/MWh 2,339 -
Floating
Commodity Reference Price Index: summer 2023 Electricity N2EX UK Power Index Day Ahead (357) (15,235)
Commodity Reference Price Index: winter 2023/24 Electricity N2EX UK Power Index Day Ahead (2,324) -
Fair value 265 (3,861)
Accounting policy
Recognition of derivative financial assets and liabilities takes place when
the derivative contracts are entered into. They are initially recognised and
subsequently measured at fair value; transactions costs, where applicable, are
included directly in finance costs. The Company does not apply hedge
accounting and consequently all gains or losses are recognised in the
statement of comprehensive income in net gains/(losses) on derivative
financial instruments at fair value through profit or loss.
19. Financial instruments
The table below sets out the classifications of the carrying amounts of the
Company's financial assets and financial liabilities into categories of
financial instruments under IFRS 9. The carrying amount of the financial
assets and financial liabilities at amortised cost approximates their fair
value.
30 September 30 September
2023 2022
Notes £'000 £'000
Financial assets
Cash and cash equivalents 14 16,867 15,981
Other receivables and prepayments 12 575 185
Financial assets at amortised cost 17,442 16,166
Financial assets at fair value through profit or loss 11 1,046,568 1,087,331
Derivative financial instruments at fair value through profit or loss 18 265 -
Total 1,064,275 1,103,497
Financial liabilities
Other payables and accrued expenses 13 (4,048) (3,570)
Interest bearing loans and borrowings 15 (103,674) (98,009)
Financial liabilities measured at amortised cost (107,722) (101,579)
Derivative financial instruments at fair value through profit or loss 18 - (3,861)
Total (107,722) (105,440)
19.1 Capital management
The Company is funded from equity balances, comprising issued ordinary share
capital (as detailed in note 16) and retained earnings, as well as the RCF, as
detailed in note 15.
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 the time any such borrowings
are drawn down. At the year end, the Company remains modestly geared with loan
to value(1) of 11% (30 September 2022: 10%).
1.APM - for definition and calculation methodology, refer to the APMs section
below.
19.2 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 risks that are associated
with the financial instruments and 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) and interest rate risk, credit risk and liquidity risk. Further, the
Company is exposed to a number of shareholder interests, c.9% 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
There has been significant political and economic uncertainty this year post
year end, driving high inflation and a cost-of-living crisis. The Company's
infrastructure investments are generally low‑volatility investments with
stable, pre-determined, very long‑term, public sector backed revenues; 41%
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.
The Israel-Hamas war post year end has created further uncertainty and
therefore additional volatility in short-term power prices.
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
For the second consecutive year, 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 analysis considered both physical and transition risks for each
asset. The data collated was based upon publicly available data on flood risk
and EPC ratings, supplemented by inputs from the Investment Adviser's
portfolio management team and its investment management team. Further
information is given above. Based on the climate risk analysis undertaken, the
Investment Adviser does not currently propose to make any material changes to
financial forecasts due to climate risk.
19.3 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
independent 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 the year end, all investments were
classified as Level 3; refer to note 19.7 for additional information.
The independent Valuation Agent determines the discount rates 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 independent 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 independent 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 as confirmed by the Investment
Adviser. Where appropriate, the independent 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 above.
The table below shows how changes in discount rates affect the changes in the
valuation of financial assets at fair value through profit or loss. The range
of discount rates used reflects the Investment Adviser's view of a reasonable
expectation of valuation movements across the portfolio in a twelve
month period.
30 September 2023
Change in discount rates 0.50% 0.25% - (0.25%) (0.50%)
Value of financial assets at fair value (£'000) 1,016,759 1,031,449 1,046,568 1,062,134 1,078,166
Change in valuation of financial assets at fair value through profit or loss (29,809) (15,119) - 15,566 31,598
(£'000)
At 30 September 2023, the discount rates used in the valuation of financial
assets ranged from 6.58% to 13.00%, with a rate of 20.00% being applied to one
financial asset due to changes in the perceived risk associated with one
project, representing 0.58% of the portfolio.
30 September 2022
Change in discount rates 0.50% 0.25% - (0.25%) (0.50%)
Value 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%.
19.4 Interest rate risk
Interest rate risk has the following effect:
Fair value of financial assets
Interest rates are one of the factors which the independent Valuation Agent
takes into account when valuing the financial assets. Interest rate risk is
incorporated by the independent 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 19.3.
Future cash flows
The Company primarily invests, through its SPVs, 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 to provide 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 30
September 2023, the Company had not entered into any interest rate swap
contracts (30 September 2022: none).
Exposure
The Company had exposure to Sterling LIBOR on certain investments in the
portfolio. During the prior year, the Company transitioned all relevant debt
instruments in the portfolio impacted by the discontinuation of LIBOR from 1
January 2022 to the replacement reference rate SONIA.
Borrowings
During the year, the Company made use of its RCF to finance investments made
by the Company. Details of the RCF are given in note 15.
The drawn amount under the RCF at 30 September 2023 was £104.0 million (30
September 2022: £99.0 million).
The following tables show an estimate of the sensitivity of the drawn amounts
under the RCF to interest rate changes of 100, 200 and 300 basis points in a
twelve month period, with all other variables being held constant.
30 September 2023 Change in interest rates
3.0% 2.0% 1.0% - (1.0%) (2.0%) (3.0%)
Value of interest expense (£'000) 10,594 9,554 8,514 7,474 6,434 5,394 4,354
Changes in interest expense (£'000) 3,120 2,080 1,040 - (1,040) (2,080) (3,120)
30 September 2022 Change in interest rates
3.0% 2.0% 1.0% - (1.0%) (2.0%) (3.0%)
Value of interest expense (£'000) 7,118 6,128 5,138 4,148 3,158 2,168 1,178
Changes in interest expense (£'000) 2,970 1,980 990 - (990) (1,980) (2,970)
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.
19.5 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 its assets.
Per the statement of financial position, the Company's total exposure to
credit risk is £1,064 million (30 September 2022: £1,103 million) being the
balance of total assets less 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 which carry 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 the value of one quarter of the Company's
running costs. Any excess uninvested/surplus cash is held at other financial
institutions with the 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. It is also
recognised that with the advent of ring-fenced banking, it has become more
difficult to interact with sufficiently well-rated counterparty 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
primarily uses detailed cash flow forecasts to assess the continued
creditworthiness of Project Companies and their ability to pay all 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 proportion 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 year 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 for renewables
transactions (i.e. FiT and ROCs payments), unitary charge payments for PFI
transactions and lease payments for social housing projects. In the view of
the Investment Adviser and the Board, the public sector generally has both the
ability and willingness to support the obligations to these entities.
As noted in the Company's 2022 annual report, 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 in the portfolio are held by the Company at
fair value, and the credit risk associated with these investments is one of
the factors which the independent Valuation Agent takes into account when
valuing the financial assets.
Changes in credit risk affect the discount rates. The sensitivity of the fair
value of the financial assets at fair value through profit or loss is
disclosed in note 19.3. The Directors have assessed the credit quality of the
portfolio at the year 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 30 September 2023 and was
fully settled in October 2023 in line with the contractual terms. On 28
September 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 relating to the commodity swap agreement is £265,000
as the arrangement is an asset. 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 note 18.
19.6 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 following table analyses all of the Company's assets and liabilities into
relevant maturity groupings based on the remaining period from
30 September 2023 to the contractual maturity date. The Directors have
elected to present both assets and liabilities in the liquidity disclosure
below to illustrate the net liquidity exposure of the Company.
All cash flows in the table below are on an undiscounted basis.
Less than one month One to three months Three to twelve months Greater than twelve months
Total
30 September 2023 £'000 £'000 £'000 £'000 £'000
Non-derivative financial assets
Cash and cash equivalents 16,867 - - - 16,867
Other receivables and prepayments - - 575 - 575
Financial assets at fair value through profit or loss - 3,498 107,523 1,785,689 1,896,710
Derivative financial assets at fair value through profit or loss
Inflows 607 - 2,339 - 2,946
Outflows (357) - (2,324) - (2,681)
Total financial assets 17,117 3,498 108,113 1,785,689 1,914,417
Financial liabilities
Other payables and accrued expenses - (4,048) - - (4,048)
Interest bearing loans and borrowings - (2,040) (105,951) - (107,991)
Total financial liabilities - (6,088) (105,951) - (112,039)
Net exposure 17,117 (2,590) 2,162 1,785,689 1,802,378
Less than one month One to three months Three to twelve months Greater than twelve months
Total
30 September 2022 £'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
Non-derivative financial liabilities at fair value through profit or loss
Other payables and accrued expenses - (3,570) - - (3,570)
Interest bearing loans and borrowings - (1,045) (3,099) (101,032) (105,176)
Derivative financial liabilities
Inflows - - 11,374 - 11,374
Outflows - - (15,235) - (15,235)
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
19.7 Fair values of financial assets and financial liabilities
Basis of determining fair value
Financial assets
Loan notes
The independent 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 on a quarterly basis. The basis for the
independent Valuation Agent's valuations is described in note 19.3.
Financial liabilities
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 ("MtM") valuation provided by Axpo Solutions
AG on a quarterly basis. The MtM 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 note 18.
Fair value measurements
Investments measured and reported at fair value 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 year during which the change has occurred.
The table below analyses all investments held by the Company by the level in
the fair value hierarchy into which the fair value measurement is categorised:
30 September 30 September
Fair value 2023 2022
hierarchy £'000 £'000
Financial assets at fair value through profit or loss
Loan notes Level 3 1,046,568 1,087,331
Derivative financial instruments at fair value through profit or loss Level 2 265 -
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 6.58% and 13.00%, with a rate of 20.00% being applied
to one financial asset due to changes in the perceived risk associated with
one project, representing 0.58% of the portfolio (30 September 2022: 6.08% and
10.38%) were applied to the investments categorised as Level 3.
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 year.
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 year:
30 September 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(1) 138,698 127,380
Repayments of financial assets at fair value through profit or loss(1) (128,012) (219,164)
Net realised gains on disposal of financial assets at fair value through 137 5,494
profit or loss
Unrealised gains on financial assets at fair value through profit or loss 15,017 89,606
Unrealised losses on financial assets at fair value through profit or loss (66,603) (12,540)
Closing balance 1,046,568 1,087,331
1.Refer to note 11 for a reconciliation to the 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 rate used to value the Level 3 investments would have
the effect on the valuation as shown in the table in note 19.3. Refer to note
11 for movements in financial assets at fair value through profit or loss
throughout the year.
In determining the discount rates for calculating the fair value of financial
assets at fair value through profit or loss, movements in 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.
20. 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 of the Company are considered to be the key
management personnel of the Company. Directors' remuneration including
expenses for the year totalled £432,000 (30 September 2022: £421,000). At 30
September 2023, liabilities in respect of these services amounted to £106,000
(30 September 2022: £42,000).
At 30 September 2023, the Directors, together with their family members, held
the following shares in the Company:
30 September 2023 30 September 2022
Shares % of total Shares % of total
Director held voting rights held voting rights
Andrew Didham 93,024 0.011 73,165 0.008
Dawn Crichard 75,261 0.009 75,261 0.009
Julia Chapman 60,446 0.007 - -
Alex Yew 20,000 0.002 10,000(1) 0.001
Steven Wilderspin 15,000 0.002 15,000 0.002
1.Mr Yew's indirect holding prior to joining the Board on 1 November 2022.
Andrew Didham is an executive vice chairman at Rothschild & Co, 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 relations 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 26 January 2023,
pursuant to which the Company has appointed the Investment Adviser to provide
advisory services relating to the management of 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. The fee paid to the
Investment Adviser for the year was £83,000 (30 September 2022: £74,000).
During the year, the Company expensed £8,670,000 (30 September 2022:
£8,558,000) in respect of investment advisory fees, marketing fees and
transaction management and documentation services, and £17,000 (30 September
2022: £16,000) in respect of expenses. At 30 September 2023, liabilities in
respect of these services amounted to £2,132,000 (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.
While not related parties under IAS 24 Related Party Disclosures, for
transparency, the Investment Adviser has disclosed the shareholdings of key
management personnel. At 30 September 2023, the key management personnel of
the Investment Adviser, together with their family members, directly or
indirectly held 1,017,800 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).
21. Contingent liabilities
At 30 September 2023, there were £nil contingent liabilities (30 September
2022: £nil).
22. Subsequent events after the report date
The Company declared, on 2 November 2023, a fourth interim dividend of 1.75
pence per ordinary share, amounting to £15.2 million, which was paid on
5 December 2023 to ordinary shareholders who were recorded on the register at
the close of business on 10 November 2023.
Since the year end, one advancement of £0.1 million was made under an
existing facility. The Company also received repayments totalling £5.6
million in respect of 14 investments.
Post year end, Andrew Didham, Alex Yew and Dawn Crichard, together with their
family members, purchased a further 39,872, 20,000 and 5,202 shares in the
Company, respectively.
Post year end, in December 2023, the Company signed heads of terms for a new
debt facility of £150.0 million with Lloyds, AIB, Mizuho and Clydesdale.
Post year end, the Company repurchased a further 3.4 million ordinary shares,
which are held in treasury.
23. Ultimate controlling party
It is the view of the Directors that there is no ultimate controlling party.
24. Non-consolidated SPVs
The following SPVs have not been 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, it has measured its
financial interests in these SPVs at fair value through profit or loss.
Refer to note 11 for the details of contractual arrangements between the
Company and the SPVs and to the risk disclosures in note 19 for details of
events or conditions that could expose the Company to losses.
During the year and prior year, the Company did not provide financial support
to the unconsolidated SPVs.
All of the below non-consolidated SPVs are incorporated and domiciled in the
United Kingdom.
30 September 2023 30 September 2022
SPV company name Ownership interest in loan notes Classification(1) Ownership interest in loan notes Classification(1)
GCP Cardale PFI Limited 100% Subsidiary 100% Subsidiary
FHW Dalmore (Salford Pendleton Housing) plc 13.6% Associate 13.6% Associate
GCP Asset Finance 1 Limited 100% Subsidiary 100% Subsidiary
GCP Biomass 1 Limited 100% Subsidiary 100% Subsidiary
GCP Biomass 2 Limited 100% Subsidiary 100% Subsidiary
GCP Biomass 3 Limited 100% Subsidiary 100% Subsidiary
GCP Biomass 4 Limited 100% Subsidiary 100% Subsidiary
GCP Bridge Holdings Ltd 100% Subsidiary 100% Subsidiary
GCP Education 1 Limited 100% Subsidiary 100% Subsidiary
GCP Green Energy 1 Limited 100% Subsidiary 100% Subsidiary
GCP Healthcare 1 Limited 100% Subsidiary 100% Subsidiary
GCP Onshore Wind 3 Limited 100% Subsidiary 100% Subsidiary
GCP Programme Funding 1 Limited 100% Subsidiary 100% Subsidiary
GCP RHI Boiler 1 Limited 100% Subsidiary 100% Subsidiary
GCP Rooftop Solar 5 Limited 100% Subsidiary 100% Subsidiary
GCP Rooftop Solar 6 plc 37.2% Associate 38.8% Associate
GCP Rooftop Solar Finance plc 30.8% Associate 31.5% Associate
GCP Social Housing 1 Limited 100% Subsidiary 100% Subsidiary
Gravis Asset Holdings Limited 100% Subsidiary 100% Subsidiary
Gravis Solar 1 Limited 100% Subsidiary 100% Subsidiary
Gravis Solar 2 Limited 100% Subsidiary 100% Subsidiary
GCP Geothermal Funding 1 Limited 100% Subsidiary 100% Subsidiary
1.Refer to note 11 for further details.
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 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 statement of comprehensive income,
statement of financial position, statement of changes in equity and statement
of cash flows, which are presented in the financial statements section of this
report. The APMs 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.
30 Sep 30 Sep
2023 2022
Pence Pence
Adjusted earnings per share(1) 8.58 8.30
Dividend per share 7.0 7.0
Times covered 1.23 1.19
Adjusted earnings per share
The Company's adjusted net earnings(1) divided by the weighted average number
of shares.
30 Sep 30 Sep
2023 2022
£'000 £'000
Adjusted net earnings(1) 75,655 73,254
Weighted average number of shares 881,850,353 883,394,897
Adjusted earnings per share (pence) 8.58 8.33
Adjusted loan interest capitalised
In respect of a period, a measure of loan interest capitalised adjusted for
amounts subsequently paid as part of repayments.
30 Sep 30 Sep
2023 2022
£'000 £'000
Capitalised (planned) 18,253 15,421
Capitalised (unscheduled) 3,706 6,979
Loan interest capitalised 21,959 22,400
Capitalised amounts subsequently settled as part of repayments (10,822) (13,408)
Adjusted loan interest capitalised 11,137 8,992
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.
30 Sep 30 Sep
2023 2022
£'000 £'000
Loan interest received 58,791 52,079
Capitalised amounts settled as part of final repayment or disposal proceeds - 9,727
Capitalised amounts subsequently settled as part of repayments 10,822 13,408
Adjusted loan interest received 69,613 75,214
Adjusted net earnings
In respect of a period, a measure of loan interest accrued(1) by the portfolio
less total expenses and finance costs. This metric is used in the calculation
of adjusted earnings cover(1).
30 Sep 30 Sep
2023 2022
£'000 £'000
Total profit and comprehensive income/loss 30,905 140,319
Less: income/gains on financial assets at fair value through profit or loss (29,301) (157,039)
Less: gains on derivative financial instruments at fair value through profit (12,860) (386)
or loss
Add: loan interest accrued(1) 86,911 90,360
Adjusted net earnings 75,655 73,254
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.
30 Sep 30 Sep
2023 2022
£'000 £'000
Total aggregate downward revaluations since IPO (88,996) (37,254)
Total invested capital since IPO 1,920,237 1,713,053
Percentage (annualised) (0.36) (0.18)
Average NAV
The average of the twelve net asset valuations calculated monthly over the
financial year.
Cash earnings cover
Ratio of total net cash received per share to the dividend per share.
30 Sep 30 Sep
2023 2022
Pence Pence
Total net cash received per share(1) 5.65 6.72
Dividend per share(1) 7.00 7.00
Times covered 0.81 0.96
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 year by the share price at the year end.
Earnings cover
Ratio of the Company's earnings per share to the dividend per share.
30 Sep 30 Sep
2023 2022
Pence Pence
Earnings per share 3.50 15.88
Dividend per share 7.00 7.00
Times covered 0.50 2.27
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(1) differs from net income/gains on financial assets at
fair value through profit or loss, as recognised under IFRS 9, as loan
interest accrued(1) is not impacted by movements of:
· 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(1).
Loan to value
A measure of the indebtedness of the Company at the year 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: Bloomberg
Ongoing charges
Ongoing charges 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.
30 Sep 30 Sep
2023 2022
£'000 £'000
Ongoing charges
Investment Adviser 8,670 8,558
Directors' fees 432 421
Administration expenses 2,320 3,471
Total expenses 11,422 12,450
Non-recurring expenses (127) (1,283)
Total 11,295 11,167
Average NAV(1) 988,537 974,319
Ongoing charges ratio 1.1% 1.1%
Premium
The price at which the shares of the Company trade above the NAV per share.
Total expenses paid
In respect of the year, the cash outflows from the Company in order to settle
operating costs. This metric is used in the calculation of total net cash
received.
30 Sep 30 Sep
2023 2022
£'000 £'000
Total expenses per statement of comprehensive income 11,422 12,450
Adjustment for expense accruals (406) (357)
Total expenses paid 11,016 12,093
Total net cash received
In respect of a period, the cash inflows from investments, comprising adjusted
loan interest received(1) less total expenses paid and finance costs paid.
This metric is used in the calculation of cash earnings cover(1).
30 Sep 30 Sep
2023 2022
£'000 £'000
Adjusted loan interest received(1) 69,613 75,214
Total expenses paid(1) (11,016) (12,093)
Finance costs paid (8,716) (3,985)
Total net cash received 49,881 59,136
Total net cash received per share
The Company's total net cash received(1) divided by the weighted average
number of shares.
30 Sep 30 Sep
2023 2022
£'000 £'000
Total net cash received(1) 49,881 59,136
Weighted average number of shares 881,850,353 883,394,897
Total net cash received per share (pence) 5.65 6.72
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 the 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. 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 for further information.
Glossary of key terms
Adjusted earnings cover
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
AIB
AIB Group (UK)
AIC
Association of Investment Companies
AIC Code
AIC Code of Corporate Governance
AIF
Alternative Investment Fund
AIFM
Alternative Investment Fund Manager
APMs
Alternative performance measures
Average life
The weighted average term of the loans in the investment portfolio
BNYM
Bank of New York Mellon
Borrower
Owners of the Project Companies to which the Company advances loans
BPA-free
Bisphenol A free
Capture price
The actual electricity price achieved by a generator in the market
Cash earnings cover
Refer to APMs section above
CBFs
Community Benefit Funds
CfD
Contract-for-difference
CIF Law
Collective Investment Funds (Jersey) Law 1988
Clydesdale
Clydesdale Bank plc
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 cover
Earnings (under IFRS, adjusted or cash) for the year compared to the dividend
for the year
Dividend yield
Refer to APMs section above
Earnings cover
Refer to APMs section above
EEA
European Economic Area
EPC
Energy Performance Certificate
ESG
Environmental, social and governance
EU
European Union
FCA
Financial Conduct Authority
FiT
Feed-in tariff
FRC
Financial Reporting Council
FTE
Full-time equivalent
FY22
Full year 2022
FY23
Full year 2023
GB market
UK electricity market
GCP Asset Backed
GCP Asset Backed Income Fund Limited
GHG Protocol
Greenhouse gas protocol
GRESB
Global Real Estate Sustainability Benchmark
GWh
Gigawatt hours
IFRS
International Financial Reporting Standards
Interest cover
Refer to APMs section above
IPO
Initial public offering
IRR
Internal rate of return
ISDA
International Swaps and Derivatives Association
ISO
International Organisation for Standardisation
ISSB
International Sustainability Standards
Jersey Company Law
The Companies (Jersey) Law 1991 (as amended)
JFSC
Jersey Financial Services Commission
KPIs
Key performance indicators
KPMG
KPMG Channel Islands Limited
LIBOR
London Interbank offered rate
Lloyds
Lloyds Group plc
Loan interest accrued
Refer to APMs section above
Loan to value
Refer to APMs section above
LSE
London Stock Exchange
MEES
Minimum Energy Efficiency Standards
Mizuho
Mizuho Bank
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
PPS
Pence per share
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, Lloyds, Clydesdale and Mizuho
REGOs
Renewable Energy Guarantees of Origin
RHI
Renewable heat incentive
RNS
Regulatory News Service
ROCs
Renewable obligation certificates
Rothschild & Co
NM Rothschild and Sons Ltd
RPs
Registered Providers
RSH
Regulator of Social Housing
SASB
Sustainability Accounting Standards Board
Scheme
Proposed combination of the Company with GCP Asset Backed
SEM
Irish Single Electricity Market
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
SFDR
The Sustainable Finance Disclosure Regulation
SONIA
Sterling Overnight Interbank Average rate
SPV
Special purpose vehicle through which the Company invests
Strike price
A pre-agreed electricity price level agreed by a generator as part of a CfD,
reflecting the return needed to make that technology financially viable
TCFD
Task Force on Climate-related Financial Disclosures
The Company
GCP Infrastructure Investments Limited
TNFD
Taskforce on Nature-related Financial Disclosures
Total expenses paid
Refer to APMs section above
Total net cash received
Refer to APMs section above
Total shareholder return
Refer to APMs section above
UK Code
UK Corporate Governance Code published in 2018
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
UK ETS
UK Emissions Trading Scheme
UN SDGs
United Nations Sustainable Development Goals
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
UN SDGs and targets
SDG 3
Good health and well-being
UN SDG target 3.8
Achieve universal health coverage, including financial risk protection, access
to quality essential healthcare services and access to safe, effective,
quality and affordable essential medicines and vaccines for all.
SDG 4
Quality education
UN SDG target 4.1
By 2030, ensure that all girls and boys complete free, equitable and quality
primary and secondary education leading to relevant and effective learning
outcomes.
SDG 5
Gender equality
UN SDG target 5.5
Ensure women's full and effective participation and equal opportunities for
leadership at all levels of decision-making in political, economic and public
life.
SDG 7
Affordable and clean energy
UN SDG target 7.2
By 2030, increase substantially the share of renewable energy in the global
energy mix.
SDG 8
Decent work and economic growth
UN SDG target 8.3
Promote development-oriented policies that support productive activities,
decent job creation, entrepreneurship, creativity and innovation, and
encourage the formalisation and growth of micro, small and medium-sized
enterprises, including through access to financial services.
SDG 9
Industry, innovation and infrastructure
UN SDG target 9.3
Increase the access of small-scale industrial and other enterprises, in
particular in developing countries, to financial services, including
affordable credit, and their integration into value chains and markets.
UN SDG target 9.4
By 2030, upgrade infrastructure and retrofit industries to make them
sustainable, with increased resource‑use efficiency and greater adoption of
clean and environmentally sound technologies and industrial processes, with
all countries taking action in accordance with their respective capabilities.
SDG 11
Sustainable cities and communities
UN SDG target 11.1
By 2030, ensure access for all to adequate, safe and affordable housing and
basic services and upgrade slums.
SDG 15
Life on land
UN SDG target 15.5
Take urgent and significant action to reduce the degradation of natural
habitats, halt the loss of biodiversity and, by 2020, protect and prevent the
extinction of threatened species.
SDG 17
Partnerships for the goals
UN SDG target 17.17
Encourage and promote effective public, public‑private and civil society
partnerships, building on the experience and resourcing strategies of
partnerships.
Shareholder information
Key dates for 2024
February
Annual General Meeting
March
Company's half-year end
Payment of first interim dividend
May
Half-yearly results announced
June
Payment of second interim dividend
September
Company's year end
Payment of third interim dividend
November
Payment of fourth interim dividend
December
Annual results announced
Frequency of NAV publication
The Company's NAV is released to the LSE via RNS on a quarterly basis and is
published on the Company's website.
Sources of further information
Copies of the Company's annual and half‑yearly reports, stock exchange
announcements, investor reports and further information on the Company can be
obtained from the Company's website.
Warning to users of this report
This report is intended solely for the information of the person to whom it is
provided by the Company, the Investment Adviser or the Administrator. This
report is not intended as an offer or solicitation for the purchase of shares
in the Company and should not be relied on by any person for the purpose of
accounting, legal or tax advice or for making an investment decision. The
payment of dividends and the repayment of capital are not guaranteed by the
Company. Any forecast, projection or target is indicative only and not
guaranteed in any way, and any opinions expressed in this report are not
statements of fact and are subject to change, and neither the Company nor the
Investment Adviser is under any obligation to update such opinions.
Past performance is not a reliable indicator of future performance, and
investors may not get back the original amount invested. Unless otherwise
stated, the sources for all information contained in this report are the
Investment Adviser and the Administrator. Information contained in this report
is believed to be accurate at the date of publication, but none of the
Company, the Investment Adviser and the Administrator gives any representation
or warranty as to the report's accuracy or completeness. This report does not
contain and is not to be taken as containing any financial product advice or
financial product recommendation. None of the Company, the Investment Adviser
and the Administrator accepts any liability whatsoever for any loss (whether
direct or indirect) arising from any use of this report or its contents.
Corporate information
The Company
GCP Infrastructure Investments Limited
IFC 5
St Helier
Jersey JE1 1ST
Contact: jerseyinfracosec@apexgroup.com
Corporate website: www.gcpinfra.com (http://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, Company 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
Adviser on English law
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Adviser on Jersey law
Carey Olsen
47 Esplanade
St Helier
Jersey JE1 0BD
Depositary
Apex Financial Services (Corporate) Limited
IFC 5
St Helier
Jersey JE1 1ST
Financial PR
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
Joint brokers
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
Tel: +44 (0)20 7710 7600
RBC Capital Markets
100 Bishopsgate
London EC2N 4AA
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
RBC Capital Markets +44 (0)20 7653 4000
Matthew Coakes
Elizabeth Evans
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Edward Gibson-Watt
Jonathan Wilkes-Green
Buchanan/Quill +44 (0)20 7466 5000
Helen Tarbet
Sarah Gibbons-Cook
Henry Wilson
Notes to the Editor
About GCP Infra
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
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