REG - GCP Infra Inv Ltd - Annual Report and Financial Statements
12/12/2024 07:00
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RNS Number : 7683P GCP Infrastructure Investments Ltd 12 December 2024
GCP Infrastructure Investments Ltd
("GCP Infra" or the "Company")
12 December 2024
LEI 213800W64MNATSIV5Z47
Annual report and financial statements for the year ended 30 September 2024
The Directors of the Company are pleased to announce the Company's annual
results for the year ended 30 September 2024. 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 10 January 2025.
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 LSE's Main
Market in July 2010. It had a market capitalisation of £684.7 million at
30 September 2024.
Highlights for the year
Financial
Portfolio valuation
£960.0m
30 September 2023: £1.0bn
Representing a mature, diversified and operational portfolio of 50 investments
across the renewable, PPP/PFI and supported living sectors.
Dividends for the year
7.0p
30 September 2023: 7.0p
Delivering the dividend target set by the Board for the financial year of 7.0
pence per share.
NAV per share
105.22p
30 September 2023: 109.79p
Reflecting downward revaluations incurred during the year, offset by the
impact of share buybacks.
Weighted average annualised yield(1)
7.8%
30 September 2023: 7.9%
Representing a yield on the portfolio of investments with stable,
pre-determined, long‑term, public sector backed revenues.
Dividend yield(1)
8.9%
30 September 2023: 10.3%
Representing the yield on the closing share price of 78.60 pence per share at
30 September 2024.
Net assets
£913.1m
30 September 2023: £956.6m
Reflecting disposals of assets during the year in line with the stated aims of
the Company's capital allocation policy.
Partially inflation protected
47%
30 September 2023: 41%
Representing the percentage of the portfolio, by value that have some form of
inflation protection.
Total shareholder return(1)
28.4%
30 September 2023: -25.2%
Reflecting improvements in market factors and the implementation of the
capital allocation policy.
NAV total return(1)
2.2%
30 September 2023: 3.7%
Continuing to meet its investment objective of capital preservation, with a
NAV total return(1) of 176.6% since IPO.
Andrew Didham, Chairman of GCP Infra, commented:
The Company has maintained its 14-year track record of delivering on its
objectives of income generation, capital preservation and diversification for
its shareholders. The Company generated total profit and comprehensive income
for the year of £19.5 million (30 September 2023: £30.9 million) and paid a
dividend of 7.0 pence per ordinary share (30 September 2023: 7.0 pence). For
the forthcoming financial year, the Company has set a dividend target(1) of
7.0 pence per share.
The impact of a higher rate environment, combined with reduced demand from
wealth and retail investors looking for alternative sources of income,
continues to weigh on the Company's share price. At the year end, the
Company's share price was 78.90 pence, representing a 25.0% discount(2) to
NAV (30 September 2022: 67.70 pence, representing a 38.3% discount(2) to
NAV). The Board and the Investment Adviser are working closely to address the
discount¹ at which the shares trade through the execution of the Company's
capital allocation policy.
Progress has been made on executing the stated aims of the policy, including
the refinancing of the Company's RCF in March 2024, which saw a reduction in
total commitments by £40 million, and repayments of £47 million.
Additionally, the Company disposed of its interests in Blackcraig wind farm at
a 6.4% premium to the valuation as of 31 March 2024, with further disposals
occurring post year end. While progress on disposals has been slower than
anticipated, the Company is resuming its share buyback programme imminently
and remains committed to its goal of returning at least £50 million to
shareholders in the near term.
The new government's ambitious infrastructure targets, spanning
decarbonisation, energy security, and the digital economy, are supported by
innovative revenue models like contracts-for-difference, which offer potential
opportunities for future investments. The focus on streamlining planning, grid
connections, and the National Wealth Fund by the new government is also
particularly encouraging. We look forward seeing how the policy environment in
the UK evolves over the coming months.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Capital allocation
Leverage
£57.0m
30 September 2023: £104.0m
Representing a significant reduction in leverage and an LTV(1) of 6.2%.
Disposals
£31.4m
30 September 2023: £nil
Reflecting disposal of interests in Blackcraig wind farm at a 6.4% premium to
the valuation at 31 March 2024.
Share buybacks
3.4m
30 September 2023: 13.6m
Totalling 17.0 million shares bought back since the buyback programme
commenced in March 2023.
ESG
ESG policy
1 new
30 September 2023: None
Implemented an ESG policy to ensure investment practices align with the
Investment Adviser's Responsible Investment policy.
Renewable generation
1,320 GWh
30 September 2023: 1,398 GWh
Representing renewable energy exported by portfolio assets, equivalent to
powering 488,842 average homes.
SDG alignment
9 SDGs
30 September 2023: 9 SDGs
Reflecting the alignment of the portfolio with certain SDGs, as outlined by
the United Nations.
Community support
£3.9m
30 September 2023: £3.6m
Reflecting the contribution to Community Benefit Funds by portfolio assets
since IPO.
Charities supported
14
30 September 2023: 5 charities
Representing charities supported by the Company and the Investment Adviser
raising c. £47,000 during the year.
Internships hosted
5
30 September 2023: 3
Continued supporting young talent through the Investment Adviser's paid
internship scheme.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Read more below.
At a glance
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.
Dividend income Diversification Capital preservation Sustainability(1)
To provide shareholders with regular, sustained, long-term dividends. To invest in a diversified portfolio To preserve the capital value of investments over the long term. To focus on the sustainability of the portfolio and make a positive impact.
of debt and/or similar assets secured against UK infrastructure projects.
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 The investment portfolio is focused on sustainable infrastructure which has a
target(2) of 7.0 pence has been set for the forthcoming financial year. project type and the source of its underlying cash flow.
positive environmental and social impact.
generated a NAV total
return(3) for the year of 2.2% and 176.6% since the Company's IPO in 2010.
7.0p 50 0.41% 62%
Dividends paid for the year ended 30 September 2024 Number of investments at 30 September 2024 Aggregate downward revaluations since IPO (annualised)(3) Portfolio contributing to green economy(4)
14 473 105.22p 38%
Consecutive years of dividends paid Number of underlying assets in the portfolio NAV per share at 30 September 2024 Portfolio that benefits end users within society(5)
Read more below
1. Non-financial objective. Further information is included 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. APM - for definition and calculation methodology, refer to the APMs section
below.
4. 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 62% invested in the renewable energy sector.
5. The Company's portfolio is 12% invested in supported living and 23%
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 3% of the portfolio is invested in PPP/PFI leisure projects.
Our portfolio
The Company's portfolio is comprised of loans secured against assets in the UK
which fall under the following classifications:
Number of
Sector assets % of portfolio
Geothermal 1 1%
Solar 53,246 25%
PPP/PFI 145 26%
Supported living 905 12%
Hydro-electric 14 2%
Gas peaking 2 1%
Biomass 4 10%
Electric vehicles 250 1%
Wind 10 13%
Anaerobic digestion 19 9%
Read more below.
Senior ranking security
53%
Weighted average annualised yield(1)
7.8%
Average life
11 years
Partially inflation protected
47%
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Creating long-term value
Our investment case
The Company has a number of key differentiators that make it well positioned
to take advantage of attractive risk-adjusted returns.
Scale
The Company targets smaller investment opportunities that may be overlooked by
larger investors, such as commercial banks. This flexibility allows the
Company to enter niche markets and scale investments over time through
follow-on financing to existing borrowers, which supports long-term growth and
enhances returns by increasing exposure to successful investments.
Diversification
The Company has an explicit objective of diversifying across a range of asset
classes. This means the Investment Adviser seeks the most attractive
risk-adjusted returns as it is not bound to invest in sectors that are
unattractive due to higher competition or asset characteristics.
Track record
The Company has been investing in the infrastructure sector for over a decade.
This has allowed the Investment Adviser to develop its expertise in several
specialist asset classes, such as anaerobic digestion and biomass. As part of
this, the Investment Adviser has a proven model which assesses and evaluates
opportunities in new asset classes.
Debt focus
The Company's focus on debt provides flexibility across senior and
subordinated positions, allowing it to match investment risk with an
appropriate capital structure solution and associated return. This approach
allows the Company to tailor investments according to risk profiles,
maximising returns while managing risk effectively.
Sustainability expertise
The Company's investment philosophy is centred on the long‑term
sustainability of its portfolio. As part of this philosophy, the Board and the
Investment Adviser continually seek to improve the way ESG criteria is
embedded, integrated, monitored and measured within the portfolio.
Making a positive impact
The Board and the Investment Adviser work closely to ensure the Company's
activities have a positive impact.
Sustainable Development Goals
By investing in assets that are integral to society, including those which
contribute to a greener economy, the Company aligns with certain SDGs, as
outlined by the United Nations ("UN"). These goals were created in 2015 by the
UN to create a better and more sustainable world by 2030. The Company's
portfolio positively contributes to the provision of renewable energy, the
development of infrastructure to support economic growth, and also provides
high-quality and safe buildings for vulnerable adults, healthcare patients and
students. Furthermore, the Company's approach to governance, labour and health
and safety makes a positive contribution to the employees, customers,
suppliers and local communities in which the assets operate.
B Corp
In April 2024, the Investment Adviser was awarded a B Corp certification.
Certified B Corporations are leaders in the global movement for an inclusive,
equitable and regenerative economy.
As a certified B Corp, the Investment Adviser is part of a community of
like-minded businesses that engage with each other to share ideas and best
practice. The certification formalises the Investment Adviser's sustainable
and long-term business model, as well as providing a framework to ensure it
continues to operate in accordance with the highest ESG standards.
Read more in the Investment Adviser's Responsible Investment report.
Overall B Impact Score
Based on the B Impact Assessment, the Investment Adviser achieved an overall
score of 99.4. The median score for ordinary businesses who complete the
assessment is 50.9.
SDG Innovation Accelerator
In 2024, five employees from the Investment Adviser participated in the SDG
Innovation Accelerator for Young Professionals. This programme empowers young
talent under the age of 35 by driving collaborative business innovation
aligned with the UN SDGs. An intensive, nine month programme, the Innovation
Accelerator is designed to promote sustainability by activating the potential
of future business leaders and change makers.
Three employees participated in the programme as 'innovators', seeking to
identify and solve sustainability issues within the Investment Adviser and two
senior members also participated as a 'mentor' and 'champion', to help guide
the innovators on their sustainability journey.
As part of the programme, the team of innovators came up with ideas to improve
the social benefits received by employees at the Investment Adviser. The
employees presented their findings and ideas to a group of industry
professionals, as well as the Responsible Investment committee of the
Investment Adviser.
Benefitting the environment
The Company invests in renewable energy generation which has a positive
environmental impact.
Clean energy infrastructure
The assets in the Company's portfolio have strong environmental credentials,
with 62% of the portfolio invested in renewable energy projects that provide
alternative energy sources to fossil fuels. The Board recognises that
investing in clean energy infrastructure is one of the main ways to protect
our planet against climate change, and the Company is committed to finding new
and innovative ways to support the transition to net zero through its
investments.
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.
In October 2020, the Company was awarded the Green Economy Mark from the
London Stock Exchange. This classification recognises companies that are
driving forward the global green economy.
SolarCatcher
The Company has provided funding of up to £20 million to support the
build-out of innovative renewable energy infrastructure on public sector
sites, predominantly schools, across England. Named 'SolarCatcher', the
project is a fresh approach to the energy transition, as it uses existing car
park infrastructure to generate on-site renewable energy for schools and
academies, whilst providing electric vehicle charging points for staff and
visitors.
As part of the financing, each school enters into a power purchase agreement
with SolarCatcher under which they purchase power produced by the solar panels
for use within the school, thereby reducing the power they need to draw from
the electricity grid. These power purchase agreements are executed for a fixed
price which is lower than the price the schools pay to their usual supplier.
Electric vehicles
In the global push towards net-zero emissions, decarbonisation of the
transport sector is key. The Company has financed the acquisition of 250
zero-emission capable London black cabs for two fleet operators. These
investments have a unique financing structure, which is a 'pay-for-mile'
scheme managed by Zeti, a platform for investment in electric vehicle fleets,
over a circa five year term.
The fleets benefit from the maximum low-emission vehicle plug-in Government
grant funding and from accelerated capital allowances that result in a one
year deduction against taxable profits that are equal to the full cost of the
vehicle.
Biomass
Biomass is the term given to the organic raw material which can be used
directly in power plants or can be used to produce biofuels. Unlike other
renewable sources of power, biomass can be available 24/7 and is not reliant
on the weather. It is the technology most closely comparable to fossil fuelled
power stations and, as such, is most suited to the requirements of the
electrical grid network.
The Company was a first mover in biomass gasification technology in the UK
through its investment in Birmingham Bio Power Ltd. This plant uses four
gasifier units fed with up to 72,000 tonnes of waste wood per year sourced
from the West Midlands, and has been operational since 2016. The Company also
lends to waste wood projects in Widnes and Northern Ireland, along with
smaller anaerobic digestion plants in Scotland and Northern Ireland.
Benefitting society
The Company's portfolio has clear benefits to communities and end users in
society.
Infrastructure, by definition, has a core social purpose. With long-term
investment 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 society. By investing in the supported living sector, the
Company has funded properties across the UK that benefit vulnerable adults.
Through the Company's investments in the PPP/PFI sector it is exposed to a
number of sub-sectors including education, healthcare, waste, leisure and
housing. These assets are integral to UK society and provide long-term
partnerships with the public sector.
Community Benefit Funds
Renewable 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 made
available to local community projects. By way of an 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. The Company's portfolio assets
have donated £3.9 million to CBFs since its IPO.
Supported living
The Company has historically targeted investments in the 'supported living'
sector through financing the development or conversion of accommodation to
suit specific care needs for individuals with learning, physical or mental
disabilities. One portfolio the Company has invested in comprises 13
properties and 51 units of supported living accommodation which are designed
to meet the individual and unique needs of adults with disabilities and mental
health problems. The portfolio is leased to Westmoreland Supported Housing
Ltd, which is a registered provider of social housing. The Company supported
Westmoreland over a period of financial distress. As a result, Westmoreland is
now in a materially better financial position than it was previously and
continues to provide high-quality accommodation and care for its vulnerable
tenants.
Internships
The Investment Adviser offers paid internships to young people, prioritising
those from diverse backgrounds who may otherwise find it difficult to find
work experience.
This year, two paid internships were offered to students participating in the
10,000 Black Interns programme, which offers paid internship opportunities
across more than 25 sectors, along with training and development
opportunities. Another two internships were offered to students in the Young
Women in Finance programme, a not-for-profit social organisation dedicated to
the eradication of gender bias for new graduates entering the finance
industry. One other internship was offered to an ESG masters student.
All interns worked across different projects at the Company, with a particular
focus on the climate risk assessment and ESG policy.
Capital allocation policy
The Board is continuing to execute the policy and has made progress during the
year.
Policy aims
In recognition of the disconnect between share price and NAV, and the material
discount(1) at which the shares are trading, the Company reported that it
planned to follow a progressive capital allocation policy in its 2023 annual
report. This sought to realise £150 million of capital through disposals or
refinancings to facilitate a material reduction in its RCF, return at least
£50 million to shareholders, and rebalance underlying portfolio exposures.
The capital allocation policy has three key priorities: a material reduction
in leverage, an improvement in the risk-adjusted return of the existing
portfolio, and facilitating the return of at least £50 million of capital to
shareholders whilst maintaining the dividend target.
The Board's focus during the financial year has been on the execution of the
policy. The Investment Adviser's focus has therefore been on refinancing loans
and disposing of investments where appropriate to achieve the Company's aims.
The stated aims of the policy were based on interactions with shareholders and
sought to address their concerns. This included reducing leverage while
interest rates were high by decreasing the size of the RCF and ultimately
paying down the drawn balance. Refer below for further information.
Targets of the policy - £150m Capital realisation target
· Reduce leverage
· Improve risk-adjusted return
· Buy back Company shares
· Cycle out of certain sectors
· Refocus the portfolio on debt
· Reduce exposure to merchant electricity prices
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Disposals
The Investment Adviser has sought to restructure the underlying exposures in
the portfolio and exit sectors where investors have concerns, as well as
reducing the Company's exposure to merchant electricity prices and
demonstrating a conservative valuation methodology through its sales
processes. The policy also involved completing buybacks as a potential
discount management tool, while simultaneously returning capital to
shareholders.
The first transaction was completed earlier in the year, with the disposal of
the Company's interest in Blackcraig wind farm. See below for further
information.
Post year end, the Company completed the disposal of a portfolio of rooftop
solar assets, generating proceeds of £6.8 million. Further, it expects to
complete, subject to contract, on the disposal of a portfolio of onshore wind
farms, generating proceeds of c.£20 million. The Company's disposals total
£38.2 million at the end of 2024, with a pipeline of additional disposals in
excess of £150 million.
The Investment Adviser has consistently witnessed delays in transaction
processes across the market, which has slowed progress towards achieving the
stated aims of the capital allocation policy. However, the Company expects to
complete additional disposals in 2025, and remains committed to the capital
realisation target and stated ambitions, with the share buyback programme
recommencing imminently.
Blackcraig Wind Farm
In April 2024, the Company disposed of its interest in loan notes secured
against Blackcraig Wind Farm, a 52.9MW onshore wind farm located outside
Dumfries and Galloway in Scotland, at a 6.4% premium to its valuation at 31
March 2024. The Company originally acquired the senior secured loan notes in
2017 from the UK Green Investment Bank. The disposal generated net cash
proceeds of £31.4 million which included principal and interest and were used
to reduce the drawn balance on the Company's RCF.
Chairman's statement
I am pleased to present the Company's annual report for the year ended 30
September 2024.
Andrew Didham
Chairman
Introduction
I am pleased to present the Company's annual report and financial statements
for the year to 30 September 2024. The Company's shares have continued to
trade at a material discount¹ to the NAV during the year. The impact of a
higher rate environment, combined with reduced demand from wealth and retail
investors looking for alternative sources of income, continues to weigh on the
Company's share price.
The current yield on 15-year gilts is similar to where it was at the Company's
IPO. The disconnect between the Company's shares trading at a premium at IPO
and for the majority of the period since, and the material discount(1) at
which it trades today, remains. However, over this period, it has a 14 year
track record of delivering on its objectives of income generation, capital
preservation and diversification. The Company's mature, diverse and
operational portfolio will continue delivering on these objectives moving
forward.
The Company remains committed to the capital allocation policy set out in the
2023 annual report. While progress on disposals has been slower than expected,
the Investment Adviser continues to progress with material transactions that
will, if completed, allow the Company to achieve the objectives set out in the
previous annual report.
As a Company that invests in UK infrastructure that benefits from public
sector support, the wider policy environment and the availability of long-term
revenue support models is important. The new Government has adopted, and in
certain cases extended, ambitious targets for infrastructure deployment to
address the challenges of population change, decarbonisation and energy
security, as well as the transition to a digital economy. It has been
encouraging to see the growth of the contract-for-difference scheme which
supports renewable energy generation and the emergence of other
contract-for-difference, regulated asset base or cap and floor revenue support
models in sectors such as biomethane, carbon, hydrogen, sustainable aviation
fuels, interconnectors and long duration energy storage. These may present
opportunities for the Company when it resumes investing in the future. The
expected increased focus on policy which supports new infrastructure
development across the planning process, grid connections and the
establishment of the National Wealth Fund (previously the UK Infrastructure
Bank) is also encouraging.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Capital allocation policy
The Board remains committed to the capital allocation policy detailed in the
Company's 2023 annual report. Progress has been made during the year, with
further developments made post year end, as the Company seeks to execute on
its target of releasing £150 million (c.15% of the portfolio) to facilitate
the key priorities of the policy:
· reduction of leverage, reducing the drawn balance of the RCF to
zero;
· return at least £50 million of capital to shareholders, in
addition to maintaining the Company's dividend target; and
· rebalancing the portfolio and materially reducing exposure to
supported living, and to merchant electricity prices, while re-focusing the
portfolio on debt.
Reduction of leverage
The Board has prioritised the reduction of leverage whilst interest rates have
been elevated. The Company's RCF was refinanced in March 2024, with total
commitments reduced from £190 million to £150 million in line with this
stated aim. The drawn balance of the facility has reduced from £104 million
at 30 September 2023 to a materially reduced level of £57 million at year
end following repayments. Subject to the completion of a further pipeline of
disposals, the Company continues to work towards reducing drawn balances to
zero alongside the buyback programme. Further details on the Company's
financing activity are provided below and details of the RCF can be found in
note 15.
Return of capital
In total, 3.4 million shares were repurchased during the year under the
existing share buyback authority. The repurchase of shares continues to offer
attractive returns, given the current discount¹ to NAV, and the dividend
yield on the share price of 8.9% at 30 September 2024. The Company's shares
have traded at an average discount(1) of 32.4% during the year and an average
premium(1) of 3.4% since IPO. At 30 September 2024, the share price was 78.90
pence, representing a discount(1) to NAV of 25.0%.
The Company will be recommencing the share buyback programme imminently, and
remains committed to its target of returning at least £50 million to
shareholders in the near term.
The method by which the Company will return £50 million of capital to
shareholders remains under consideration. The Board continues to believe that
the use of share repurchases is a means of addressing imbalances in supply and
demand which may otherwise create volatility in the rating of the Company's
shares.
Portfolio rebalancing
The focus of investment-related activity for the Investment Adviser and the
Board during the year was releasing the target £150 million of capital
through refinancings and disposals. The first of these occurred in April 2024,
when the Company announced the disposal of its interest in loan notes secured
against Blackcraig Wind Farm, a 52.9MW onshore wind farm located in Dumfries
and Galloway, Scotland. The disposal generated net cash proceeds of £31.4
million which represented a 6.4% premium to the valuation of the investment at
31 March 2024.
Further transactions were completed post year end, including the disposal of a
portfolio of rooftop solar assets installed on domestic properties across the
UK, generating proceeds of £6.8 million. The Company expects to complete,
subject to contract, on the disposal of a portfolio of two onshore wind farms
in the UK, expected to generate proceeds of c.£20 million. Transactions in
the supported living sector have been significantly slower moving than
expected; however, there is positive momentum and the Company believes it will
be able to materially reduce exposure to this sector in 2025.
The Company made one new loan of £2.6 million in the year to an existing
borrower. Portfolio follow-on investments of £24.7 million made during the
year were focused on restructuring and management to preserve value and
potential future profitability. This was offset by repayments of £39.2
million, giving a net repayment from the existing portfolio of £11.9 million.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Financial performance
This year, financial performance continued to be driven by electricity prices
and inflation. A material cooling in both factors resulted in downward
revaluations during the year and had a resulting negative impact on
profitability. The Company generated total profit and comprehensive income of
£19.5 million (30 September 2023: £30.9 million).
The net assets of the Company decreased to £913.1 million (105.22 pence per
share) from £956.6 million the previous year (109.79 pence per share).
Further information on financial performance can be found below.
The Company seeks to pay regular, sustained, long-term dividends to
shareholders, and paid a 7.0 pence per share dividend for the year, in line
with the target for this financial year. The same target¹ is reaffirmed for
the forthcoming financial year. The dividend of 7.0 pence per share for the
year was 0.3 times covered on an earnings cover(2) basis, which includes
investment revaluations in accordance with IFRS, and was 1.0 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.
ESG
The Company's portfolio continues to have a positive impact as it contributes
to the generation of renewable energy and finances infrastructure that has
clear benefits to users in society. The Board and the Investment Adviser
believe that investing in assets with a positive environmental and social
impact is key to protecting our planet for future generations.
The Company has made good progress this year against the ESG objectives set
out in the 2023 annual report, including implementing an ESG policy to
formalise ESG processes and ensure the Company's responsible investment
practices align with the Investment Adviser's responsible investment policy.
The Investment Adviser obtained certification as a B Corporation during the
year, formalising its sustainable and long-term business model. The
certification provides a framework to ensure the Investment Adviser continues
to operate in accordance with the highest sustainability standards. The
Investment Adviser also improved its PRI score for the second consecutive
year, highlighting its commitment to improvements in its ESG credentials.
These achievements complement those of the Company, which was awarded the
Green Economy Mark from the LSE in 2020 in recognition of the Company's
contribution towards driving a greener economy.
More details on the Company's approach to responsible investment can be found
in the sustainability section below.
Market outlook
At the time of writing, the Bank of England base rate is 4.75%, following the
Bank of England's decision to cut rates by 0.25% in August 2024 and November
2024. These were the first cuts since the onset of the Covid-19 pandemic in
2020. Inflation has cooled significantly over the year compared to previous
periods. CPI rose by 1.7% in the year to 30 September 2024, and then to 2.3%
in the twelve months to 31 October 2024. The link between electricity prices
and inflation in the UK is strong, and the Board recognises that geopolitical
tensions in the Middle East and the conflict in Ukraine may impact electricity
prices and have a knock-on effect on inflation going forward.
As mentioned previously, the policy backdrop for the sector has become
increasingly positive. Despite this, there remains a disconnect between
investment company sentiment and broader infrastructure investment. The Board
and the Investment Adviser recognise there is a broad range of investment
opportunities in the current market at attractive rates. However, these remain
secondary to the priority of addressing the discount² and shareholder
concerns.
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 below.
The Board also acknowledges the positive developments post year end regarding
cost disclosure requirements, with HMT drafting a Statutory Instrument to
remove the requirement for investment companies to publish ongoing charges, a
figure widely accepted to be an inaccurate representation of the actual cost
of investing in shares in an investment company. With many citing this
misleading cost as a headwind for investment in the investment company sector,
the potential for the cost to be removed may create demand for shares going
forward. The Statutory Instrument became law on 22 November 2024. However,
following this announcement, investment platforms have said they will continue
requiring ongoing charges to be disclosed. The Investment Adviser is working
to address this, and the Board will continue monitoring the impact of cost
disclosure on the Company's share price.
The Board
The Board composition will see several changes in the year ahead to align with
corporate governance best practice. Michael Gray and Julia Chapman have both
served on the Board for nine years, and their retirement will be phased over
the coming year. Mr Gray will retire from the Board in February 2025, and Ms
Chapman will stay on the Board for a further transition period, assisting with
the identification of an appropriate replacement.
I would like to take this opportunity to acknowledge the important role Mr
Gray and Ms Chapman have played in the stewardship of the Company during their
tenure and thank them for their invaluable contribution to the Company.
I am delighted to extend a warm welcome to Ian Brown, currently the Head of
Banking and Investments at the UK's National Wealth Fund, who will be
appointed to the Board subject to regulatory and shareholder approval. Mr
Brown will bring a wealth of knowledge and experience in the UK lending and
infrastructure sector and will greatly contribute to the Company's strategic
direction.
Further information on Mr Brown, including his biography, will be included in
the 2025 AGM circular and announced upon his appointment. There are no details
requiring disclosure in respect of this appointment under paragraph 6.4.8 of
the UK Listing Rules of the FCA.
Andrew Didham
Chairman
11 December 2024
Strategic report
Evolution of the portfolio
Since the Company's IPO in 2010, the infrastructure sector has evolved
considerably, becoming a better understood and more mainstream asset class.
The Company has a track record of being an early-mover, ensuring it invests
into maturing sectors and captures an enhanced risk-adjusted return. With a
changing landscape of Government support over the last 14 years, the Company
has retained an entrepreneurial approach to identifying new investments. As
such, the portfolio has evolved over time in response to changing investment
opportunities and requirements.
At the Company's IPO in 2010, the Company was the first UK infrastructure debt
focused investment company in the UK, with its portfolio comprising 100%
subordinated PFI. The aftermath of the global financial crisis on the
long-dated debt market was longer lasting than expected and therefore the
Company was able to benefit from attractive investment opportunities, whilst
maintaining dividend payment levels.
In 2012, the Company made its first renewable energy investment in domestic
rooftop solar projects, which have now grown to c.50,000 systems. This was
followed by investments in the anaerobic digestion, biomass and wind sectors,
with the Company lending to the first waste wood power station to be developed
in the UK. Investments in the renewable energy sector continued into 2014,
with the Company making its first investment in the hydro-electric sector.
The Company then made its first investment in social housing in 2016, entering
into the supported living sector. Investment in the renewable energy sector
continued into 2018, when the Company made its first investment in the
offshore wind sector, investing in Race Bank wind farm.
In 2021, the Company made its first investment in the Eden Geothermal project,
which is the first deep geothermal well in the UK since 1986.
At the year end, the valuation of the Company's portfolio was £960 million.
Strategic overview
The market
The infrastructure market
Infrastructure comprises the fundamental physical systems that are essential
to the functioning of society and its economy, covering a variety of
industries and sectors. Infrastructure investments typically comprise a
significant initial investment which is repaid over the life of the asset in
consideration for the essential service it provides. Typically, these
investments are long-term, stable and provide inflation protection, and have
inherent capital protection through the physical nature of the assets.
Almost half of the Company's investments by value have some form of inflation
protection. This includes direct links to inflation for supported living and
certain renewable assets, as well as a mechanism that increases loan principal
values based on inflation exceeding a set threshold (usually 2.75% to 3.0%).
Investors have historically valued the long lives of infrastructure assets,
which often outlive political and economic cycles, and the services they
provide. Increasingly, the need to decarbonise the energy sector to achieve
legally binding targets and accelerating digitalisation trends has prompted
further interest in the sector.
The Investment Adviser has witnessed significant early developments in new
policy initiatives from the new Government since their victory in the general
election in July 2024:
· planning reform was a key agenda item in the new Government
manifesto, with swift changes to the National Planning Policy Framework
highlighting ambitions in increased housebuilding and the development of new
onshore renewable energy generation;
· the National Wealth Fund and Great British Energy have been
formed with public funding to accelerate efforts to decarbonise the UK's
electricity system and encourage private funding in UK infrastructure;
· mission control has been launched with Chris Stark, former Chief
Executive of the Climate Change committee, in charge of tracking progress
towards delivering a net zero electricity system by 2030 and co-ordinating
between Government entities; and
· the merger of the National Infrastructure Commission ("NIC") and
the Infrastructure Projects Authority ("IPA") into a new body, the National
Infrastructure and Service Transformation Authority ("NISTA"), to better
support the delivery of major capital projects.
These new policies support UK infrastructure investment, while new subsidy
regimes for emerging technologies (Net Zero Hydrogen Scheme, Carbon Capture
Business Model) and the expansion of existing regimes (such as the CfD scheme)
offer an attractive opportunity for the UK to drastically scale up the
deployment of new infrastructure.
In the Autumn Budget, announced post year end, the new Government outlined its
plan to address the large deficit and the need for increased investment in the
UK's distressed finances and assets. While taxes and NHS funding grabbed the
initial headlines (including £1.5 billion for new hospital beds and
diagnostic centres), the new Government's commitment to making the UK a clean
energy superpower was a positive reinforcement. The Board believes this
presents a material opportunity for investment and growth in the UK and is
needed for the UK to stay on track with its decarbonisation commitments. The
Board is also looking forward to the announcement of the Government's ten year
infrastructure strategy to be published in spring 2025, along with the newly
formed National Infrastructure and Service Transformation Authority which will
be set up to oversee it.
Challenges and opportunities
The table below sets out some of the key challenges and associated
opportunities for UK infrastructure investment.
Infrastructure Government Investment
Challenge opportunities support/intervention characteristics
Decarbonisation Decarbonisation of the UK economy by 2050, with intermediary targets in place · Further investment in established renewable sectors such as wind · CfD, Interconnector cap and floor · Inflation-linked subsidy support but reliant on merchant prices
such as the decarbonisation of the electricity system by 2030 and solar
long term
· Green Gas Support Scheme, Net Zero Hydrogen Scheme, Industrial
· Deployment of less-established renewables across electricity, Carbon Capture business model · Subsidy support regimes designed to make the deployment of new
heat, transport, carbon capture and storage
technology economically viable
· Various grants and capital support
High energy prices 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 · Energy Profits Levy
such as interconnectors · Long Duration Energy Storage cap and floor
· Energy storage
· Energy efficiency schemes
Climate change Climate change adaptation: · Flood defences · The Government has a large direct investment flood defence · Limited current investment opportunities, but expected to be a
programme growth area
increased frequency of extreme weather events in new geographies · River flood mitigation measures
· New policy initiatives set to be introduced by the new
Government. See above for details
Ageing population A growing and ageing population will place different demands on social · Housing · This remains a focus of direct Government funding, however there · Investment opportunities are typically in the private sector
infrastructure
has been recent speculation about new private investment in public (e.g. private care homes, private schools). These have more corporate or
· Healthcare and social care provision procurements property investment characteristics which are less attractive to the Company
· Transport · Potential for new funding model for private investment into
public infrastructure procurement (PFI v3.0)
· Education
· Utilities
Digitalisation 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
How the Company is responding to market opportunities and challenges:
Whilst the policy backdrop for the UK infrastructure sector is positive, there
remains a disconnect between market sentiment and broader infrastructure
investment. Focus remains on addressing the share price discount(1) to NAV at
which the shares trade and any shareholder concerns. The Company's response to
the current market environment is as follows:
1. Reduce leverage:
Central bank base rates remain at elevated levels globally, with the Bank of
England's base rate currently at 4.75%. The Company's RCF incurs a margin over
SONIA. As is typical with elevated base rates, this borrowing is less
accretive to value than in a low interest rate environment. The Company has
prioritised paying down all drawn balances under the RCF and has reduced
amounts drawn by £47 million during the year.
2. Return capital to shareholders:
The Board and the Investment Adviser believe 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.
The Company has also committed to returning £50 million to shareholders as
part of its capital allocation policy. The Company will be recommencing the
buyback programme imminently, working towards satisfying this commitment.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
3. Adjust the underlying portfolio exposures:
The Company has committed to reducing equity risks, as well as its exposure to
the supported living sector. It is intended that the portfolio will
be refocused on debt investments in sectors with attractive risk-adjusted
returns.
The disposal of the Company's interest in loan notes secured against
Blackcraig wind farm, a 52.9MW onshore wind farm, at a 6.4% premium to the
valuation at 31 March 2024, generated net cash proceeds of £31.4 million.
The disposal of a c.8.3MW portfolio of domestic rooftop solar installations
post year end, and the disposal of a portfolio of onshore wind assets with
combined generating capacity of 28MW, subject to contract, are expected to
reduce the Company's exposure to merchant electricity prices by c.£27
million.
Furthermore, active transactions in the supported living sector are expected
to materially reduce the Company's exposure to this sector in early 2025.
4. Engage with shareholders:
The Company and the Investment Adviser have sought to engage with shareholders
to better understand their concerns and develop a strategy to address these.
This has been combined with enhanced transparency in reporting, including a
line-by-line breakdown of the portfolio, which is available on the Company's
website, and broader attempts to share new and insightful information more
frequently.
Key policies
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 Company's 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.).
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.
Our non-financial objectives
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 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.
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
Dividend income Governance Board of Directors Stewardship and oversight Dividend income Governance
To provide shareholders with regular, sustained, long‑term dividends. The Company operates under a robust governance framework. Read more on pages 7.0p 50%
100 to 133 in the full annual report on the Company's website.
Dividends per share paid for the year ended 30 September 2024 Board positions filled with either gender or ethnically diverse members
Capital preservation Environmental Investing Operating Capital preservation Environmental
To preserve the capital value of its investment assets over the long term. The Investment Adviser positively screens for assets which benefit the The Company seeks to generate exposure to infrastructure debt and/or similar The Company pays careful attention to the control and management of the 0.41% 1,320 GWh
environment. Read assets in the renewable energy, social portfolio and its operating costs.
Aggregate downward revaluations since IPO¹ (annualised) Renewable energy exported by portfolio assets
more below. housing and
PPP/PFI sectors. The day-to-day provision of investment advice and administration of the
Company is provided by the Investment Adviser and the Administrator
respectively, whose roles are overseen by the Board.
The Investment Adviser provides advisory services relating to the
portfolio in accordance with Managing
the Company's investment objective and policy. As an investment company, the Company seeks to take investment risk.
Financing The Investment Adviser works alongside the Board to manage risks and shape the
risk policy of the Company. It is also responsible for risk monitoring,
The Company manages its capital measuring and managing.
on a highly conservative basis, with consideration given to stakeholder needs.
The Investment Adviser is implementing the Board's capital allocation policy
in order to rebalance the portfolio and increase shareholder returns.
Diversification Social Financing Managing Diversification Social
To invest in a diversified portfolio of debt and/or similar assets secured The Investment Adviser positively screens for assets which benefit society. The Company manages its capital on a highly conservative basis, with As an investment company, the Company seeks to take investment risk. 50 801
against UK infrastructure projects. Read more below. consideration given to stakeholder needs.
Number of investments at 30 September 2024 FTEs at portfolio asset level
at 30 June 2024(2)
Financial The Investment Adviser is implementing the Board's capital allocation policy The Investment Adviser works alongside the Board to manage risks and shape the Financial
in order to rebalance the portfolio and increase shareholder returns. risk policy of the Company. It is also responsible for risk monitoring,
The Company uses credit facilities, measuring and managing. 0.32 times(3)
hedging arrangements, cash flow forecasts and stress scenarios to ensure Basic dividend cover (IFRS)
financial viability. Read more below.
at 30 September 2024
1. APM - for definition and calculation methodology, refer to the APMs section
below.
2. Twelve month period to 30 June 2024 to facilitate data inclusion in the
annual report.
3. The dividend of 7.0 pence per share is fully covered by an adjusted EPS(1)
of 7.09 pence per share.
Company impact
Sustainability credentials
The Company has a positive environmental impact through its investments in
renewable energy, PPP/PFI and supported living. The Board aims to enhance the
integration of ESG criteria in the Company's operations, ensuring that the
portfolio not only addresses the current needs of stakeholders, but is also
able to adapt to future challenges.
The Investment Adviser continued its data collection project this year to
collect material ESG metrics from assets in its portfolio. The data collection
project enables the Investment Adviser to assess the impact portfolio assets
are having on the environment and society. 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.
The data collection project enabled the Investment Adviser to compare data
with the previous year. It was noted that the 1,320 GWh of renewable energy
exported by portfolio assets marginally decreased during the year, primarily
due to reduced wind power and solar irradiance. The percentage of SPVs with at
least one female board member increased from 36% to 49% year-on-year,
following the appointment of an additional female director to SPV boards.
Further information on the Company's data collection project can be found
below.
SDG alignment of the Company's portfolio:
SDG 3 - GOOD HEALTH AND WELL-BEING SDG 4 - QUALITY EDUCATION
UN SDG target 3.8 UN SDG target 4.1
1,649 40 49 26,196
Hospital beds provided by portfolio(1) Healthcare facilities in portfolio(1) Schools in portfolio(1) School places provided by portfolio(2)
2023: 1,676(4) 2023: 40(4) 2023: 49(4) 2023: 26,688(4)
SDG 5 - GENDER EQUALITY SDG 7 - AFFORDABLE AND CLEAN ENERGY
UN SDG target 5.5 UN SDG target 7.2
50% 49% 1,320 GWh 488,842
Board gender and ethnic diversity(5) Gender diversity of SPV company boards(5) Renewable energy exported by portfolio assets(1) Equivalent homes powered by portfolio assets(1,7)
2023: 50%(6) 2023: 36%(6) 2023: 1,398 GWh(2) 2023: 450,8892
SDG 8 - DECENT WORK AND ECONOMIC GROWTH SDG 9 - INDUSTRY, INNOVATION
AND INFRASTRUCTURE
UN SDG target 8.3 UN SDG target 9.3 UN SDG target 9.4
54,493 801 £1.7bn 21%
Number of underlying assets in portfolio(5) FTEs at portfolio assets(3) Total investment in infrastructure projects since IPO SPVs reporting energy conservation strategies(3)
2023: 55,280(6) 2023: 856(4) 2023: £1.7bn⁶ 2023: 42%(4)
SDG 11 - SUSTAINABLE CITIES AND COMMUNITIES SDG 15 - LIFE ON LAND
UN SDG target 11.1 UN SDG target 15.5
£202.8m 905 64% 60%
Investment in social housing projects since IPO Number of social housing units(3) Renewables portfolio reporting habitat gain or loss(3) SPVs reporting ESG as a board agenda item(3)
2023: £166.7m(6) 2023: 905(4) 2023: 65%(4) 2023: 60%(4)
SDG 17 - PARTNERSHIPS FOR THE GOALS
UN SDG target 17.2
£428.1m 35%
Investments in PPP/PFI since IPO SPVs reporting local
community initiatives(3)
2023: £428.1m(6) 2023: 47%(4)
1. Twelve month period to 30 June 2024.
2. Twelve month period to 30 June 2023.
3. At 30 June 2024.
4. At 30 June 2023.
5. At 30 September 2024.
6. At 30 September 2023.
7. Source: Ofgem, average gas and electricity usage.
Q&A with the Investment Adviser
Philip Kent
CEO, Investment Adviser
Capital allocation policy
Do you expect to fully execute on the targets laid out in the capital
allocation policy, and what is next for the Company once it has completed its
stated aims?
To facilitate the aims of the policy, the Investment Adviser has been focused
on executing disposals and refinancing processes to realise the £150 million
capital target. The Company's disposals total £38.2 million at the end of
2024, with a pipeline of additional disposals in excess of £150 million. We
have experienced consistent delays across transactions throughout the year,
with processes taking longer than expected across all sectors. However, the
Board and the Investment Adviser remain committed to achieving the stated aims
of the capital allocation policy as quickly as possible.
The capital allocation policy was developed in conjunction with shareholders
to help address the disconnect between share price and NAV. Once the Company
has executed on the stated aims of the policy, the Board will re-evaluate its
position based on the price at which shares are trading. If there is a
material discount(1) thereafter, the Board will evaluate the merits of
continuing to return capital to shareholders against the risks of decreasing
the Company's scale. Nevertheless, we, and the Board remain optimistic about
future investment opportunities.
The new Government has made encouraging commitments to decarbonisation that
will require significant investment across the UK. A heightened interest rate
environment also offers the opportunity to take materially reduced risk to
achieve the same level of return or capture elevated returns from new
technologies that will form part of the Government's decarbonisation mandate.
Investment opportunities
Where does the Investment Adviser see attractive opportunities in the UK
infrastructure market?
The UK infrastructure market finds itself in a far better position than it
was at this time last year, with aggressive ambitions for deployment of
renewables: 60GW offshore wind, 50GW solar photovoltaic, 30GW onshore wind and
10GW of low carbon hydrogen capacity, and decarbonisation of the electricity
grid by 2030. This comes alongside policy support in a number of new sectors,
including a cap and floor scheme for long-duration energy storage, and
ambitions for four industrial carbon capture and storage clusters sequestering
20 to 30 million tonnes of carbon dioxide per year by 2030.
The Company is well placed to benefit from a transitioning subsidy landscape,
and has a track record of being an early-mover in new sectors, particularly
through its focus on debt. Significant policy developments will be required in
the next decade to support widespread decarbonisation across existing sectors
(wind and solar), but also across a broad spectrum of industries including
heat, transport, industry and agriculture. There are attractive opportunities
to benefit from enhanced returns in new technologies before yields compress,
which is an approach the Company has a legacy of executing. Fundamentally, the
ambitions stated will require levels of investment that have not previously
been seen, and this will stretch liquidity in the market, providing further
investment opportunities for the Company.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Share price performance
What do you believe has caused the disconnect between share price rating and
NAV?
There are several reasons for the discount(1) between the share price and
underlying NAV. One of the most significant reasons is the current interest
rate environment, as increases in base rates have fed through to discount
rates, which has caused valuations to decrease. This has increased the cost of
debt, with many investment companies relying on leverage for capital
deployment programmes and to enhance returns. At the same time, investors have
seen an attractive opportunity to reallocate into traditional fixed income
such as government and corporate debt.
We now find ourselves in a position where central banks have started to cut
interest rates, and we hope that as this progresses the relative
attractiveness of listed investment companies increases.
The increased interest rate environment has highlighted areas of stress within
some investment companies, where shareholders have focused on valuations,
highlighting a lack of uniformity in methodology. In a handful of isolated
cases, flaws in certain approaches have caused contagion across a whole asset
class, such as social housing and battery energy storage.
Cost disclosure
Can you explain the legacy of double counting in cost disclosure, and what
recent developments mean for investment companies?
In the United Kingdom, the Financial Conduct Authority ("UK FCA") is
responsible for implementing regulations to ensure a financial product is
transparent when disclosing the costs associated with investing. These costs
can include fees for fund management, transaction costs or the charges of
underlying assets. The aim for cost disclosure is to provide investors with a
clear view of how much they are paying, which allows them to make informed
decisions.
In 2018, the European Union ("EU") introduced the Packaged Retail and
Insurance-based Investment Products ("PRIIPs") regulation, which required
investment managers to provide retail investors with a Key Information
Document ("KID"), explaining a product's features, risks and all associated
costs, including their ongoing charges figures ("OCFs"). This regime runs
parallel to the 2009 Undertakings for the Collective Investment in
Transferable Securities ("UCITS") regulation, which applies to the EU and any
UK funds that market themselves to EU investors.
Following Brexit, the UK began work on updating its own PRIIPs regime, with
the UK FCA reviewing and adjusting the framework to make it more relevant to
the UK market. As part of this, the UK FCA implemented new cost disclosure
guidance on 1 July 2022, which required closed‑ended investment companies to
report in the same way as open-ended funds.
These regulations aimed to increase transparency for non-UCITS vehicles by
requiring them to disclose their costs more clearly. However, as investment
companies already provided detailed cost information under the former rules,
institutional investors and intermediaries were made to report these costs
again in their own disclosures to clients, which has resulted in double
counting. As a result of the double counting, some investors have been unable
to invest in investment companies or have significantly reduced their
exposure.
It is broadly accepted by the industry and by the Government, that this single
aggregated figure is not an accurate representation of the actual costs of
investment in shares in an investment company. Following the successful
campaigning of a group of parliamentarians and industry participants, HM
Treasury proposed a Statutory Instrument to remove the requirement for
investment companies, along with persons advising on or selling shares of
investment companies, to produce a KID. Additionally, investment companies,
and firms investing in them will not be required to disclose costs and charges
relating to investment companies to clients, pursuant to the MiFID Org
Regulation.
The Statutory Instrument became law on 22 November 2024. However, additional
issues have been encountered post period end, with investment platforms
continuing to require ongoing charges to be disclosed in the KID. We continue
to monitor the impact of cost disclosure on the Company, and the Investment
Adviser has been active in the campaign to resolve the issue.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Investment Adviser's report
Company position
The Company's portfolio remains well diversified across a wide range of
operational renewable energy projects, social infrastructure (through PPP/PFI
schemes) and supported living projects. The Company's explicit diversification
objective has historically enabled it to adapt to developments in any one
sector (such as decreasing yields and more competition) and move into other
areas if a sector no longer represents attractive risk-adjusted returns.
In the 14 years since its IPO, the Company has seen this cycle play out across
multiple sectors and has adapted its approach to investing as one sector
matures or sought out new sectors for investment. Similarly, where there have
been changes to investor sentiment around certain sectors (such as supported
living) or an end to a subsidy regime (such as in PPP/PFI), the Company has
been able to maintain its investment policy, objective and strategy which have
been consistent since IPO.
Key investment activity
The Investment Adviser's focus for the year has been executing the Company's
capital allocation policy. The first disposal contributing to the stated aims
was completed in April 2024. Post year end, one additional disposal was
completed, with another disposal expected to complete, subject to contract. As
previously noted, there are three stated aims of the policy: reducing
leverage, returning capital to shareholders, and adjusting exposure to
supported living and merchant electricity prices within the portfolio.
The Company has made material progress in reducing leverage, with total
commitments reduced from £190 million to £150 million in March 2024, and
drawn balances reduced to £57 million at year end, down from £104 million
at 30 September 2023. This represents a net debt position of £45.2 million at
30 September 2024 and an LTV of 6.2%.
Furthermore, the Company completed buybacks of 3.4 million shares for a
consideration of £2.2 million.
Post year end, the rooftop solar assets disposal and the expected disposal of
onshore wind assets will reduce loans with exposure to merchant electricity
prices by c.£27 million. The Investment Adviser is progressing transactions
which will materially reduce the Company's exposure to the supported living
sector in 2025.
New investments have not been a priority for the Company due to its focus on
its capital allocation policy. However, the Company has completed a handful of
follow-on investments to optimise the performance of existing portfolio
investments and made one new investment to support an existing borrower. A
full summary of investments and repayments for the year is shown 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 Decreased Electricity prices have continued to soften over the course of 2024, with
reduced levels of volatility across the sector. However, geopolitical tensions
The risk of an investment being exposed to changes in market prices, such as (all sectors) in the Middle East continue to pose a risk.
electricity prices or inflation.
The Company is exposed to electricity prices and inflation as part of its
renewable energy portfolio, and the higher price environment has been
beneficial to its assets. In the year, inflation has eased to a level where
this is no longer an issue for borrowers, causing the risk to decrease.
Supported living Decreased Inflationary increases in the interest rates on Company's loans weren't
matched on a pass-through basis with increases in local authority rent
payments during periods of abnormal inflation, which place the Company's
borrowers under pressure.
Credit risk Supported living Decreased The leases on the underlying properties have inflation linkage and, as such,
the amounts 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 agreed to pass the increases on to local authorities. As inflation has
services for a project and manage certain project risks as eased, this pressure has decreased. We have also seen material progress by the
RPs to improve their governance protocols to comply with the RSH's standards.
part of such arrangements.
Operational risk Renewables (all sectors) Decreased Operations have improved across the portfolio, with changes in the management
and operational teams at certain biomass and bio-power plants having positive
The risk of exposure to the construction and/or operations of impacts on performance.
a project associated with the
failure of people, processes and/or systems required to monetise an asset.
Legal/regulatory risk Renewables (all sectors) Decreased The UK finds itself in a very different position to this time last year, with
a new Government and considerably more certainty around policy support for
The risk associated with changes renewable energy. The clean energy transition is second only to economic
growth in the new Government's mandate, early policy developments, and further
to laws and/or regulations. This covers UK-wide, non-specific risks, such as detailed announcements as part of the Autumn Budget, suggest a supportive
changes to the tax regime, and specific risks such as changes to a subsidy policy environment.
regime that a project relies on.
Significant changes to the UK tax regime are unlikely to impact the Company's
portfolio of loans.
Interest capitalised
The Company received total loan interest income of £87.3 million (30
September 2023: £80.8 million) from the underlying investment portfolio. Of
this, £65.1 million was received in cash and £22.2 million was capitalised
in the year (30 September 2023: £58.8 million and £22.0 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 method of reinvesting repayments received from the portfolio back
into other portfolio projects.
3) Where 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 30 30 30
September September September September
2024 2024 2023 2023
£'000 £'000 £'000 £'000
Loan interest received 65,129 58,791
Capitalised (planned) 14,868 18,253
Capitalised (unscheduled) 7,300 3,706
Loan interest capitalised 22,168 21,959
Capitalised amounts subsequently settled as a repayment (9,297) 9,297 (10,822) 10,822
Adjusted loan interest capitalised(1) 12,871 11,137
Adjusted loan interest received(1) 74,426 69,613
The table below illustrates the forecast component of interest capitalised
that is planned and unscheduled.
30 September
% of total interest 2024 2025 2026 2027 2028 2029
Capitalised (planned) 19% 9% 9% 10% 14% 10%
Capitalised (unscheduled) 9% 1% - - - -
The Investment Adviser and the independent Valuation Agent review any
capitalisation of interest and associated increases 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.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Sector background and update
Renewables
Renewable projects generate renewable energy across the heat, electricity and
transport sectors and benefit from long‑term Government subsidies.
62%
Percentage of portfolio by value
£597.8m
Valuation of sector
Background
Renewable energy comprises energy sources that naturally replenish themselves
and have a positive environmental impact. The Company was an early-mover in
supporting renewable energy projects in the UK. Over the last decade, it has
invested in a range of technologies across the sector, initially financing a
portfolio of domestic rooftop solar projects in 2011, an investment that has
grown to c.50,000 systems today.
Since the Company's IPO in 2010, many subsidy support regimes have come and
gone in the UK, with the portfolio benefiting from exposure to a range of
subsidies. The UK has made significant progress with its decarbonisation
objectives, but to fully achieve its ambitions, it needs to go further and
faster.
Current position
The new Government has made the clean energy transition second only to
economic growth in its mandate, showing clear conviction in introducing new
policy and funding support for renewable energy. With ambitious targets for
the deployment of existing mature technologies, as well as new policy support
to facilitate the transition of sectors at a more nascent stage, two new
funding bodies have been established, the National Wealth Fund and Great
British Energy.
The CfD remains the key support mechanism for low-carbon generation and
supports both mature and developing technologies. The results of the sixth
allocation round were announced in September 2024, which awarded contracts for
9.6GW of capacity, a significant improvement from the previous round. The
existing pool of alternate support mechanisms includes the Green Gas Support
Scheme and the Net Zero Hydrogen Fund.
The UK renewable energy market remains subject to the results of the Review of
Electricity Market Arrangements ("REMA"), which was launched in response to a
rapidly evolving electricity system with an increasingly volatile generation
mix and demand profile. The Investment Adviser hopes the aspirations of the
new Government in encouraging new deployment will factor into policy
considerations before sweeping changes are made.
Future outlook
Ambitious targets have been set in the UK not just for electricity generation,
but across the wider energy transition, with a new framework for carbon
capture clusters located across industrial clusters in the UK, as well as
mandated levels of sustainable aviation fuel ("SAF") usage, and deployment of
electric vehicles ("EVs"). The outlook for the renewable energy market in the
UK is the most positive it has been in over a decade, and the ambitions of the
new Government have the potential to significantly accelerate deployment of
both mature and emerging technologies.
Reform of the planning regime in the UK is essential to facilitate the
deployment of new renewable energy. The Company will continue to monitor the
success of the new Government in reforming and modernising the planning
process to facilitate its targets.
The Board and Investment Adviser are actively monitoring the development of
new subsidy regimes in the UK, and believe the Company is well placed to
benefit from new policy frameworks when it is in a position to resume
investing.
Impact
1,320 GWh - Renewable energy exported by portfolio assets(1)
SDG alignment
SDG 7 - AFFORDABLE AND CLEAN ENERGY
SDG 8 - DECENT WORK AND ECONOMIC GROWTH
1. Twelve month period to 30 June 2024 to facilitate inclusion in the annual
report.
UBB Waste facility
UBB Waste is an energy-from-waste facility located in Gloucester. It disposes
of Gloucestershire's residual waste by processing waste that remains after the
residents of Gloucestershire have separated out as much of the recyclable and
green waste as they can. This is waste that would otherwise go to landfill.
The facility is largely automated and combusts up to 190,000 tonnes of waste
each year (approximately 75% of which is provided by Gloucestershire County
Council). Heat generated from the combustion process is then converted into
electricity through the application of a steam turbine. Generating more than
14.6MW, the facility produces enough electricity to power the equivalent of
c.25,000 homes each year.
Construction of the facility began in August 2016 and reached completion in
October 2019. The Company first invested £48 million via senior secured debt
in 2017. The loan is amortising, with the interest rate set at 7.92% and the
final repayment date set for 2042.
Revenue from the project comes from various sources and is highly contracted.
A significant proportion comes from 'gate fees' for processing waste, which
are at a fixed price and index linked through a CfD agreement with
Gloucestershire County Council over a 25 year concession period.
The capacity that remains after Gloucestershire County Council has delivered
all residual household waste generated within the county is serviced by
processing additional waste from nearby third party commercial and industrial
parties. This presents an opportunity for the Gloucestershire
energy-from-waste facility to earn additional gate fees.
Another significant source of revenue comes from the electricity generated by
the facility, which is sold directly into the grid via a PPA agreement at a
fixed price.
As an investment, the Gloucestershire energy‑from-waste facility has several
defensive characteristics. Barriers to entry in terms of construction are
extremely high, it's a real asset providing a valuable service and, because
the Company is invested in its debt, there's the added benefit of capital
structure protection.
Sustainability indicators
Environment
65,360 MWh
Energy exported in 2023/24(1)
Social
44
FTEs at portfolio asset level(1)
Governance
3
ISO certifications(1)
Financial
£39.7m
Valuation at 30 September 2024
1. Data at 30 June 2024 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.
12%
Percentage of portfolio by value
£118.1m
Valuation of sector
Background
The Company has historically targeted a subset of social housing provision
referred to as 'supported living', through financing the development or
conversion of existing accommodation to suit specific care requirements of
individuals with learning, physical or mental disabilities. This involves
providing 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 benefits in this sector is
funded by the central Government and has historically been, and remains,
highly protected and uncapped.
Current position
As the Company has reported previously, a number of RPs to which the Company's
investments are exposed have historically been graded non-compliant in respect
of governance and financial viability by the Regulator of Social Housing
("RSH"). During the year, new management was appointed in a number of the
non-compliant RPs, with positive progress made in addressing the concerns of
the RSH. The Company has agreed to a number of concessions in the contracts
between RPs and borrowers which seek to enhance the financial viability of
these entities and retain the long-term value of its investments.
The Investment Adviser maintains the view that the fundamentals of the sector,
which is 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. However, listed companies
specialising in the sector have faced a number of challenges, with these
issues negatively impacting sentiment towards the asset class.
Future outlook
The Company is aware of the concerns of some shareholders regarding the sector
and has highlighted its intention to reduce its exposure to the sector as part
of its capital allocation policy. The Investment Adviser has been exploring
opportunities for the Company to reduce its exposure through disposals or
refinancings and expects to materially reduce investment in the sector in the
future.
Impact
3,050 - People housed in supported accommodation(1)
SDG alignment
SDG 9 - INDUSTRY, INNOVATION AND INFRASTRUCTURE
SDG 11 - SUSTAINABLE CITIES AND COMMUNITIES
1. Data at 30 June 2024 to facilitate data inclusion in the annual report.
Hilldale Housing Association
The Company has, since 2015, been invested in a portfolio of 20 properties
which provide 94 units that are leased to Hilldale Housing Association
('Hilldale'), a not-for-profit RP of social housing in the UK and a subsidiary
of Change Housing. Hilldale provides supported living accommodation to
vulnerable adults with learning disabilities, mental health issues, and other
physical or sensory disabilities. The Company's exposure is held through
senior debt facilities extended to two underlying borrowers.
Hilldale operates under a 'lease-based' model, holding properties under
long-term leases and letting them out to individuals in return for exempt
rents which are claimed from local authorities. As has been highlighted
previously, the specialist supported living industry has faced a number of
challenges in recent years as the sector has matured and regulations and
regulatory oversight have evolved. Lease-based social housing providers have
faced continued scrutiny from the RSH, in particular around their financial
viability given the structure under which they operate. Hilldale has not been
immune from this, and has been working to stabilise the business and improve
its financial position and standing with the regulator.
It has also been working through a period of increased costs driven by higher
energy prices and inflationary pressures. As a result, the Company has been
collaboratively working with Hilldale to ensure that support is provided both
to the company itself and to its tenants.
In 2023, the Company, via its borrowers, agreed to a cap on the inflation
applied to contractual lease rents due from Hilldale, limiting this to 7%
compared to CPI, which has been at times in excess of 10%. In March 2024, the
Company and its borrowers agreed to provide further support to Hilldale to
help it achieve its long‑term financial goals, providing a minor reduction
in lease rents payable and a one year break in lease rent indexation. This has
allowed Hilldale to navigate the challenges above, as well as the increased
costs which it has been facing. This agreement has aligned the leases with
industry standards, including the timing of rental indexation and the
provision of support for the improvement of EPC ratings across the portfolio.
As a result of this support, Hilldale is now in a good position and can
continue with its goal of supporting vulnerable individuals. Its relationship
with the Company remains a positive one.
Sustainability indicators
Environment
D
Average EPC rating(1)
Social
14
FTEs at portfolio asset level(1)
Governance
5
Governance policies implemented(1)
Financial
£17.7m
Valuation at 30 September 2024
1. Data at 30 June 2024 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.
26%
Percentage of portfolio by value
£244.1m
Valuation of sector
Background
Partnerships between the public and private sector 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 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 asset classes 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 in England. In Scotland and Wales, the devolved administrations
have designed versions of the Mutual Investment Model ("MIM") to facilitate
private finance which supports major capital projects, with success developing
healthcare, education and transportation projects. To date, these have been
large projects benefiting from significant competition for financing and
competitive rates from bank lenders.
Future outlook
There has been speculation that the new Government in the UK will develop a
funding model which encourages private capital to finance new social
infrastructure; however, there has not yet been any formal confirmation of
this. If this were to change, it would reverse long‑standing policies
against the procurement of new infrastructure using private sector finance,
supported by long‑term availability‑based payments. Should there be any
changes to procurement models, or attractive opportunities through the MIM
regime, the Company would consider investment opportunities alongside its
broader capital allocation policies.
Impact
26,196 - School places at portfolio assets(1)
SDG alignment
SDG 3 - GOOD HEALTH AND WELL-BEING
SDG 4 - QUALITY EDUCATION
1. Data at 30 June 2024 to facilitate data inclusion in the annual report.
GCP Healthcare 1A
The Company has issued a loan note secured against subordinated debt in the
New Queen Elizabeth II ('QEII') Hospital in Welwyn Garden City, and six Local
Improvement Finance Trust ("LIFT") projects in the South East and Midlands.
The primary counterparty for each project is the local Primary Care Trust
("PCT"). PCTs are statutory NHS bodies responsible for the delivery of health
services. The LIFT assets are underpinned via a head lease with Community
Health Partnerships ("CHP"), a Department of Health and Social Care owned
company.
The New QEII hospital in Welwyn Garden City is the largest asset, a day
hospital that opened in 2015 replacing the original Queen Elizabeth hospital
that opened in 1963. It provides a range of outpatient clinics and services
including blood tests, as well as an urgent treatment centre which is open
every day.
The hospital was designed to be sustainable and environmentally friendly; the
shape and layout of the building creates natural shading, the window glass
prevents the building from getting too hot and a planted green roof encourages
biodiversity.
The underlying loan is financed from the subordinated cash flows that arise
from the projects, with the investment returning an IRR of 7.7%. The loan
allows the Company to earn an attractive yield from a portfolio of mature,
well‑performing PPP/PFI projects that benefit from Government-backed cash
flows without taking equity risk, and therefore fits the Company's investment
strategy. The nature of the underlying projects (non-acute healthcare
services) is at the stable and secure end of the infrastructure spectrum of
asset types.
The Company's portfolio comprises loans secured against 40 healthcare projects
representing 9% of the portfolio by value.
Sustainability indicators
Environment
C
Average EPC rating(1)
Governance
8
Governance policies implemented(1)
Financial
£2.8m
Valuation at 30 September 2024
1. Data at 30 June 2024 to facilitate inclusion in the annual report.
Investment portfolio
Portfolio performance
The Company is exposed to a portfolio of 50 investments with a weighted
average annualised yield(1) of 7.8% and an average life of eleven years. The
portfolio has performed materially in line with expectations during the year.
The priority for the Investment Adviser has been executing the capital
allocation policy, as it actively works to refinance or dispose of investments
to achieve its stated aims.
During the year, the Company announced the disposal of its interest in loan
notes secured against Blackcraig Wind Farm, a 52.9MW onshore wind farm located
in Dumfries and Galloway, Scotland. The wind farm benefits from ROC subsidy
support and has been operational since 2018. The disposal occurred at a 6.4%
premium to the valuation at 31 March 2024 and generated cash proceeds of
£31.4 million.
The disposal was supportive of the Company's assessment of its conservation
approach to valuation methodology for the renewable energy assets in the
portfolio. In line with the objectives of the capital allocation policy, the
proceeds of the disposal were used to prepay drawn balances under the
Company's RCF.
From an operational perspective, the renewables portfolio is performing in
line with expectations, with the Company benefiting from diversification in
technologies across varying weather patterns. Across renewable energy assets,
wind speeds have been below long-term averages nationwide, combined with a
number of electrical faults and elevated curtailment in Northern Ireland,
which has impacted performance. Solar irradiance has been below budget, as the
UK has suffered from less sunshine hours than average over the last twelve
months. The hydro portfolio benefited from higher than average rainfall
levels in the winter period.
Previously, the Company reported ongoing challenges at a portfolio of
gas-to-grid anaerobic digestion projects in Scotland. Significant progress has
been made, completing grid upgrade works to provide a more reliable method of
injecting biogas into the gas grid and reducing the likelihood of curtailment.
Further development to implement carbon capture and storage capability at the
projects is in process, with planning permission granted on two of the three
sites, and the third application submitted for approval.
A portfolio of solar investments continues to be exposed to the outcome of
ongoing Ofgem audits relating to the accreditation and ongoing compliance of
eight ground-mount commercial solar projects accredited under the RO. The
Company had no further contact from Ofgem during the year. Three projects in
total in the portfolio have had their ROCs revoked. Eleven projects have been
audited and retained their ROCs, while a further eight remain subject to
audit.
A claim has been filed in connection with the Company's 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 £6.9 million, which were recognised at 30
September 2023.
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.
The Company made follow-on investments in respect of these assets during the
year, seeking to preserve and enhance value by performing repowering and
funding additional works or exploration. The total quantum of these
investments was £0.75 million.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Portfolio summary
Portfolio by sector type
PPP/PFI 26%
Healthcare 9%
Education 6%
Waste (PPP/PFI) 4%
Leisure 3%
Housing (PPP) 2%
Energy efficiency 1%
Justice 1%
Renewables 62%
Solar (commercial) 15%
Wind (onshore) 13%
Solar (rooftop) 10%
Biomass 10%
Anaerobic digestion 9%
Hydro 2%
Geothermal 1%
Gas peaking 1%
Electric vehicles 1%
SH 12%
Supported living 12%
Portfolio by income type
PPP/PFI 26%
Unitary charge 21%
Gate fee (contracted) 2%
Electricity (fixed/floor) 1%
Lease income 1%
ROC 1%
Renewables 62%
ROC 21%
Electricity (merchant) 17%
FIT 15%
RHI 3%
Electricity (fixed/floor) 3%
Pay per mile 1%
Embedded benefits 1%
Gas (merchant) 1%
SH 12%
Lease income 12%
Portfolio by annualised yield(1)
>10% 4%
8-10% 29%
<8% 67%
Portfolio by average life (years)
>20 14%
10-20 15%
<10 71%
Portfolio by investment type
Senior 53%
Subordinated 41%
Equity 6%
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 12.7%
3 Unitary charge
2 Gravis Solar 1
1 Commercial solar
2 9.7%
3 ROC/PPA/FiT
3 GCP Programme Funding S14
1 Biomass
2 5.4%
3 ROC/RHI/Merchant
4 GCP Bridge Holdings
1 Various(2)
2 5.0%
3 ROC/Lease/PPA
5 GCP Programme Funding S10
1 Supported living
2 4.5%
3 Lease
6 GCP Programme Funding S3
1 Anaerobic digestion
2 4.4%
3 ROC/RHI
7 Gravis Asset Holdings H
1 Onshore wind
2 4.4%
3 ROC/PPA
8 GCP Biomass 2
1 Biomass
2 4.1%
3 ROC/PPA
9 GCP Social Housing 1 B Notes
1 Supported living
2 3.8%
3 Lease
10 GCP Green Energy 1 Ltd
1 Onshore wind/Commercial solar
2 3.7%
3 ROC/FiT/Merchant
Top ten revenue counterparties % of total portfolio Top ten project service providers % of total portfolio
Ecotricity Limited 9.2% WPO UK Services Limited 21%
Viridian Energy Supply Limited 7.8% PSH Operations Limited 13%
Office of Gas and Electricity Markets 6.4% Vestas Celtic Wind Technology Limited 11%
Npower Limited 6.3% Solar Maintenance Services Limited 10%
Statkraft Markets Gmbh 5.9% A Shade Greener Maintenance Limited 9%
Bespoke Supportive Tenancies Limited 4.6% 2G Energy Limited 6%
Smartestenergy Limited 4.5% Pentair 4%
Total Gas & Energy Limited 4.4% Atlantic Biogas Ltd 4%
Good Energy Limited 4.4% Thyson 4%
Gloucestershire County Council 4.1% Gloucestershire County Council 4%
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 £1,046.6
million at the prior year end to £960 million. The principal value of the
portfolio at 30 September 2024 was £965.3 million (30 September 2023:
£1,001.1 million). Investments made and repayments received during the year
are summarised in the chart below:
Investment analysis for year ended 30 September 2024
Investments and repayments £m
New investments 2.6
Further advances 24.7
Scheduled repayments (39.2)
Unscheduled repayments (24.7)
Net investment/(repayment) (36.6)
Sector analysis
Investments (£m) Repayments (£m)
4.8 Anaerobic digestion (5.2)
3.7 Biomass (1.9)
0.4 Hydro (1.7)
0.2 Onshore wind (36.9)
- Commercial solar (5.0)
0.2 Rooftop solar (3.6)
8.7 PPP/PFI (8.2)
5.1 Supported living -
0.6 Geothermal -
0.9 Flexible generation -
- Electric vehicles (1.4)
0.1 EV charging -
2.6 Agriculture/ resource use -
Investments and repayments post year end £m
New investments -
Further advances 0.3
Scheduled repayments (2.1)
Unscheduled repayments (6.8)
Net investment/(repayment) (8.6)
Sector analysis post year end
Investments (£m) Repayments (£m)
0.2 Anaerobic digestion -
- Biomass -
- Hydro -
- Offshore wind -
- Onshore wind -
- Commercial solar (6.8)
- Rooftop solar (1.7)
- PPP/PFI (0.4)
- Supported living -
0.1 Geothermal -
- Flexible generation -
- Electric vehicles -
- EV charging -
- Agriculture/ resource use -
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
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 2024 was 7.95%, compared to 7.69% at
30 September 2023. 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 2024
was £960 million (30 September 2023: £1,046.6 million). The principal value
was £965.3 million (30 September 2023: £1,001.1 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
Impact Impact
Driver Description (£m) (pps)
Tax computations Impact of the latest tax computations 1.1 0.13
Principal indexation Contractual inflationary adjustment to loan principal 0.8 0.09
Other inflationary movements Other inflationary mechanics across the portfolio 3.2 0.37
Total upward valuation movements 5.1 0.59
Discount rates Increase in discount rates across the portfolio (10.6) (1.22)
Power prices¹ Power price movements in the year (13.7) (1.58)
Energy yield assessment Updated portfolio energy yield assessment (7.8) (0.90)
Project long-term budget Updates to the long-term budget for a waste wood power station (5.6) (0.65)
Inflation forecast Inflation movements in the year (3.4) (0.39)
Onshore wind asset outage One-off valuation adjustment to reflect an onshore wind asset outage (2.0) (0.23)
Actuals performance Impact of renewables actual generation lower than forecast (3.0) (0.35)
Other downward movements Other downward movements (3.2) (0.37)
Total downward valuation movements (49.3) (5.69)
Interest receipts Net valuation movements attributable to the timing of debt service payments (7.6) (0.88)
between periods
Net realised gains Historic indexation realised on loan repayment 1.9 0.22
Total other valuation movements (5.7) (0.66)
Total net valuation movements before hedging (49.9) (5.76)
Commodity swap - unrealised² Derivative financial instrument entered into for the purpose of (0.4) (0.05)
hedging electricity price movements
Commodity swap - realised² 0.9 0.10
Total net valuation movements after hedging (49.4) (5.71)
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's focus this year has been on executing its capital allocation
policy, however, it continues to engage with market participants to stay
informed of transaction activity and potential investment opportunities across
existing sectors and emerging technologies. With the current elevated Bank of
England base rates, the cost of debt from banks, offered at a margin over
SONIA, is higher than it has been historically, which means the Company is
more competitive than it would be in a low-rate environment. Current market
opportunities offer the potential to reinvest at a lower risk-adjusted return,
or to seek out significantly higher returns. The Company also has potential
follow-on investment opportunities in the existing portfolio, benefiting from
the known credit of existing counterparties.
Portfolio sensitivities
This section details the sensitivity of the value of the investment portfolio
to several 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.
Renewable 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 Higher valuations
(pence per share)
Electricity Futures (three years) and Afry four quarter average long term. Electricity Afry Q3 2024 Central-Low (3.25) 3.57 Aurora Q3 Central 2024
Generator Levy applied until
price forecast(1)
31 March 2028
Capture prices Asset-specific curve applied to each project Higher capture prices (0.60) 3.17 No capture prices
(wind, solar)
Asset life Lesser of planning, lease, technical Contractual limitations - 2.83 Asset life of 40 years (solar) and 30 years (wind)
life (20-25 years)
Taxation Long-term corporation tax assumption of 25.0% from 1 April 2023 Long-term corporation tax assumption of 25.0% from 1 April 2023 - 0.68 Short-term corporation tax assumption of 25.0% then 19.0% thereafter
Indexation OBR forecast in the short term, followed by long-term RPI of 2.5% OBR forecast in the short term, followed by long-term RPI of 2.5% and - 0.29 0.5% increase to inflation forecasts
long-term CPI of 2.0%
and long-term CPI of 2.0%
1. Lower valuations updated to reflect the Afry Q3 2024 Central-Low curve,
compared to the previous year which used the Afry Q3 2023 curve.
Inflation
A total of 47% 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 3.0%).
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 assumption (2.0%) (1.5%) (1.0%) (0.5%) 0% 0.5% 1.0% 1.5% 2.0%
NAV impact (pence per share) (6.09) (4.69) (3.21) (1.64) - 1.73 3.71 5.80 7.99
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.
The Company continues to account for the impact of the UK Government's
Electricity Generator Levy on energy generators. However, power prices have
softened significantly since the charge was implemented and are not forecast
to be greater than the benchmark level (£75 per MWh) consistently in the
future. As such, the impact on the Company's portfolio has been minimal. More
broadly, 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.
Over the course of the year, both near-term futures prices and longer-term
Afry projections have softened, and have displayed considerably less
volatility than in recent years. In the short term, healthy European gas
supplies have helped reduce price expectations, with levels significantly more
stable than they were this time last year. In the long term, ambitious
decarbonisation targets from the new Government, and the potential for new
policies to incentivise deployment, have the potential to significantly change
the future generation mix. The shift away from traditional thermal generation
in the medium to long term and decreased technology costs have reduced the
margin price of the system. Recent geopolitical developments in the Middle
East and the continuing conflict in Ukraine have the potential to increase oil
prices, which could feed through into electricity prices.
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 (31 March
2025), 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 price sensitivity (9.11) (4.61) - 4.46 8.92
Fixed PPA sensitivity 0.24 0.12 - (0.12) (0.24)
Total (8.87) (4.49) - 4.34 8.68
Hedge sensitivity 0.02 0.01 - (0.01) (0.02)
Net sensitivity (pence per share) (8.85) (4.48) - 4.33 8.66
Hedging
As further detailed in note 18 to the financial statements, the Company
continues to engage in a hedging strategy, entering financial derivative
arrangements to hedge a portion of its financial exposure to merchant
electricity prices on a seasonal basis. The Company continues to lock in
attractive electricity prices by fixing prices under PPAs at an asset level,
as well as mitigating volatility through hedging arrangements at a Company
level. During the year, the Company engaged with an additional hedge
counterparty, diversifying its pool of potential hedge providers and
optimising the rates offered.
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.
Financial review
Financial performance
It has been a challenging financial year for the Company, with investment
revaluations driven by electricity prices and inflation negatively impacting
profitability. This year has seen a material cooling in both factors. Refer
above for analysis of valuation movements.
Total income generated by the Company was £38.3 million (30 September 2023:
£51.7 million), comprising loan interest of £87.3 million, net unrealised
valuation losses on investments of £51.8 million, net realised gains on
investment disposal of £1.9 million and other income of £0.5 million (30
September 2023: loan interest of £80.8 million, net unrealised valuation
losses on investments of £51.6 million and net realised gains on investment
disposal of £0.1 million). Refer to note 3 for further information.
Net gains on derivative financial instruments at year end were £0.5 million
(30 September 2023: £12.9 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 £11.3 million (30
September 2023: £11.4 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.
The Company remains modestly geared at the year end, with a loan to value(1)
of 6.2%. Finance costs have decreased year-on-year to £7.5 million (30
September 2023: £9.4 million), due to the reduction in the drawn balance of
the RCF following the net repayment of £47 million during the year.
Total profit and comprehensive income has decreased from £30.9 million in the
prior year to £19.5 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.
Revolving credit facility
The Company has credit arrangements of £150 million across four lenders:
Lloyds, AIB, Mizuho and Clydesdale. At year end, £57.0 million was drawn and
the terms in place are summarised below:
Facility Size Margin 2024 Expiry
RCF £150m SONIA +2.0% March 2027
The RCF is due to expire in March 2027. The Investment Adviser completed the
refinancing of the previous facility in March 2024, reducing total commitments
by £40 million, in line with the Board's stated intention to reduce leverage
by the end of 2024.
The total drawn balance of the facility has reduced from £104 million at
30 September 2023 to a materially reduced level of £57 million at year end
following repayments of the RCF throughout the year.
Further details are disclosed in note 15 to the financial statements.
Net assets
The net assets of the Company have decreased from £956.6 million at 30
September 2023 to £913.1 million at 30 September 2024. The Company's NAV per
share has decreased from 109.79 pence at the prior year end to 105.22 pence at
30 September 2024, a decrease of 4.2%. This is primarily due to downward
revaluations of investments as detailed above.
Cash generation
The Company received debt service payments of £129.0 million (30 September
2023: £136.8 million) during the year, comprising £65.1 million of cash
interest payments and £63.9 million of loan principal repayments (30
September 2023: £58.8 million and £78 million). The Company paid cash
dividends of £60.8 million during the year (30 September 2023: £61.8
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 the
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 the
summer 2024 season at a fixed price of £62 per MWh and the winter 2024/25
season at a fixed price of £82.20 per MWh. The mark‑to-market of the hedge
at 30 September 2024 was a liability of £0.1 million. Further details on the
Company's electricity price exposure and hedging strategy can be found above
and in note 18.
Share price performance
The Company's total shareholder return(1) was 28.4% for the year (30 September
2023: -25.2%) and 101.8% since its IPO in 2010. During the year, the Company's
shares have traded at a discount(1) to NAV, with an average of 32.4% for the
year and a discount(1) of 25% at the year end. The shares have traded at an
average premium(1) of 3.8% since IPO (30 September 2023: 7.9% premium(1) since
IPO). The share price at 30 September 2024 was 78.60 pence per share (30
September 2023: 67.70 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 2024, the Company paid a dividend
of 7.0 pence per ordinary share (30 September 2023: 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, which is; 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 2024 30 September 2023
Earnings cover(2) Notes £'000 pps £'000 pps
Total profit and comprehensive income 19,514 2.25 30,905 3.50
Dividends paid in the year 9 60,750 7.00(3) 61,785 7.00
Earnings cover(2) 0.32 0.50
30 September 2024 30 September 2023
Adjusted earnings cover(2,4) Notes £'000 pps £'000 pps
Loan interest accrued(2) 79,808 9.20 86,911 9.86
Other income 3 493 0.06 9,544 1.08
Total expenses 5, 19 (11,338) (1.31) (11,422) (1.30)
Finance costs 6 (7,477) (0.86) (9,378) (1.06
Adjusted net earnings(2) 61,486 7.09 75,655 8.58
Dividends paid in the year 9 60,750 7.00(3) 61,785 7.00
Adjusted earnings cover(2) 1.01 1.23
30 September 2024 30 September 2023
Cash earnings cover(2,4) Notes £'000 pps £'000 pps
Adjusted loan interest received(2) 74,426 8.58 69,613 7.89
Total expenses paid(2) (10,612) (1.22) (11,016) (1.25)
Finance costs paid (6,550) (0.75) (8,716) (0.99)
Total net cash received(2) 57,264 6.61 49,881 5.65
Dividends paid during the year 9 60,750 7.00³ 61,785 7.00
Cash earnings cover(2) 0.94 0.81
30 September 30 September
2024 2023
Notes Shares Shares
Weighted average number of shares 10 867,940,448 881,850,353
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. Includes 2023 fourth interim dividend of 1.75 pence per share paid in the
2024 financial year.
4. Principal repayments are excluded for the purpose of calculating dividend
cover.
Sustainability
Statement from the Chair of the Sustainability committee
Dawn Crichard
Chair of the Sustainability committee
I am pleased to present the sustainability report for the Company for the
year ended 30 September 2024. As Chair of the Sustainability committee, I am
excited to share the progress the Board has made against the Company's ESG
objectives as described in the 2023 annual report, as well as our plans for
the future.
This year, the Company introduced a formal ESG policy, which formalises its
ESG processes. The Investment Adviser also obtained B Corp certification,
formalising its sustainable and long-term business model, and providing a
rigorous framework against which to benchmark its sustainable activities. The
Investment Adviser improved its PRI score for the second consecutive year,
highlighting its commitment to continual improvement in its ESG focus and
reporting. Both achievements complement the Company's Green Economy Mark from
the LSE, which was awarded in 2020 in recognition of the Company's
contribution towards driving a greener economy.
Infrastructure has a positive purpose and the Company's assets have a strong
social and environmental impact. The Board aims to enhance the integration of
ESG criteria in the Company's operations, ensuring that the portfolio not only
addresses the current needs of stakeholders, but is also able to adapt to
future challenges and needs. The Company finances infrastructure which
benefits end users in society and its portfolio contributes to the generation
of renewable energy. The Board is committed to creating a positive social and
environmental impact through the Company's investments.
With the election of the new Government in July 2024, it is evident there may
be greater opportunity for private investment in the renewable energy
infrastructure sector.
The new Government has pledged to work with the private sector to double
onshore wind, triple solar power and quadruple offshore wind by 2030, with
increased spending across the renewable energy infrastructure sector. The
Company's investments in financing renewable energy assets are pivotal to this
journey, with 62% of the portfolio generating 1,320 GWh of renewable energy
this year, sufficient to power 488,842 average households(1).
The Company's investments in the supported living sector provide support for
vulnerable adults, helping those in the community that need it the most. These
properties blend specially adapted residences with purpose-built facilities,
facilitating the delivery of high-quality supported living services.
PPP/PFI assets in the Company's portfolio are integral to the functioning of
UK society, and provide long-term partnerships with the public sector. Within
this sector, the Company's investments span education, healthcare, waste,
leisure and housing. Highlights include investments secured against 49 schools
which offer 26,196 school places and 40 healthcare facilities providing beds
for 1,649 patients.
There is no doubt that investing in clean energy infrastructure is key to
protecting our planet from climate change. The Company aims to build a
sustainable and positive future through its investments in renewable energy,
supported living and PPP/PFI projects. This is a future that combines social
responsibility with environmental stewardship.
1. Source: Ofgem, average gas and electricity usage.
ESG policy
The Company has strong ESG credentials, demonstrated through the positive
impact of its portfolio. The Company invests in assets that are integral to
society, including those that contribute to a greener economy. As a result,
the Company aligns with certain SDGs, which promote sustainable development
globally through social, economic and environmental initiatives.
This year, the Company implemented an ESG policy to formalise its ESG
processes and ensure its responsible investment practices align with the
Investment Adviser's Responsible Investment policy.
The ESG policy addresses three key areas, outlined below:
Investment policy
The Company seeks investment opportunities which generate sustainable returns
whilst simultaneously having a positive environmental and social impact. This
is achieved through positive and negative ESG screening, detailed ESG due
diligence and comprehensive ongoing monitoring and engagement.
Corporate governance
The Board is committed to undertaking its activities in a carbon-neutral
manner, utilising carbon offsetting measures where necessary.
The Board seeks to govern the Company in accordance with all applicable laws,
rules and regulations, as well as corporate governance best practice.
The Board has established a Sustainability committee responsible for
developing, implementing and monitoring the Company's ESG policies and
procedures.
The Board aims to fully comply with the recommendations of the TCFD and
consider other similar initiatives.
Activities of key service providers
The Company seeks to influence its main service providers to ensure they are
following best practice regarding ESG matters.
The ESG policy is split into seven sections, covering screening, ESG due
diligence, monitoring and engagement, corporate governance, modern slavery,
corporate ESG initiatives and ESG frameworks.
The ESG policy can be found on the Company's website.
Q&A with Dawn Crichard, Chair of the Sustainability committee
How does the Company approach climate change risk, and what specific measures
has it taken to reduce the carbon footprint of its portfolio?
The Company includes climate change risks within the emerging risks category
of its risk management framework. Climate change risks are both physical and
transitional, and the Board considers climate change risks a long-term issue.
The impact of climate change on the Company's portfolio is monitored by the
Board, the Sustainability committee and the Investment Adviser. This includes
monitoring and assessing the impact of changing Government policies on the
investment portfolio and the Company as a whole. The Investment Adviser, on
behalf of the Company, carries out an annual climate risk assessment for each
underlying portfolio asset to assess the actual and potential impact of
climate-related risks across the portfolio. The analysis considers both
physical and transition risks for each asset and is supported by expert third
party consultants.
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 encourage energy efficiency projects at
portfolio assets where there are opportunities to do so; for example, the
Company's 'SolarCatcher' initiative supported the installation of solar panels
and electric vehicle charging points at schools in England to help reduce
energy costs and incentivise increased electric vehicle uptake among
employees.
As the Company is a debt provider that doesn't own or control 94% of assets in
the portfolio, there are certain limitations in the Company's influence on
portfolio assets. As such, the Company is limited in its capacity to reduce
the carbon emissions of its assets but it can influence them by supporting
energy-saving schemes.
What steps has the Sustainability committee taken to promote diversity, equity
and inclusion ("DEI")? How does it maintain progress in these areas?
The Board considers DEI an important factor in ensuring all Board members have
the right balance of skills, experience and independence to make informed and
knowledgeable decisions. The right blend of perspectives is critical to
ensuring the success of the Company. The Board monitors the DEI criteria of
the companies it invests in through its annual data collection project.
The Board maintains 50% gender and ethnic diversity, with 49% gender diversity
of SPV company boards, increasing from 36% in the previous year. The Board and
the Investment Adviser recognise that gender diversity is a challenge in the
investment industry, and that a concerted and collaborative effort is required
to make the financial services sector more open and attractive for women at
all levels of seniority. As such, the Investment Adviser supports the Young
Women Into Finance Scholarship programme, a not-for-profit social organisation
dedicated to the eradication of gender bias for new graduates entering the
finance industry.
The Investment Adviser also participated in the 10,000 Black Interns programme
this year for the second year, which offers paid internship opportunities
across more than 25 sectors, along with training and development
opportunities.
This commitment to paid internships reflects the Investment Adviser's passion
for inspiring change and helping young people achieve a career in the
investment industry.
What are the Board's expectations regarding ESG reporting and transparency
from portfolio companies? How does the Investment Adviser ensure companies are
meeting these standards and the data they provide is reliable?
The Investment Adviser carries out an annual data collection project to
collect material ESG metrics from the underlying portfolio. 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.
In addition, key relevant ESG indicators are monitored by the Investment
Adviser's portfolio management team. The Investment Adviser seeks to engage
with equity owners and/or operators of projects to understand the ESG factors
relevant to those projects or properties, and, where possible, use influence
as a lender of capital or investor to manage exposure to ESG risks.
This year, GHG emissions verified data was 74%, compared to 53% in the prior
year. This increase in supporting evidence for Scope 1, 2 and 3 suggests that,
with the support of the Investment Adviser, underlying assets are becoming
more familiar with the data collection project. Changes in carbon footprint
data are monitored over time and reported on in the annual report.
For the second year, the Company utilised the services of Aardvark, an
independent 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 and provided limited assurance. As part of this, Aardvark
reviewed primary evidence supporting the data collection and, where this was
absent, they reviewed the reliability of secondary data. Aardvark have also
made recommendations on how the Company can improve its data collection so
that it can prepare for a reasonable assurance process in future.
The Company engaged Terra Instinct, a sustainability advisory firm, to perform
a gap analysis on the Company's TCFD disclosures and climate risk assessment.
The gap analysis examined the Company's current approach to the disclosures
and climate risk assessment, identifying specific areas for recommendations on
how it could be improved.
In addition, new investments provide the opportunity to include data
requirements as part of the loan documentation.
How does the Sustainability committee and the Investment Adviser ensure that
the Company is capitalising on Government policy initiatives that support
increased investment in sustainability?
Government policy supporting infrastructure investment is likely to grow with
the new Government's ambitious decarbonisation targets. The new Government has
ambitions to accelerate the deployment of renewable energy, which is expected
to involve a massive overhaul of the UK renewable energy sector and is set to
increase incentives for private investment in renewable energy infrastructure.
As an experienced infrastructure provider, the Company is well placed to
capitalise on Government policies that incentivise this investment.
As such, increased Government policy support in this area may incentivise the
Company to expand into new areas for investment, and as part of this, the
Sustainability committee works with the Investment Adviser to incorporate and
monitor sustainability considerations into the investment process. In
addition, the Investment Adviser is an experienced investor in new and
existing green technologies and opportunities. This experience enables the
Company to react quickly to new Government initiatives and the Board regularly
reviews and monitors these opportunities.
What metrics or benchmarks does the Board use to measure the success of its
ESG policies over time?
As the Company invests in infrastructure that is integral to society, the
Company's activities align with certain SDGs, as outlined by the UN. When
developing the Company's focus areas, the Board considered the SDGs that have
the highest materiality to the Company and sector and the SDGs that it may
have an impact on, as well as those that have the highest impact on
stakeholders. The SDGs are important to investors and there is a strong
business case for investing in sectors aligned with the SDGs. The Company
reports its alignment with the SDGs to highlight its responsible investment
efforts. This reporting is key to building trust, transparency and
accountability with stakeholders. The Investment Adviser also reports its
responsible investment activities to the PRI through its annual assessment
process. The PRI reporting process is the largest global reporting project on
responsible investment. This year, the Investment Adviser improved its PRI
assessment score, scoring an average of 80 points out of 100, with scores
higher than the median in each category. Refer below for more information.
ESG integration
The Company and the Investment Adviser have made considerable progress with
integrating ESG considerations across the Company.
Governance
2023
· The Sustainability committee reviewed and updated the Company's
Modern Slavery statement.
· Blackcraig Wind Farm achieved a GRESB rating of four green stars
and 90 out of 100 points.
· The Investment Adviser achieved its aim of carbon neutrality by
2023.
· The Investment Adviser considered the application of the SFDR to
the Company and undertook training on the topic.
2024
· The Company formalised and published an ESG policy, which
encompasses all aspects of responsible investment.
· The Investment Adviser achieved B Corp certification with a score
of 99.4.
· Biodiversity and DEI considerations were added to the ESG due
diligence process, as well as a climate risk assessment for all new
investments.
· The Investment Adviser began a process which ensures each
potential asset undergoes a credit risk assessment that incorporates
ESG risk.
2025 (and further)
· The Company and Investment Adviser to apply lessons learnt 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 at the Investment Adviser.
· Continue to embed ESG considerations into the investment process
more broadly, utilising third party consultants as appropriate.
· The Company to consider publishing a separate Human Rights
policy.
· The Investment Adviser to continue reviewing responsible
investment practices to improve its B Corp score over time.
Reporting
2023
· The Company continued to develop its data collection project, and
collection of ESG metrics and targets.
· The Company appointed an external consultant to review carbon
emissions data.
· The Investment Adviser expanded its Responsible Investment report
to include additional information under TCFD.
· The Company broadened its TCFD reporting to include a partial
2ºC warming scenario under strategy c) disclosures.
· The Company expanded its climate risk assessment to include
opportunities and a partial 2ºC climate scenario.
· The Investment Adviser reviewed the potential biodiversity impact
for two portfolio assets and undertook training on biodiversity net gain
opportunities.
2024
· Engaged Terra Instinct to perform a gap analysis on the Company's
climate risk assessment.
· Expanded TCFD reporting to include all physical risks in a 2°C
global warming scenario.
· Continued to work with Aardvark to review the data collection
project and verify the calculated carbon emissions data, working towards
reasonable assurance in the future.
· Analysed the UK's SDR and investment label rules.
· Engaged Terra Instinct to perform a gap analysis on the Company's
TCFD disclosures.
· Terra Instinct undertook analysis to prepare the Company for
future reporting under the ISSB published standards.
2025 (and further)
· The Company to consider further ESG metrics and targets and
improve data collection coverage and quality.
· The Company to continue its project to obtain reasonable
assurance over its carbon emissions data.
· Continue to prepare to report under new ISSB standards that are
applicable to the Company.
· Consider recommendations from the ESG consultants with a view to
implementing in future years.
· Consider material and relevant specific ESG targets for the
Company under TCFD metrics and targets c) disclosures.
· The Company to continue developing its climate risk assessment in
line with best practice recommendations.
· Assess the feasibility of making the data collection process a
half-yearly exercise and develop training in this area.
· Consider reporting under SDR when the Company is brought into
scope.
Awareness
2023
· The Investment Adviser introduced biodiversity considerations
into its investment process and ran biodiversity training for staff
members.
· The 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
· The Investment Adviser continued its involvement with the 10,000
Black Interns programme and the Young Women Into Finance programme.
· The Investment Adviser participated in a mid-term review by
Investors in People to review its status.
· The Investment Adviser expanded its charity of the year scheme to
include more charities and continued to offer paid volunteering days to
employees.
2025 (and further)
· The Company to implement biodiversity net gain reporting for
portfolio assets.
· The Company to produce a separate ESG report.
· Improve the coverage of the Company's data collection project.
· Continue to work with partners to offer further internships with
the Investment Adviser.
· The Investment Adviser to introduce a formal recruitment policy
which incorporates DEI criteria where possible.
Responsible Investment
Investment process
The Investment Adviser has been a signatory to the 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 its investment
activities with the broader interests of society and has committed to their
adoption and implementation. ESG considerations are integrated into the
Company's investment decisions and are led by the investment team.
As part of its responsibilities as a signatory to the PRI, the Investment
Adviser is required to report publicly on its responsible investment
activities each year. In turn, it receives a PRI assessment report. The
assessment uses the reported information of signatories and outlines how
signatories' responsible investment practices compare year-on-year, across
asset classes, and with peers at a local and global level.
This year, the Investment Adviser improved its PRI assessment score, scoring
an average of 80 points out of 100 and four out of five stars for each
category. Areas of improvement from this year's score were policy, governance
and strategy, which improved by a total of nine points, and fixed income,
which also increased by nine points. This was an improvement on 2022's score
of an average of 76 points.
The Investment Adviser continued to score higher than the median in each
category. The chart on page 64 of the full annual report on the Company's
website provides further information on the Investment Adviser's results.
Investment Adviser PRI scorecard - year to 31 December 2023.
AUM coverage
Policy governance and strategy | 89%
Direct - Listed equity - Active fundamental >50% | 73%
Direct - Fixed income - Corporate >+10 and <=50% | 79%
Confidence building measures | 80%
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 being approved, the relevant Following execution and investment, key relevant The Investment Adviser reports on an annual basis, with its Responsible
Investment report published each year. The Responsible Investment report sits
for investments that promote sustainability, conform with investment team assess how ESG indicators are monitored alongside a PRI report, which summarises the Investment Adviser's responsible
investment activities.
the Investment Adviser's values and benefit society, including, the investment fares against key relevant ESG criteria and by the Investment Adviser's portfolio management team.
but not limited to, the areas of climate change mitigation and adaptation, includes an assessment of ESG characteristics in every The Investment Adviser seeks
energy transition, critical infrastructure, decarbonising transportation,
The Investment Adviser applies the recommendations of the TCFD in its own
affordable living, social housing, education and healthcare. investment proposal submitted to engage with equity owners and/or operators of projects reporting and encourages the application of the TCFD framework, in its funds,
in line with reporting requirements.
to the Company's Investment committee for approval. to understand the ESG factors relevant to those projects or properties, and,
where
The screening excludes investments which focus on non‑medical animal
testing, armaments, alcohol production, pornography, tobacco, coal production
possible, use influence as a lender of capital or investor to manage exposure
and power, and nuclear fuel production. Investments with ongoing or persistent The assessment typically to ESG risks.
involvement in
covers ESG-related risks and opportunities, and, to the
human rights abuses are also excluded.
extent applicable, 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 DEI. 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, The Investment Adviser's approach to stewardship and engagement is based on
staff training and making recommendations to the the Principles of the UK Stewardship Code 2020 and is in line with its
philosophy on responsible investing.
board of the Investment Adviser.
The Investment Adviser has a clearly defined governance structure with
detailed processes that cover business operations, including investment
management and portfolio monitoring and reporting.
Portfolio governance
Governance at the Company level is clearly managed and articulated to achieve
the Company's investment strategy, including managing risks and creating a
positive environmental and social impact. The Investment Adviser engages with
the underlying assets' boards to enhance governance at the portfolio level.
Investment documentation issued by the Company includes standard provisions to
ensure effective governance within investee companies including compliance by
these 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. 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 collects diversity data
on new investment opportunities and the Investment Adviser includes diversity
data in its responsible investment checklist, collecting data from potential
borrowers that approach the Company. Diversity data is also collected from
borrowers as part of the data collection project.
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, 22 site visits were conducted, representing 25% of the
portfolio by value and 24% of all SPV companies, including visits to the UBB
Waste project (refer above), and renewables and PPP/PFI assets in various UK
locations.
SDR
During the year, the Company analysed the new Policy Statement on
Sustainability Disclosure Requirements ("SDR") and investment labels. This
Policy Statement sets out the UK FCA's final rules on anti-greenwashing, a new
labelling regime, naming and marketing rules, product and entity-level
disclosures, as well as distributor obligations. As the Company is domiciled
in Jersey, it is a non-UK AIF and is therefore unable to use a sustainability
label at present. If HMT extends the SDR regime to overseas funds, the Company
will consider the implementation of a label. The Company is currently in
compliance with the anti-greenwashing rules issued under SDR.
Data collection project
This year, the Investment Adviser continued to improve its data collection
project to collect material ESG metrics from the underlying portfolio for the
twelve month period to 30 June 2024(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.
This year, environmental coverage increased from 72% in the prior year to 77%
this year. This was primarily due to an increased response rate from
borrowers.
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 94% of assets in the portfolio.
In the drive for increased transparency in reporting across the industry, the
Company has actively sought to improve its data collection project by
obtaining limited assurance of its carbon footprint data for the second
consecutive year. The Company continued its engagement 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 emissions calculations and data for
covering Scope 1 and 2 with the inclusion of Scope 3 as far as is practically
possible. It was found that a total of 74% of the assets by value had
emissions calculations that were supported by primary or secondary evidence.
1. Period chosen to facilitate data inclusion in the annual report.
This was a marked improvement from the previous reporting year where just 53%
of the portfolio-level emissions were supported by primary and/or secondary
evidence. As part of this, Aardvark reviewed where the use of estimated data
for the missing data would be useful or potentially inaccurate.
The Company continues to prepare for a reasonable assurance process in the
future, with the assistance of Aardvark, who have provided valuable feedback
regarding the Company's carbon emission metrics over the last two years,
supporting ongoing enhancement.
Whilst 26% of the emissions data cannot be verified at this stage, the
reporting and verification process by Aardvark has led to the development and
identification of further steps the Company can take to improve this process
in future reporting periods.
The Company also worked with Terra Instinct, an independent external
consultant, to advise on the data collection project. This included advice on
the ESG data collection approach based on industry frameworks.
They also conducted an independent review of the Company's TCFD disclosures
for any significant inconsistencies and provided recommendations for areas
where additional data could be presented.
Portfolio data coverage(1)
Environmental 5%(2)
2024( ) 77%
2023( ) 72%
Social (1)%(3)
2024( ) 73%
2023( ) 74%
Governance (6%)(4)
2024( ) 80%
2023( ) 86%
Carbon footprint(5)
2024
Primary and secondary data 74%
Estimated data 0%
No data 26%
2023
Primary and secondary data 53%
Estimated data 31%
No data 16%
Impact (2%)(6)
2024( ) 94%
2023( ) 92%
1. Percentage of data entries for applicable KPIs per ESG area weighted by
portfolio value.
2. Air pollutants emitted, water consumption, waste generated/disposed, energy
conservation strategies and net habitat gain or loss.
3. Total FTEs, hours worked, satisfaction surveys, absenteeism rates, H&S
metrics, community benefit fund contribution and key engagement initiatives
with local community/stakeholders.
4. Gender diversity, Board reporting, ISO alignment/certification, green
building certificates, governance and regulatory policies in place and audited
accounts.
5. Fuel combusted, imported energy use, water, waste, biogenic emissions,
mitigated emissions (landfill), renewable energy and biogas exported,
buildings' EPC ratings and energy efficiency plans.
6. People housed, school places, hospital beds and renewable energy and biogas
exported.
Corporate ESG initiatives
The Board promotes 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.
B Corp
In April 2024, the Investment Adviser was awarded a B Corp certification. This
involved the Investment Adviser undergoing a 'B Impact Assessment', which
measures a company's entire ESG performance. To achieve certification, B Corps
must score at least 80 points, with the assessment evaluating a company's
practices and outputs across five categories: governance, workers, community,
the environment and customers. The Investment Adviser started the process in
2022 and received B Corp certification in April 2024, with a score of 99.4.
Carbon emissions
The Company and the 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 the 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,
meaning it scored over 70% in a BREEAM assessment, which measures the
sustainability performance of buildings. 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.
The Investment Adviser fully offsets its 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 it is a useful starting point. The aim is to
reduce emissions with the intention of continuing to investigate and follow
best practice in this area.
Investors in People
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 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.
Investors in People carried out a review of the Investment Adviser's progress
this year, which involved conducting a business-wide employee feedback survey
and holding focus groups with a sample of 13 employees across the business.
The survey had a participation rate of 82%. Feedback from the review
indicated a positive shift in transparency across the business, as well as
improvements in leadership. The review also provided the Investment Adviser
with an action plan which identified areas of improvement and actions that can
be taken to implement this over time.
Volunteering initiatives
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, the charity of the
year scheme was split between charities, including Street Child, Guide Dogs,
and Trees for Cities. A total of 19 employees participated with more than 102
hours spent volunteering. This provided employees with an opportunity to work
as a team and engage with the local community. The total amount raised for
charities this year was almost £47,000.
Diversity, equity and inclusion
The Investment Adviser has a formal diversity policy, and holds diversity and
equality training for all employees. The Investment Adviser also carries 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 DEI, while also considering specific areas of
focus.
Internships
The Investment Adviser also continued its participation 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 two paid
internships for students as part of the Young Women in Finance programme, as
well as hosting two students for work experience placement as part of the
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. One other internship was offered to an ESG masters student. The
interns worked across teams at the Investment Adviser with a particular focus
on the Company's climate risk assessment.
19
Employees volunteered
102
Hours spent volunteering
£47,000
Raised for charity
Gender diversity(1)
Gender of employees
Female 38.9%
Male 55.6%
Prefer not to say 5.5%
Ethnic diversity(1)
Ethnic group
White British 58.3%
Ethnic minority 36.1%
Prefer not to say 5.6%
1. As at 31 March 2024.
A day in the life of an intern
Morning:
As an intern at the Investment Adviser, my mornings are usually occupied with
tasks like summarising initial investment opportunities and participating in
team calls and meetings. These tasks offer a first-hand glimpse into the world
of infrastructure investment, which I find very exciting. Occasionally, I get
the chance to visit the Company's assets, which adds a different dimension to
my experience.
Skill building:
Financial modelling is a critical skill in finance, and the Investment Adviser
has a structured modelling programme in place for interns. This includes a
financial modelling exercise that I work on week-by-week. It's a hands-on way
to enhance my financial analysis skills and gain practical experience in asset
management.
The team:
One of the highlights of my internship is informal coffee meetings with team
members. These conversations not only allow me to understand their career
paths and roles within Gravis but also provide opportunities to assist with
any tasks they might need help with. It's a dual-purpose opportunity -
learning and contributing simultaneously.
Regular check-ins:
I have regular catch-up meetings with my supervisor, where we discuss my
current work, address any questions or challenges I'm facing, and delve into
career-related advice. It's a mentorship opportunity that helps me navigate my
internship and future career prospects effectively.
Presentation:
Towards the end of my internship, I was allocated time to work on a
presentation for the team. The presentation centred around a regulatory update
that had significant implications for asset managers, particularly regarding
disclosure requirements.
In the last week of my internship, I presented to the entire infrastructure
team in a collaborative session with several questions from the team. This
experience was the highlight of my internship, as it offered a practical
application of my skills, and allowed me to showcase my contribution to the
team's knowledge and efforts in this area. I also introduced myself to the
Board of the Company and explained what I had been working on, which included
presenting my findings.
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 developing its
2ºC or lower scenario, and has included more physical risks and improved its
data sources.
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. As a debt fund, the Board is
committed to a thoughtful process of establishing material, accurate and
relevant climate-related metrics and targets. It intends to continue
developing its approach in the coming years, including its aim of obtaining
reasonable 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.
A. The Board's oversight of climate‑related risks and opportunities
The Board is responsible for setting and monitoring the Company's strategy,
which includes consideration of 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 own
committees.
The Company's committees contribute as follows:
· Audit and Risk committee: responsible for climate‑related
disclosures and sustainability risk assessment
· Sustainability committee: developing, implementing and monitoring
ESG policies and activities
· Investment committee: considering ESG impacts during the
investment due diligence process
· Management Engagement committee: ensuring key suppliers operate
in a socially responsible manner
The Sustainability committee formally meets once a year and engages informally
with the Investment Adviser and other service providers regularly, including
participating in briefings and new initiatives. It formally 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 Investment Adviser utilises external consultants as appropriate, and
acquires expertise where needed, including through recruitment. This year, the
Investment Adviser funded five ESG-focused internships to support the work the
Board is doing as part of its ESG processes and to assist the Investment
Adviser with the climate risk assessment and ESG policy. The internships
enabled the Company to benefit from a fresh, more diverse perspective with
enthusiasm and expertise across environmental matters.
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. The
Investment Adviser's in-house expertise includes a Head of Private Credit who
has significant experience in incorporating ESG factors into credit ratings.
Members of the investment team also have significant experience in sustainable
investing. Responsible investment processes are overseen by the Responsible
Investment committee, which reports to the board of the Investment Adviser.
Further information is provided on pages 106 to 109 in the full annual report
on the Company's website.
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.
ESG risks are also incorporated in the credit risk management process. The
Investment Adviser identifies relevant ESG risks which could materially impact
the credit quality of borrowers. The relevance and materiality of those ESG
risks are identified, recorded and assessed. The Investment Adviser assigns an
ESG risk (low, medium and high) to each loan to reflect ESG risks potentially
impacting the ability and willingness of the borrower to meet its financial
obligations on a timely basis. The risk of an asset becoming obsolete because
of the energy transition or physical climate risk (such as flooding or
drought) or governance without the necessary controls in place, would
be categorised as loans with a high ESG risk.
This information is presented to the Investment committee as part of the
investment approval process with the Board directly or indirectly addressing
climate-related risks and opportunities when evaluating and approving
new investments. The Investment Adviser provides fortnightly, ad hoc and
quarterly updates to the Board on asset performance, including the response of
assets to climate events.
Following execution and investment, key relevant ESG indicators are monitored
by the portfolio management teams. The Investment Adviser seeks to engage with
investors to understand relevant ESG factors and to manage exposure to risks.
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; examples include Storm Eunice in
February 2022, which caused damage to solar panels at a solar farm in the
portfolio, and increased rainfall leading to flooding at an anaerobic
digestion plant in the portfolio, which negatively impacted production at the
plant until the end of 2023. However, the overall financial impact of these
physical risks 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 and action is
taken when it is appropriate.
The Company defines short, medium and long‑term risk time horizons as
follows: short term: zero to three years; medium term: 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 if it were to materialise. Further information can be found below.
The main short-term physical risk exposures for the portfolio are water damage
and heat stress. 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 also implemented mitigation plans to strengthen the
weather resistance of certain assets during the year. These involved improving
drainage across anaerobic digestion sites and solar farms in the portfolio to
avoid flooding risks. The portfolio assets have general maintenance regimes in
place for assets to mitigate the impact of weather, which include applying
galvanic paint to prevent rusting on steel structures. In addition, the
Investment Adviser switched the fuel supply of a bio-power asset, meaning it
can now source fuel from different waste transfer station locations to
mitigate the impact of a climate event in one location impacting supply. 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 may place significant
pressure on energy infrastructure, including renewables, and could 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 can adversely impact vulnerable people.
The Company is also exposed to transition risks in the short term from sudden
and unexpected changes to Government policy. An example of this is the
Electricity Generator Levy in the UK, which taxes certain renewable energy
generating assets until 2028.
In the medium to long term, any policy changes to the 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, 49% of the social
housing portfolio has an EPC rating equal to a C or above, whilst 36% 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
significant opportunities 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 its investments have a positive environmental or social
contribution, meaning sustainability is inherent in the Company's portfolio.
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. The new
Government has pledged to work with the private sector to double onshore wind,
triple solar power, and quadruple offshore wind by 2030, with increased
spending across the renewable energy infrastructure sector. The new
Government's Green Prosperity Plan is set to 'partner with businesses' to
invest in 'industries of the future', with the aim of creating 650,000 jobs.
B. Describe the impact of climate‑related risks and opportunities on the
organisation's businesses, strategy and financial planning
The primary physical impact 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 the 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 resilient to both the physical and
transition risks associated with climate change. This year, the Investment
Adviser increased the scope of its 2ºC or lower scenario to include analysis
of changes in physical risks. In doing so, it has noted resilience to the
identified physical risks associated with climate change, with heat stress the
only score that increases in a 2ºC or lower global warming scenario. The
other physical risk scores remained the same. Transition risks were not
included in the assessment, due to difficulty in obtaining independent data
points. However, the Investment Adviser will look to include these in future
climate risk assessments as it works towards the Company achieving full
compliance with TCFD.
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 would not necessarily 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 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 473 individual assets 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 assets in the portfolio.
Historic weather data was used to inform heat stress, water stress and severe
wind. UK Government databases were used to obtain data for flood risk and
wildfire data for all available sites in the portfolio. IPCC data was used to
determine heat stress, water stress and severe winds in the 2ºC warming
scenario. The Beaufort wind scale was used to assess the threshold at which
wind speeds are considered high. EPC ratings were obtained from UK Government
databases.
An asset-by-asset assessment was 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, informing whether any changes are 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. 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 on
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 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 225 was obtained
by combining total physical and transition risks scores.
The chart based on the weighted average rating for each sector on page 78 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.
Under physical risks, the biggest exposure is to fires/wildfires and water
stress. An increase in the frequency of fires/wildfires is most likely to
impact the social housing sector, while an increase in water stress is most
likely to impact the renewables sector.
Wildfires are becoming a bigger threat in the UK, with England averaging
30,000 wildfires a year, according to data from the Forestry Commission. Water
stress is also becoming a bigger issue, with global warming causing higher
rainfall in the UK and making rising water levels a bigger threat globally.
This year, the Investment Adviser refined its water stress analysis by mapping
assets to their water providers to see if they were in an area of stress.
Under transition risks, the portfolio is most exposed to policy/regulatory
change, as well as technological change. Within the renewables portfolio,
biomass projects account for some 10% of portfolio value and are most likely
to be 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, uncertainty around the
possible participation in the UK ETS along with future power price caps for
renewable generators, is reflected in the regulatory and technological risk
scores. While the new Government included some provisions in their Autumn
Budget for the introduction of the UK ETS, there is still some uncertainty
about the impact it will have on portfolio assets.
The Investment Adviser also undertook the analysis of a 2ºC or lower global
warming scenario on assets in the portfolio. 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 of a 2ºC change in likelihood scores in the physical risk section.
Transition risks were not included due to difficulty in obtaining independent
data points, as well as the assumption that transition risks will not be
impacted in the same way as physical risks in a 2ºC warming scenario. The
Company recognises it has further to go in achieving full compliance with a
2ºC increased temperature scenario because of this and is committed to
including transition risk data points in future years.
The likelihood score for heat stress, water stress, severe winds and wildfires
in a 2ºC temperature increase scenario was based on the probability of each
metric occurring, using past Met Office data and UK Government data to
determine the probability of a specific weather event and applying a
multiplier for each physical risk. This multiplier was based on data from the
IPCC, which is the United Nations body for assessing climate change. The
Investment Adviser acknowledges this is a different data source than was used
in last year's assessment; however, it considers it a more reliable data
source from which to obtain future weather projections.
After running the 2ºC scenario, it was determined that physical risks mostly
remained the same, with the exception of heat stress, which increased by 0.4
rating points. This has led the Investment Adviser to conclude the Company's
strategy is relatively resilient to both the physical and transition risks
associated with climate change.
The Investment Adviser and the Board recognise that the prioritisation of
climate change requires a change of Government approach, primarily through
regulation.
Regulatory changes through mechanisms such as the UK ETS, power price caps,
energy efficiency standards and windfall taxes on renewable energy generators
may further 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 impact the portfolio, as evidenced in a 2ºC
rising temperature scenario. The Investment Adviser intends to update the
climate risk assessment on an annual basis.
This year, the Company engaged Terra Instinct, a sustainability advisory
firm, to perform a review of the Company's TCFD disclosures and climate risk
assessment. The review examined the Company's current approach to the climate
risk assessment, providing recommendations on how it could be improved.
By partially implementing the recommendations, the Investment Adviser improved
the reliability of its data source for the multiplier in the 2ºC warming
scenario analysis in this year's reporting. The Investment Adviser will
continue to work towards implementing further recommendations in future years.
For details on the portfolio exposures - climate change risk - refer to page
78 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.
Whilst the Investment Adviser has concluded that the portfolio is exposed to
low physical and transition risk, the climate 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 risks have not been
quantified to date, the Board and the Investment Adviser hope to include these
in future reports.
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 in order to help monitor and
mitigate exposure to climate change. Areas identified for improvement include:
· including transition risks in a 2ºC or lower scenario;
· implementing further recommendations from Terra Instinct; 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 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. Each asset undergoes a
credit risk assessment that incorporates ESG risk, which reflects the
potential for ESG risks to impact the ability and willingness of the borrower
to meet their financial obligations in a timely basis.
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 by itself.
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 92% of the annual expenditure of the Company
and therefore these were deemed the 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 tCO(2)e (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 98% of its annual spend across nine of its top ten suppliers.
Category 15: Investments
The emissions of the underlying portfolio. As this is only the third year a
detailed data collection exercise has been undertaken, there are still plenty
of 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 94% of
assets in the portfolio.
As such, emissions data points were obtained from 74% of portfolio assets by
value. Estimated emissions data was not used this year, due to the increase in
emissions data collected directly from portfolio assets. Further steps will be
taken to improve this process in future reporting periods.
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 its 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 2024. The period chosen was to facilitate data
inclusion in the Company's annual report.
Year ended Year ended
30 September 2024(1) 30 September 2023(1)
Absolute Attributable Absolute Attributable
emissions emissions emissions emissions
tCO(2)e tCO(2)e tCO(2)e tCO(2)e
Portfolio Portfolio Portfolio Portfolio
Scope Scope Scope Scope
1, 2 & 3 1, 2 & 3 1, 2 & 3 1, 2 & 3
GHG emissions
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 /tCO(2)e - - - -
Scope 3 Category 1, emissions from indirect purchased goods and services 171 171 124 124
Category 15, emissions from investments 43,136 15,948 36,752 13,030
Total gross Scope 3 emissions /tCO(2)e 43,307 16,119 36,876 13,154
Total gross Scope 1, Scope 2 and Scope 3 emissions /tCO(2)e 43,307 16,119 36,876 13,154
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 full
compliance with TCFD and has expanded its reporting this year to include more
physical risks in its 2ºC or lower global warming scenario, as well as
improving the reliability of the data used in its 2ºC or lower scenario.
The Company intends to continue to develop its approach in relation to
targets. However, given that the Company does not own or control 94% 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. 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 also engaged Aardvark, an independent and external provider, to
advise on potential next steps to enable it to extend its reasonable assurance
to commission independent assurance of its ESG data collection process in
future years.
In addition, the Company engaged Terra Instinct to perform a review of the
Company's TCFD disclosures and climate risk assessment, with the aim of the
Investment Adviser implementing further recommendations for future periods.
The Investment Adviser runs its operations on a carbon-neutral basis. The
Company is committed to achieving carbon neutrality by offsetting emissions
generated by business travel, therefore supporting the transition to net zero.
1. 12 month period to 30 June 2023 or 2024 to facilitate data inclusion in the
Company's annual report.
Stakeholders
Introduction
Stakeholders are integral to the long‑term success of the Company. They
include shareholders, borrowers, lenders, the public sector, suppliers and
local communities.
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, by reporting
against the AIC Code, the Company voluntarily meets the obligations under
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 below 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 on the following
considerations.
Section 172:
Promoting the success of the Company
The Board of Directors consider, both individually and together, that they
have acted in a 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
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.
Refer to the stakeholder engagement section below and to the governance
section on pages 100 to 133 of the full annual report on the Company's
website.
The need to foster the Company's business relationships with suppliers,
customers and others
The Board has a close working relationship with all its advisers and regularly
engages with all parties.
Refer to the stakeholder engagement section below.
The impact of the Company's operations on the community and the environment
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.
Refer to the sustainability section above.
The desirability of the Company maintaining a reputation for high
standards of business conduct
Under the leadership of the Chairman, the Board operates with the core values
of integrity and impartiality and the aim of maintaining its reputation for
high standards in all areas of the business it conducts.
Refer to Board values and culture in the governance section on page 111 in the
full annual report on the Company's website.
The need to act fairly between shareholders of the Company
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.
Stakeholders: Why and how we engage
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 brokers, engages in
ongoing communication with its shareholders via market interactions, analyst
and marketing presentations who 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, the Company, together with the Investment
Adviser, annually host a 'Capital Markets Day' in London.
This year the event was held in January 2024 and provided 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.
Further information is provided on page 113 in the full annual report on the
Company's website and the presentation from the event is available on the
Company's website. The Investment Adviser is planning to hold the next Capital
Markets Day in January 2025. 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.
Refer above and below for further information. Up-to-date information is
provided on the Company's website.
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 £27.3 million to existing
borrowers in the financial year under review with a further £0.3 million post
year end.
The Investment Adviser closely engages 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 about 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 administrative 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.
How the Company engages
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.
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 below 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 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 a Board level with consideration given to
the impact the Company has on the sector.
Cost disclosure requirements have impacted the Company this financial year;
however, positive developments have been made, with a Statutory Instrument to
remove the requirement for investment companies to publish ongoing charges,
becoming law on 22 November 2024. The Investment Adviser has been heavily
involved in the campaign to resolve the cost disclosure issue, and it has been
a significant area of engagement for the Company.
The Company has historically benefitted 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 supports efforts to
mobilise private capital to promote decarbonisation efforts.
The introduction of a new Government this year has meant increased focus on
the UK's decarbonisation targets. In their first Budget, announced post year
end in October 2024, the new Government announced their commitment to make the
UK a clean energy superpower. This is beneficial for the Company, as the
Investment Adviser has an extensive track record in the renewable energy
sector, as well as the proven ability to target emerging sectors. This means
the Company is well placed to benefit from increased investment opportunities
associated with the energy transition.
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
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 investment
activities, as it contributes to the generation of renewable energy and
provides financing for infrastructure that has clear benefits to end users in
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 funded various social
housing projects across the UK, offering high-quality accommodation for
vulnerable people. The Investment Adviser is focused on operating to the
highest ethical standard in this area due to the vulnerability of
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 its
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 which is awaiting
investment. Access to these facilities is vital for the efficient capital
management of the Company.
How the Company engages
Lenders are financial institutions that provide debt finance in the form of an
RCF. The Company, through its Investment Adviser, engages with its lenders on
a regular basis, and there is a strong, supportive long‑standing
relationship. The Investment Adviser, on behalf of the Company, has engaged
positively with its lenders during the year.
The Company has in place an RCF with a total commitment of £150 million,
following the refinance of the previous facility in March 2024, where
commitments were reduced from £190 million in line with the Board's stated
intention of reducing leverage.
The new facility will expire in March 2027. 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.
Information on key Board decisions during the year and their impact on
stakeholders can be found in the governance section on pages 114 to 115 in the
full annual report on the Company's website.
Risk management
The Board and the Investment Adviser recognise that risk is inherent to 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 the 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. 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, Management Engagement committee and Sustainability 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 a
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, through its Sustainability committee, 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 details on how the Board of Directors identifies, assesses
and manages emerging risks, including climate change risk, is provided 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.
Category 1: Execution risk
Risk Impact How the risk is managed Change in residual risk over the year
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 Board and
Investment due diligence may
The current macro-economic environment is uncertain, and the future outlook
on the investment may be the Investment Adviser, for inflation and interest rates is difficult to predict with accuracy;
not reveal all the facts relevant
however, the Board does not intend to increase this risk from its existing
lower than envisaged, various third party financial, technical, insurance and legal experts are heightened level.
to an investment and may not highlight issues that could affect that
engaged to
investment's performance. This risk is likely to be greater negatively impacting the performance of the Company.
advise on specific project risks.
in new investment sectors such as geothermal, hydrogen storage, forestry and
electric vehicles.
Link to strategy: 1, 3
2 Availability of suitable investments and reinvestment risk If the Company cannot invest capital in suitable assets in a timely and The Investment Adviser is constantly engaging with the market, seeking new Increased
appropriate manner, the uninvested cash balance deals,
There is no guarantee that the Company will be able to identify suitable
Notwithstanding the current capital allocation policy, the Investment Adviser
investments with risk and return characteristics that will have a negative impact and building a specifically identified investment pipeline before the Company continues to explore future investment opportunities, and the value of the
seeks to raise additional capital in order pipeline has increased relative to available funds.
fit within the investment on the Company's returns.
to ensure that it is deployed in
strategy of the Company. If the only available investments with an appropriate risk profile yield lower
rates of return than have historically been a timely fashion. Consideration is also given to any scheduled capital
Where suitable investments
repayments.
achievable, the Company's overall returns may be adversely affected.
can be identified, the Company may face competition in closing Furthermore, if loans are prepaid earlier than expected, the repayment of
capital is accelerated, leading to a potential cash drag. Ultimately, this
a transaction. This is a risk risks the sustainability of the dividend.
when raising capital and reinvesting capital repaid to the Company under
existing loan agreements.
Link to strategy: 1, 2, 3
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.
Risk Impact How the risk is managed Change in residual risk over the year
3 Reliance on the Investment Adviser Failure by the Investment The performance of the Investment Adviser is monitored closely by the Board. Stable
In addition, the Management Engagement committee performs a formal review
The Company is heavily reliant on third party service providers Adviser to carry out its process at least once a year, which considers the ongoing performance of the The Investment Adviser continues to provide adequate resources and act with
Investment Adviser. The Audit and Risk committee also conducts an annual due skill, care and diligence in its responsibilities as Investment Adviser
to carry out its main functions. obligations in accordance control review. and AIFM to the Company.
In particular, the Company depends on the Investment Adviser and the expertise with the terms of its
of
appointment, or to exercise The Investment Adviser has industry and asset knowledge The Company's shares continue to trade at a significant discount(1) to NAV, in
its key personnel and staff to implement the Company's strategy and investment
line with the wider market, which means that new investment deals are not
policy, due skill and care, could have of specific use and importance being prioritised. The Investment Adviser is following the Board's capital
allocation policy before considering new investments.
to deliver its objectives and to maintain sufficient day-to-day oversight of a material effect on the Company's performance. to the Company. The Company has entered into a contractual agreement with the
investments.
Investment Adviser on terms that it
Any poor performance, misconduct or misrepresentation by the Investment
Should any key personnel leave the employment of the Investment Adviser and it Adviser may manifest itself in direct financial losses or result in damage to considers to be mutually fair The relationship between the Investment Adviser and the Board remains strong,
is unable to recruit other individuals of similar experience and credibility,
open and collaborative and the Directors gain additional comfort from the fact
this may have a negative impact on the performance of both the Investment the Company's reputation, and reasonable. The Investment Adviser monitors its key personnel to ensure that the Investment Adviser is part of the wider ORIX Corporation group, a
Adviser and the Company.
that their experience fits the role and proper training is provided for global financial services company.
having longer-term financial consequences on the continued professional development.
Company's performance.
The Company is also reliant on the effectiveness of the Investment Adviser's
control environment. The Investment Adviser obtains assurance of its controls processes annually
through the completion of an ISAE 3402 audit by external auditor, Deloitte
LLP.
Link to strategy: 1, 3
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Category 2: Portfolio risk
Risk Impact How the risk is managed Change in residual risk over the year
4 Changes in laws, regulations and/or UK Government policy impacting 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
impacted the short-term profitability of certain assets in the portfolio. The
levy will be in place until 31 March 2028.
Changes in laws, regulations and/or UK Government policy, Price capping or other intervention in the energy The Investment Adviser
in particular those relating to the PPP/PFI and renewable energy markets, may market may impact returns. engages with industry bodies to understand and influence Government policy
have an adverse effect on the Company.
options. The new Government is expected to increase action around climate policy as it
prioritises decarbonisation and the transition to net zero.
Reduced support for private sector finance of infrastructure and/or a material
Link to strategy: 1, 2, 3 change in the approach to infrastructure delivery (such as nationalisation) Given the UK Government's reliance on private capital for, inter alia, the
represent risks to the funding of new social and economic infrastructure and renewable energy
projects, it is the view of the Investment Adviser and the Board that, despite
Company's ability to reinvest capital. 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, Stable
be replaced due to the as well as the terms and feasibility of their engagement, are a key focus of The concentration of credit risk to any individual project did not exceed 10%
investment of the Company's portfolio at the year end, which is the maximum amount
The performance of the Company's investments is typically dependent on the insolvency of that subcontractor or for any other reason, the replacement
permissible per the Company's investment policy. Notwithstanding these issues,
performance of subcontractors, most notably facilities managers and operations subcontractor due diligence. The Board and there has been no evidence of insolvency indicators in the subcontractor
and
group.
may charge a higher price for the Investment Adviser monitor the Company's exposure to any given
maintenance subcontractors.
subcontractor and ensure that the risk of
the relevant services than previously paid. The resulting increase in costs
may result in the Company receiving lower interest and principal payments than underperformance is mitigated through diversification.
envisaged.
The Company is heavily reliant on subcontractors to carry out their
obligations in accordance with the terms of their appointment and to exercise
due skill and care.
Link to strategy: 1, 2
Risk Impact How the risk is managed Change in residual risk over the year
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 Increased
The Company's investments principal payments received regarding expected performance. A full package of insurance The Company continues to face challenges in its gas-to-grid anaerobic
digestion projects in Scotland, representing 4.4% of the portfolio.
are exposed to construction and/or operational risks or utilise relatively new by the Company may be and manufacturer guarantees Significant progress has been made, completing grid upgrade works to provide a
or developing technologies and may not perform as expected. Over the life of a
more reliable method of injecting biogas into the gas grid and reducing the
project, components of a project may need to be replaced or undergo a major lower than expected or is put in place to protect the Company from unforeseen events. The Board likelihood of curtailment.
refurbishment; these costs may be higher than projected. Operational risks
ensures that the Company has security over the assets against which it is
also include cyber risks. forecast and/or additional lending, so in the instance of a borrower default it can enforce security over
the assets and implement performance improvement plans.
costs may be incurred.
Construction exposure was 1% at 30 September 2024 (30 September 2023: 1%).
In addition, climate change, in the form of changes to weather patterns, can
also have an impact on assets in relation to their operation and/or The Investment Adviser's dedicated portfolio management team monitors the
construction, especially in relation to wind and solar assets. performance of investments on an ongoing basis. Monitoring takes the form of
regular interaction with borrowers, including periodic site visits to the
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
Risk Impact How the risk is managed Change in residual risk over the year
7 Valuation Such changes to valuations The Company's infrastructure investments are generally low volatility Stable
investments with
The value of the investments made by the Company will change from time to time may negatively impact the
The Company is exposed to a number of shareholder interests, 6% of the
according to a variety of factors, including actual and anticipated movements
stable, pre-determined, long‑term, public sector portfolio by value (a reduction of 3% compared to the prior year) either as a
in energy prices, interest rates, inflation and/or discount rates and general value of the Company's investment portfolio.
result of the specific targeting of these positions or through enforcing its
market pricing of similar investments.
backed revenues. Nearly half 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
of the Company's investment portfolio is exposed to some operational performance of projects, and are therefore likely to result in
There can be no assurance
increased volatility in the valuation of the portfolio.
The Company makes investments which rely on detailed financial models based on
form of inflation protection mechanism. The Company's investments are valued
certain assumptions, estimates and projections of that assumptions will turn out by an independent Valuation Agent
each investment's future cash flow. Such assumptions include, inter alia, to be accurate, and actual data could have an adverse impact with reference to duration-matched interest rates,
inflation, power prices, interest rates, feedstock costs, asset productivity,
taxation, lifecycle and insurance costs. There is a risk these assumptions may on the performance of the Company's investments. typically between 15 and 25
be incorrect.
year rates. The discount rates currently used to value the Company's
investments
Errors may occur in the calculation of an investment valuation with a
Link to strategy: 3 potential corresponding impact upon include a premium to the risk-free rate that offers protection in the event of
rate rises.
the Company's published financial statements.
When modelling future cash flows and structuring debt profiles, the Investment
Adviser uses assumptions considered to be conservative by third party experts.
The Investment Adviser constantly monitors the actual performance of projects
and takes action where appropriate.
Risk Impact How the risk is managed Change in residual risk over the year
8 Company liquidity and balance sheet risk If the Company is unable to secure borrowing facilities The RCF has historically been Decreased
The Company requires cash flows from investment income and loan repayments to this may adversely affect the Company's investment returns and may have a in place to fund potential investments in the near term The Board and the Investment Adviser continue to pay close attention to cash
fund material
flow modelling and cash cover to finance acquisitions and to pay dividends.
and to avoid holding material amounts of uninvested cash awaiting investment.
its investment activities. adverse effect on the Consideration may also be
Company's financial position given to other forms of credit During the year, the Company disposed of its interest in loan notes secured
against Blackcraig Wind Farm. The disposal occurred at a 6.4% premium to the
The Company utilises borrowing facilities to finance and/or part‑finance and its operating results. as part of the Company's valuation of the project at 31 March 2024. The Investment Adviser, on behalf
further acquisitions
of the Company, continues to progress a number of additional disposal
future funding strategy. opportunities.
in accordance with the Company's investment policy. However, there can be no
guarantee that any such facility will be available to the Company on Through the use of forecasting and modelling techniques,
commercially acceptable terms or at all.
the Investment Adviser has The Company reduced its RCF from £190 million to £150 million and has
repaid amounts of £47 million in line with the Board's stated intention to
the capability to plan in reduce leverage by the end of 2024.
Link to strategy: 1
advance the sale of assets
if required for liquidity purposes.
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 Stable
underlying
Litigation or legal action either
by the Investment Adviser regarding any litigation or regulatory action Previously disclosed litigation and regulatory proceedings regarding a number
assets may adversely relating to of solar assets have continued to progress during the year. Further details
by the Company or against it
are set out in the Investment Adviser's report above.
damage the Company's reputation and affect the Company's ability to the portfolio. If necessary, a sub‑committee of the Board
or its assets, which involve
successfully pursue its investment policy, meet its investment objective is constituted to oversee a specific matter.
legal costs, management time and resources with potential asset impairment and/or provide favourable returns to shareholders.
consequences, notwithstanding possible mitigation through insurance schemes.
Insurance regarding representations and warranties is considered on its merits
The Company is required to disclose material litigation to shareholders and/or by the Investment Adviser for each transaction.
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 Investment Adviser conducts quarterly reviews on important and/or emerging
topics for The world remains turbulent, with the ongoing war in Ukraine and unrest in the
on long-term power prices affecting the Company's exposure to shareholder
Middle East. This is balanced by a new Government in the UK who are committed
interests. Increase in the the Board's consideration. Monitoring of key emerging issues is undertaken by to making the UK a clean energy superpower as set out in their Autumn Budget.
the Directors on an ongoing basis. This is set to increase energy security in the UK and promote investment in
volume of capital flowing into infrastructure and renewable projects creating the renewable energy sector.
downward pressure on yields and difficulty
in sourcing investments within
The Board does not consider that this risk needs to be increased from its
the required risk return parameters of the Company's investment strategy. existing heightened level. The Board, along with the Investment Adviser,
Potential for increased uncertainty around investment valuations if Government continues to closely monitor the impact of these issues on the portfolio.
subsidy or support is unpredictable.
Risk of a sustained shift in the geopolitical environment. For instance,
international conflict,
a winding back of globalisation, trade wars and the desire to be more
self-sufficient in energy,
and increased migrant flows.
Link to strategy: 1, 2, 3
Risk Impact How the risk is managed Change in residual risk over the year
11 Share price discount(1) or A significant discount1 may prevent the Company raising more capital. If the The level of discount¹ that the Company's shares are trading Stable
Company
premium(1) to NAV
at has meant that buybacks The Company's shares have traded at an average discount(1) of 32.4% during the
is unable to secure further
year and an average premium(1) of 3.8% since IPO. The level of share price
The Company's share price discount¹ to NAV will persist
have become an attractive discount(1) is closely monitored by the Board.
capital for investment, this
and widen to a significant level,
option from an investment
may adversely affect the Company's ability to achieve
or will remain at an insufficiently large or consistent premium(1).
point of view relative to other opportunities. Consequently, during the year, The Company is executing on its capital allocation policy with progress made
its investment policy and the Company has continued its share to date, which is expected to enhance earnings per share and dividend cover
going forward.
strategy and/or maintain a diversified portfolio of investments. buyback programme. The decision to buy back shares
Link to strategy: 1, 2, 3
is subject to ongoing evaluation by the Board of the Company's share price,
the investment pipeline and the available cash resources of the Company. The
level of discount¹ relative to the NAV per share is closely monitored by the
Board.
12 Strategic positioning Implementation of the wrong strategy or poor execution of The Board is prioritising the allocation of capital to pay Stable
The Company's shares are trading at a persistent discount(1) to NAV. In this it will damage sentiment in the Company, exacerbating the discount(1). down the balance drawn under The Board and the Investment Adviser are working closely to address the
environment
discount¹ at which the shares trade through the execution of the capital
its RCF alongside the buyback allocation policy.
there is a strong argument to prioritise de-levering and buying back shares
over making any new investments. The Board has to determine the right balance of shares. Select sales of
and set the strategy accordingly. Shareholders may disagree with the strategy,
or it may not work as intended. portfolio assets are also under consideration. At the same time, the
Investment Adviser continues to develop a pipeline of new investment
opportunities and is considering the refinance of existing positions to
improve returns and/or reduce risk, whilst acknowledging the current high
Link to strategy: 1, 2, 3 hurdle for new investment.
Key to strategy references
1 - Dividend income
2 - Diversification
3 - Capital preservation
1. APM - for definition and calculation methodology, refer to the APMs section
below.
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 the Board will continue to consider.
Emerging risks
Risk Impact How the risk is managed Change in residual risk over the year
1 Climate change If renewable assets are The portfolio is diversified Stable
a) Physical damaged by extreme weather events, with the subsequent inability to connect to across a number of asset The Board considers this a long-term issue; the impact of climate change on
the grid,
the Company's portfolio will continue to be closely monitored by the Board,
Higher frequency and severity
classes and physical locations and ESG processes are embedded in investment the ESG committee and the Investment Adviser.
or suffer reduced availability,
of extreme weather conditions, for example intense heat waves, storm surges
decision making.
and higher water levels on coasts. this would impact revenue.
The Investment Adviser has a Responsible Investment policy and a Responsible During the year, the Investment Adviser carried out a climate risk assessment
Investment committee to monitor and implement ESG initiatives. Environmental for each underlying portfolio asset as part of its TCFD disclosures to assess
impact assessments are carried out the actual and potential impacts of climate‑related risks and opportunities
across the portfolio. The analysis considered both physical and transition
as part of the due diligence process. The Investment risks for each asset. Further information is given above.
Adviser also carries out
ongoing performance
monitoring, including site visits
by experienced personnel. Regular fortnightly updates,
ad hoc and quarterly detailed reports on asset performance
are provided to the Board.
2 Climate change Increased focus on The Board is focused on this area. Compliance with both Stable
b) Transition sustainability and ESG new and existing reporting requirements and best practice The new Government is expected to increase action around climate policy as it
prioritises decarbonisation and the transition to net zero.
Risks associated with the long‑term trends arising from climate change and factors amongst governments, regulators, shareholders and is managed by the Investment Adviser and monitored by the Audit and Risk
the energy transition it requires. This includes increasing regulation,
committee and
insurance availability and price, government inertia or over‑reaction, the wider community. Any associated consequences
failure of
the Sustainability committee. However, Government climate policy, transition planning frameworks, and
arising from standards of best practice are all nascent and will continue to evolve for
business models, and
some time.
this risk, such as regulatory
changing consumer and
or legal sanctions including financial and reputational damage. Governmental
business preferences. availability, sufficiency and consistency of support mechanisms to enable the The Sustainability committee and the Investment Adviser will continue to
transition to a low carbon economy. Potential increase in costs to the monitor and assess the impact of these policies on the investment portfolio
Company. and the Company as a 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, 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 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, detailed
above, that could materially affect the cash flows of the underlying projects
that support the Company's investments.
The potential impact of a further increase in power prices and, in particular,
the consequent cash requirements of the Company's hedging programme, have 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 if required,
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
11 December 2024
1. APM - for definition and calculation methodology, refer to the APMs section
below.
Financial statements
Autumn Budget 2024
The Autumn Budget was eagerly anticipated. While taxes and NHS funding grabbed
the initial headlines (including £1.5 billion for new hospital beds and
diagnostic centres), the new Government's commitment to making the UK a clean
energy superpower is increasingly positive. The Board believes this presents a
material opportunity for investment and growth in the UK and is vital for
achieving the UK's decarbonisation commitments.
Commitments to hire 300 more planners and work with the National Energy System
Operator ("NESO") and Ofgem to accelerate grid connections are welcome to
unlocking development. A commitment to reform relevant National Policy
Statements within twelve months also recognises the need for planning reform.
Other infrastructure and clean energy pledges included £8 billion for carbon
capture, usage and storage infrastructure and include eleven green hydrogen
projects.
There was also support for four new electrolytic hydrogen projects across
Scotland and Wales, £200 million for electric vehicle charging
infrastructure, support for port infrastructure to facilitate floating
offshore wind (£134 million), the rollout of broadband through Project
Gigabit and shared rural networks (£500 million) and £125 million for Great
British Energy in 2025/26 (£100 million of capital and £25. million of
establishment costs).
In relation to core infrastructure, the Chancellor built on the new
Government's manifesto commitments and announced £5 billion to meet their
commitment of delivering 1.5 million new homes, £1.4 billion to rebuild
schools, and £1.2 billion to deliver extra prison services.
The Board is looking forward to the announcement of the ten year
infrastructure strategy which will be published in the spring of 2025 and a
'Clean Power 2030 Action Plan' which the new Government have also committed
to. Both are expected to contain more detail than was provided in the Autumn
Budget on the new Government's commitment to decarbonise the electricity grid
by 2030, and how it will support wider infrastructure deployment.
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 UK 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 on page 116 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
11 December 2024
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 2024, the statements of comprehensive income, changes in
equity and cash flows for the year then ended, and notes, comprising material
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 2024, 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 2023):
Key audit matters The risk Our response
Valuation of financial assets at fair value through profit or loss Basis: Our audit procedures included:
£960,023,000 or 98.8% of total assets; (2023: £1,046,568,000 or 98.3% of 98.8% of the Company's total assets is represented by the fair value of a Internal Controls:
total assets)
portfolio of unquoted infrastructure investments domiciled in the We tested the design and implementation of the controls adopted by the Company
over the valuation of the Investments.
United Kingdom (the 'Investments').
Refer to the Audit and Risk Committee Report (above),
The Company's estimation of the fair
note 2.2 - significant accounting
Evaluating experts engaged by management:
value of the Investments primarily involves using a discounted cash flow
judgements and estimates, and methodology, where the inputs and assumptions, such We performed enquiries of the Investment Adviser and Valuation Agent to update
our knowledge of the valuation process and methodology and reassessed its
note 11 - financial assets at fair value through profit or loss, and as the amounts and timings of cash flows, the use of appropriate discount appropriateness against industry practice and IFRS.
rates and
note 19 - financial instruments
the selection of appropriate assumptions surrounding uncertain future events
are subjective. 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 comparing 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: Challenging managements' assumptions and inputs:
There is a risk of error associated with: We performed substantive procedures in relation to the Company's determination
of fair value on a risk based selection of Investments, which included:
· estimating the timing and amounts of long-term forecasted cash
flows; and
· the selection and application of appropriate assumptions, such as · for new Investments during the year, compared the long‑term
discount rates and other inputs. 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 the coupon;
Changes to long-term forecasted cash · assessed the recoverability of outstanding cash flows by
considering financial performance of underlying assets, the general economic
flows and/or the selection and application environment and reviewing the repayment history;
of different assumptions and inputs may result in a materially different fair · assessed the reasonableness of key general and project‑specific
value inputs and assumptions into the cash flow projections for equity linked loan
notes, to corroborate key revenues and costs with reference to relevant market
being attributed to the Investments 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 £10,000,000,
determined with reference to a benchmark of total assets of £971,915,000, of
which it represents approximately 1.0% (2023: 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% (2023: 75%) of materiality for the financial
statements as a whole, which equates to £7,500,000. 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 £500,000, 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; 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.
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;
· 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 on page 98 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.
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 Recognized Auditors Jersey
11 December 2024
Statement of comprehensive income
For the year ended 30 September 2024
Year ended Year ended
30 September 30 September
2024 2023
Notes £'000 £'000
Income
Net income/gains on financial assets at fair value through profit or loss 3 37,340 29,301
Net gains on derivative financial instruments at fair value through profit or 3 496 12,860
loss
Other income 3 493 9,544
Total income 38,329 51,705
Expenses
Investment advisory fees 20 (8,300) (8,670)
Operating expenses 5 (3,038) (2,752)
Total expenses (11,338) (11,422)
Total operating profit before finance costs 26,991 40,283
Finance costs 6 (7,477) (9,378)
Total profit and comprehensive income for the year 19,514 30,905
Basic and diluted earnings per share (pence) 10 2.25 3.50
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 2024
As at As at
30 September 30 September
2024 2023
Notes £'000 £'000
Assets
Cash and cash equivalents 14 11,755 16,867
Other receivables and prepayments 12 137 575
Derivative financial instruments at fair value through profit or loss 18 - 265
Financial assets at fair value through profit or loss 11, 19 960,023 1,046,568
Total assets 971,915 1,064,275
Liabilities
Other payables and accrued expenses 13 (2,885) (4,048)
Derivative financial instruments at fair value through profit or loss 18 (110) -
Interest bearing loans and borrowings 15 (55,790) (103,674)
Total liabilities (58,785) (107,722)
Net assets 913,130 956,553
Equity
Share capital 16 8,678 8,712
Share premium 16 858,965 861,118
Capital redemption reserve 17 101 101
Retained earnings 45,386 86,622
Total equity 913,130 956,553
Ordinary shares in issue (excluding treasury shares) 16 867,812,650 871,232,650
NAV per ordinary share (pence per share) 105.22 109.79
The financial statements were approved and authorised for issue by the Board
of Directors on 11 December 2024 and signed on its behalf by:
Andrew Didham
Chairman
Steven Wilderspin FCA
Director
The accompanying notes below form an integral part of these financial
statements.
Statement of changes in equity
For the year ended 30 September 2024
Capital
Share Share redemption Retained Total
capital premium(1) reserve earnings equity
Notes £'000 £'000 £'000 £'000 £'000
At 1 October 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)
Shares repurchase costs 16 - (21) - - (21)
Dividends 9 - - - (61,785) (61,785)
At 30 September 2023 8,712 861,118 101 86,622 956,553
Total profit and comprehensive income for the year - - - 19,514 19,514
Share repurchases 16 (34) (2,149) - - (2,183)
Shares repurchase costs 16 - (4) - - (4)
Dividends 9 - - - (60,750) (60,750)
At 30 September 2024 8,678 858,965 101 45,386 913,130
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 2024
Year ended Year ended
30 September 30 September
2024 2023
Notes £'000 £'000
Cash flows from operating activities
Total operating profit before finance costs 26,991 40,283
Adjustments for:
Loan interest income 3 (87,297) (80,750)
Net losses on financial assets at fair value through profit or loss 3 49,957 51,449
Net gains on derivative financial instruments at fair value through profit 3 (496) (12,860)
or loss
Decrease in other payables and accrued expenses (1,097) (33)
Decrease/(increase) in other receivables and prepayments 436 (390)
Total (11,506) (2,301)
Loan interest received 3 65,129 58,791
Purchase of financial assets at fair value through profit or loss 11 (5,133) (66,739)
Repayment of financial assets at fair value through profit or loss 11 63,889 78,012
Proceeds on derivative financial instruments at fair value through profit or 3 871 8,734
loss
Net cash flows generated from operating activities 113,250 76,497
Cash flows from financing activities
Proceeds from revolving credit facility 15 18,147 55,000
Repayment of revolving credit facility 15 (67,022) (50,000)
Share repurchases 16 (2,183) (10,090)
Share repurchase costs 16 (4) (20)
Dividends paid 9 (60,750) (61,785)
Finance costs paid (6,550) (8,716)
Net cash flows used in financing activities (118,362) (75,611)
Net (decrease)/increase in cash and cash equivalents (5,112) 886
Cash and cash equivalents at beginning of the year 16,867 15,981
Cash and cash equivalents at end of the year 14 11,755 16,867
Net cash flows generated by operating activities includes:
Loan fee income 3 61 9,143
Deposit interest received 3 432 401
The accompanying notes below form an integral part of these financial
statements.
Notes to the financial statements
For the year ended 30 September 2024
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. Material accounting policy information
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies, except for the 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.
The new IFRS that will apply for reporting periods beginning 1 January 2027 is
as follows:
· presentation and disclosure in financial statements (introduction
of IFRS 18).
Under current IFRS accounting standards, companies use different formats to
present their results, making it difficult for investors to compare financial
performance across companies.
IFRS 18 promotes a more structured income statement. In particular, it
introduces a newly defined 'operating profit' subtotal and a requirement for
all income and expenses to be allocated between three new distinct categories
based on a company's main business activities.
The Directors are still assessing the impact of IFRS 18, but at present do not
anticipate it to 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 are expected to have a material impact on
the Company's financial statements.
Classification and measurement of financial instruments
Amendments to IFRS 7 and 9 effective on or before 1 January 2026, over the
following 12 months an assessment will be conducted on the impact of IFRS 7
and 9 which relate to settlement of liabilities through electronic payment
systems and the classification of financial assets with ESG and similar
features. The Company has elected not to early adopt the amendments to IFRS 7
and 9.
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.
The financial statements are presented in Pound Sterling and all values have
been rounded to the nearest thousand pounds (£'000) except where otherwise
indicated.
Going concern
The Directors have made an assessment of the Company's ability to continue as
a going concern and are satisfied that the Company has the resources to
continue in business for the foreseeable future and for a period of at least
twelve months from the date of the authorisation of these annual financial
statements.
The Investment Adviser has prepared cash flow forecasts which were challenged
and approved by the Directors and included consideration of the availability
of the Company's RCF, hedging arrangements, cash flow forecasts and stress
scenarios.
The Directors are not aware of any material uncertainties that 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 of non-current assets held for sale
The Directors have determined that at the date of the report, none of the
Company's assets fulfil the classification criteria prescribed by IFRS 5.
This determination has been made with consideration to the Company's capital
allocation policy and the relative progress of various sales processes. This
process requires judgement in assessing a complex range of commercial factors
in the context of the purpose, objectives and operational norms of the Company
and its sector, and the application of the objective and scope of the
standard. Factors considered include: the probability of completing a sale
within a specified timeframe, the status of commercial negotiations and
related agreements, the relative strength of obligations or disincentives for
non‑performance, and the possibility of impediments to completion or a
change in terms.
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 the 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
2024 2023
£'000 £'000
Channel Islands 432 401
United Kingdom 37,897 51,304
Total 38,329 51,705
3. Operating income
The table below analyses the Company's operating income for the year by
investment type:
30 September 30 September
2024 2023
£'000 £'000
Interest received on cash and cash equivalents 432 401
Loan fee income(1) 61 9,143
Other income 493 9,544
Net changes in fair value of financial instruments at fair value through 37,836 42,161
profit or loss
Total 38,329 51,705
1.Includes prepayment fee of £61,000 (30 September 2023: 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
2024 2024 2023 2023
£'000 £'000 £'000 £'000
Loan interest received 65,129 58,791
Loan interest capitalised 22,168 21,959
Total loan interest income 87,297 80,750
Unrealised gains on financial assets at fair value through profit or loss 13,549 15,017
Unrealised losses on financial assets at fair value through profit or loss (65,394) (66,603)
Total net unrealised losses on financial assets at fair value through profit (51,845) (51,586)
or loss
Net realised gains on disposal of financial assets at fair value through 1,888 137
profit or loss
Total net losses on financial assets at fair value through profit or loss (49,957) (51,449)
Total net income/gains on financial assets at fair value through profit or 37,340 29,301
loss
Unrealised (losses)/gains on derivative financial instruments at fair value (375) 4,126
through profit or loss
Realised gains on settlement of derivative financial instruments at fair value 871 8,734
through profit or loss
Total net gains on derivative financial instruments at fair value through 496 12,860
profit or loss
Net changes in fair value of financial instruments at fair value through 37,836 42,161
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
accrual 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 disposals 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
2024 2023
£'000 £'000
Audit fees 182 169
Non-audit fees - review of half‑yearly report and financial statements 50 47
Total 232 216
5. Operating expenses
30 September 30 September
2024 2023
£'000 £'000
Corporate administration and Depositary fees 1,008 1,034
Legal and professional fees 49 18
Independent Valuation Agent fees 260 260
Directors' remuneration and expenses(1) 451 432
Advisory fees 229 114
Registrar fees 67 74
Other expenses 974 820
Total 3,038 2,752
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 £724,000 (30 September 2023:
£735,000), of which £172,000 remains payable at year end (30 September 2023:
£182,000).
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 £284,000
(30 September 2023: £299,000) of which £70,000 remains payable at year end
(30 September 2023: £74,000).
Accounting policy
All operating expenses are charged to the statement of comprehensive income
and are accounted for on an accrual basis.
6. Finance costs
30 September 30 September
2024 2023
£'000 £'000
Finance costs 7,477 9,378
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
2024 2023
£'000 £'000
Andrew Didham 96 92
Ian Reeves CBE(1) - 5
Julia Chapman 61 58
Michael Gray 76 72
Steven Wilderspin 74 70
Dawn Crichard 73 70
Alex Yew 63 55
443 422
Directors' expenses 8 10
Total 451 432
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.
Full details of the Directors' remuneration policy can be found on page 130 in
the full annual report on the Company's website.
8. Taxation
Profits arising in the Company for the year ended 30 September 2024 are
subject to tax at the standard rate of 0% (30 September 2023: 0%)
in accordance with the Income Tax (Jersey) Law 1961, as amended.
9. Dividends
Dividends for the year ended 30 September 2024 were 7.0 pence per share (30
September 2023: 7.0 pence per share) as follows:
30 September 30 September
2024 2023
Quarter ended Dividend Pence £'000 £'000
Current year dividends
30 September 2024(1) 2024 fourth interim dividend 1.75 - -
30 June 2024 2024 third interim dividend 1.75 15,186 -
31 March 2024 2024 second interim dividend 1.75 15,187 -
31 December 2023 2024 first interim dividend 1.75 15,187 -
Total 7.0 45,560 -
Prior year dividends
30 September 2023 2023 fourth interim dividend 1.75 15,190 -
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 15,190 46,301
30 September 2022 2022 fourth interim dividend 1.75 - 15,484
Dividends in statement of changes in equity 60,750 61,785
Dividends settled in shares - -
Dividends in cash flow statement 60,750 61,785
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(3) 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. On 24 October 2024, the Company declared a fourth interim dividend of 1.75
pence per share amounting to £15.2 million, which was paid on 29 November
2024 to ordinary shareholders on the register at 1 November 2024.
2. The dividend target set out above is a target only and not a profit
forecast or estimate and there can be no assurance that it will be met.
3. APM - for definition and calculation methodology, refer to the APMs section
below.
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
Total profit number of Pence per
£'000 ordinary shares share
Year ended 30 September 2024
Basic and diluted earnings per ordinary share 19,514 867,940,448 2.25
Year ended 30 September 2023
Basic and diluted earnings per ordinary share 30,905 881,850,353 3.50
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
2024 2023
£'000 £'000
Opening balance 1,046,568 1,087,331
Purchases of financial assets at fair value through profit of loss 27,301 138,698
Repayments of financial assets at fair value through profit of loss (63,889) (128,012)
Net realised gains on disposal of financial assets at fair value through 1,888 137
profit or loss(1)
Unrealised gains on financial assets at fair value through profit or loss(2) 13,549 15,017
Unrealised losses on financial assets at fair value through profit or loss (65,394) (66,603)
Closing balance 960,023 1,046,568
1. Gains in the current year relate to the sale of Blackcraig wind farm, gains
in the prior year relate to principal indexation on realised assets.
2. Includes principal indexation of £0.8 million (30 September 2023: £4.0
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
2024 2023
Purchases £'000 £'000
Purchases of financial assets at fair value through profit or loss (27,301) (138,698)
Loan interest capitalised 22,168 21,959
Non-cash internal transfers - 50,000
Purchases of financial assets at fair value through profit or loss in (5,133) (66,739)
statement of cash flows
30 September 30 September
2024 2023
Repayments £'000 £'000
Repayments of financial assets at fair value through profit or loss 63,889 128,012
Non-cash internal transfers - (50,000)
Repayments of financial assets at fair value through profit or loss in 63,889 78,012
statement of cash flows
Accounting for subsidiaries
The Company's investments are made through a number of SPVs (refer to note 23)
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 (37.1%), GCP Rooftop
Solar Finance plc (31.1%) and FHW Dalmore (Salford Pendleton Housing) plc
(13.8%).
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
2024 2023
£'000 £'000
Other receivables and prepayments 137 575
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
2024 2023
£'000 £'000
Investment advisory fees 2,062 2,132
Other payables and accrued expenses 823 1,916
Total 2,885 4,048
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
2024 2023
£'000 £'000
Barclays account 2,436 8,482
BONY account 527 -
Lloyds Money Market Call account - -
RBSI Capital and Interest account(1) 6,700 4,435
RBSI Cash Management account 2,092 3,950
Total 11,755 16,867
1. For the year ended 30 September 2024, capital and interest received on 30
September 2024 was transferred to the Barclays account on 1 October 2024. In
the prior year, the same occurred on 29 September 2023 and 2 October 2023,
respectively.
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 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 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
2024 2023
£'000 £'000
Revolving credit facility 57,000 104,000
Unamortised arrangement fees (1,210) (326)
Total 55,790 103,674
The table below analyses the movement for the year:
30 September 30 September
2024 2023
£'000 £'000
Balance at the start of the year 103,674 98,009
Changes from cash flows
Proceeds from revolving credit facility 18,147 55,000
Repayment of revolving credit facility (67,022) (50,000)
Drawdown for RCF refinancing fees 1,875 -
Non-cash changes
Amortisation of loan arrangement fees 644 665
Commitment and other capitalised fees (1,528) -
Balance at the end of the year 55,790 103,674
Revolving credit facility
Expired facility
Previously, the Company had secured an RCF of £190 million with Royal Bank of
Scotland International, AIB (UK) plc, Lloyds Bank plc, Clydesdale Bank plc
(trading as Virgin Money) and Mizuho Bank Limited. The RCF was secured against
underlying assets held by the Company. Interest on amounts drawn under the
facility were charged at SONIA plus 2.0% per annum. A commitment fee was
payable on undrawn amounts of 0.7%.
At the beginning of the year, £104 million was drawn. On 16 February 2024,
the facility was repaid as part of refinancing and entering into a new RCF.
New facility
On 16 February 2024, the Company entered into a new secured RCF of £150
million with AIB (UK) plc, Lloyds Bank plc, Clydesdale Bank plc (trading as
Virgin Money) and Mizuho Bank Limited. The RCF is secured against the
portfolio of underlying assets held by the Company. The facility is repayable
in March 2027. Interest on amounts drawn under the facility is charged at
SONIA plus 2.0% per annum. A commitment fee of 0.7% per annum is payable on
undrawn amounts. At 30 September 2024, the total amount drawn on the RCF was
£57 million.
All amounts drawn under the RCF may be used in or towards the making of
investments in accordance with the Company's investment policy, with
additional flexibility to allow the Company to enhance its working capital
management. The facility provides the Company with continued access to
flexible debt finance, allowing 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 the 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 2024.
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
2024.The figures are as follows:
30 September 30 September
2024 2023
Maximum Actual Actual
Leverage exposure limit exposure exposure
Gross method 1.20 1.05 1.10
Commitment method 1.20 1.07 1.11
The leverage figures disclosed above represent leverage calculated under the
UK AIFM Regime methodology as follows:
30 September 30 September 30 September 30 September
2024 2024 2023 2023
Gross Commitment Gross Commitment
£'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss 960,023 960,023 1,046,568 1,046,568
Cash and cash equivalents - 11,755 - 16,867
Derivative financial instruments at fair value through profit or loss(2) 1,099 1,099 2,324 2,324
Total exposure under the UK AIFM Regime 961,122 972,877 1,048,892 1,065,759
Total shareholders' funds (net assets) 913,130 913,130 956,553 956,553
Leverage (ratio) 1.05 1.07 1.10 1.11
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.
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.
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.
16. Authorised and issued share capital
30 September 2024 30 September 2023
Number Number
Share capital of shares £'000 of shares £'000
Ordinary shares issued and fully paid
Opening balance 884,797,669 8,848 884,797,669 8,848
Total shares in issue 884,797,669 8,848 884,797,669 8,848
Treasury shares
Opening balance (13,565,019) (136) - -
Shares repurchased (3,420,000) (34) (13,565,019) (136)
Total shares repurchased and held in treasury (16,985,019) (170) (13,565,019) (136)
Total ordinary share capital excluding treasury shares 867,812,650 8,678 871,232,650 8,712
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.
30 September 30 September
2024 2023
Share premium £'000 £'000
Premium on ordinary shares issued and fully paid
Opening balance 861,118 871,606
Premium on equity shares issued through:
Share repurchases (2,149) (10,467)
Share repurchase costs (4) (21)
Total 858,965 861,118
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.
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.
At 30 September 2024, the Company's issued share capital comprised 884,797,669
ordinary shares (30 September 2023: 884,797,669), of which 16,985,019 (30
September 2023: 13,565,019) were held in treasury, and there were no C shares
or deferred shares in issue.
The ordinary shares carry the right to dividends out of the profits available
for distribution attributable to each share class, if any, as determined by
the Directors. Each holder of an ordinary share is entitled to attend meetings
of shareholders and, on a poll, to one vote for each share held.
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
2024 2023
£'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 27 March 2024, the Company entered into a commodity swap agreement with
Axpo 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 30 September 2024 and was settled in
October 2024 in line with the contractual terms.
On 27 September 2024, the Company entered into a new commodity swap agreement
with LBCM under the ISDA Master Agreement framework for risk management
purposes, which includes full right of set off. The derivative financial
instrument comprises a commodity swap on baseload electricity for the purpose
of hedging market movements in electricity prices, in cases where the Company
has stepped into projects and/or has direct exposure through its investment
structure. The commodity swap agreement is due to expire on 31 March 2025.
The table below sets out the valuation of the swap held by the Company at year
end provided by Axpo and LBCM:
Total Notional
notional quantity
Derivative Maturity quantity per hour
Commodity swap - electricity/baseload 'summer 2023' 30 September 2023 26,352 MWh 6 MW
Commodity swap - electricity/baseload 'winter 2023/24' 31 March 2024 21,960 MWh 5 MW
Commodity swap - electricity/baseload 'summer 2024' 30 September 2024 35,136 MWh 8 MW
Commodity swap - electricity/baseload 'winter 2024/25' 31 March 2025 13,104 MWh 3 MW
30 September 30 September
2024 2023
£'000 £'000
Fixed
Fixed price:
Summer 2023 (maturity 30 September 2023) £140.5/MWh - 607
Winter 2023/24 (maturity 31 March 2024) £106.5/MWh - 2,339
Summer 2024 (maturity 30 September 2024) £62.0/MWh 357 -
Winter 2024/25 (maturity 31 March 2025) £82.2/MWh 1,077 -
Floating
Commodity Reference Price Index: summer 2023 Electricity N2EX UK Power Index Day Ahead - (357)
Commodity Reference Price Index: winter 2023/24 Electricity N2EX UK Power Index Day Ahead - (2,324)
Commodity Reference Price Index: summer 2024 Electricity N2EX UK Power Index Day Ahead (445) -
Commodity Reference Price Index: winter 2024/25 Electricity N2EX UK Power Index Day Ahead (1,099) -
Fair value (110) 265
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
2024 2023
Notes £'000 £'000
Financial assets
Cash and cash equivalents 14 11,755 16,867
Other receivables and prepayments 12 137 575
Financial assets at amortised cost 11,892 17,442
Financial assets at fair value through profit or loss 11 960,023 1,046,568
Derivative financial instruments at fair value through profit or loss 18 - 265
Total 971,915 1,064,275
Financial liabilities
Other payables and accrued expenses 13 (2,885) (4,048)
Interest bearing loans and borrowings 15 (55,790) (103,674)
Financial liabilities measured at amortised cost (58,675) (107,722)
Derivative financial instruments at fair value through profit or loss 18 (110) -
Total (58,785) (107,722)
19.1 Capital management
The Company is funded from equity balances, comprising issued ordinary share
capital as detailed in note 16, and retained earnings, in addition to an 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 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 a loan to value(1)
of 6% (30 September 2023: 11%).
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 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 to 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. Furthermore, the
Company is exposed to a number of shareholder interests, 6% 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
During the year, market conditions have improved for the Company. Falling
inflation has been met by interest rate cuts, with the Bank of England
announcing a further interest rate cut of 25 basis points in November 2024.
However, following the announcement of the new Government's Budget at the end
of October, there are concerns that inflation will creep higher as the new
Government growth policy is set to have a knock-on effect on prices.
The war in Ukraine and the Israel-Hamas conflict continue to be monitored by
the Board and the Investment Adviser; however, both believe the effect on
energy prices and market volatility has subsided. The Israel-Hamas war in the
Middle East is of particular concern to the Company, as there is a possibility
for sanctions to be implemented, which could have a knock-on effect on global
energy markets. However, the Company's infrastructure investments are
generally low-volatility investments with stable, pre-determined, long-term,
public sector backed revenues.
There is also uncertainty regarding potential future Government intervention
in the energy market, which may lead to forecast power prices not being
realisable in reality. The implementation of the Electricity Generator Levy in
January 2023 impacted the short-term profitability of certain assets in the
portfolio in the 2023 financial year; however, there has been no impact in the
current financial year. The levy will be in place until 31 March 2028.
Climate risk
For the third 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 collected was based upon IPCC, UK Government and publicly
available data, supplemented by data 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.
1. APM - for definition and calculation methodology, refer to the APMs section
below.
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 2024
Change in discount rates 0.50% 0.25% 0.0% (0.25%) (0.50%)
Value of financial assets at fair value (£'000) 931,236 945,386 960,023 975,173 990,866
Change in valuation of financial assets at fair value through profit or loss (28,787) (14,637) - 15,150 30,843
(£'000)
At 30 September 2024, 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 0.63% of the portfolio.
30 September 2023
Change in discount rates 0.50% 0.25% 0.0% (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.
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 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 in senior and subordinated debt instruments of
infrastructure Project Companies. The financial assets have fixed interest
rate coupons, albeit with some inflation protection and, as such, movements in
interest rates will not directly affect the future cash flows payable to
the Company.
Interest rate hedging may be carried out to seek protection against falling
interest rates in relation to assets that do not have a minimum fixed rate of
return acceptable to the Company in line with its investment policy and
strategy. No interest rate hedging was undertaken at year end.
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 2024, the Company had not entered into any interest rate swap
contracts (30 September 2023: none).
Borrowings
Details of the RCF are given in note 15.
The new facility has a three year term and was refinanced on similar terms to
the previous RCF, with the most notable amendment being the introduction of
additional flexibility in utilisations and repayments to allow the Company to
enhance its working capital management.
The drawn amount under the RCF at 30 September 2024 was £57 million (30
September 2023: £104 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 held constant.
30 September 2024
Change in interest rates 3.0% 2.0% 1.0% 0.0% (1.0%) (2.0%) (3.0%)
Value of interest expense (£'000) 5,683 5,113 4,543 3,973 3,403 2,833 2,263
Changes in interest expense (£'000) 1,710 1,140 570 - (570) (1,140) (1,710)
30 September 2023
Change in interest rates 3.0% 2.0% 1.0% 0.0% (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)
Other financial assets and liabilities
Bank deposits 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 £972 million (30 September 2023: £1,064 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 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
million or 25% of total cash balances, whichever is the larger. It is also
recognised by the Board that the arrival of ring-fenced banking has impacted
the availability of A-rated banks.
Before an investment decision is made, the Investment Adviser performs
extensive due diligence complemented by professional third party advisers,
including technical advisers, financial and legal advisers, and valuation and
insurance experts. After an investment is made, the Investment Adviser
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 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 on a quarterly basis.
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.
There continues to be volatility in electricity market prices following the
Russian invasion of Ukraine in 2022. These dynamics have resulted in the
collapse of some energy suppliers. The Company has exposure to certain
electricity suppliers through offtake arrangements with renewable project
borrowers. To date, the Company has not been directly impacted by 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 offtake collapse could be
easily replaced by a new 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 27 March 2024, the Company entered into a commodity swap agreement with
Axpo 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 30 September 2024 and was settled in
October 2024 in line with the contractual terms.
On 27 September 2024, the Company entered into a new commodity swap agreement
with LBCM under the ISDA Master Agreement framework for risk management
purposes, which includes full right of set off. The derivative financial
instrument comprises a commodity swap on baseload electricity for the purpose
of hedging market movements in electricity prices, in cases where the Company
has stepped into projects and/or has direct exposure through its investment
structure. The commodity swap agreement is due to expire on 31 March 2025.
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 this report, the Company's
exposure to credit risk relating to the commodity swap agreement is a £38,000
liability. LBCM is a subsidiary of Lloyds Banking Group plc, and the
non-ring-fenced bank of Lloyds Banking Group plc. LBCM has more than 1,200
employees providing banking, financing and risk management services to its
customers. The Directors are satisfied that the credit risk associated with
this entity 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 table below analyses the Company's financial assets and liabilities in
relevant maturity groupings based on the remaining period from the period end
to the contractual maturity date. The Directors have elected to present both
assets and liabilities in the liquidity disclosure to illustrate the net
liquidity exposure of the Company.
All cash flows in the table below are on an undiscounted basis.
Less than One to Three to Greater than
one month three months twelve months twelve months Total
30 September 2024 £'000 £'000 £'000 £'000 £'000
Non-derivative financial assets
Cash and cash equivalents 11,755 - - - 11,755
Other receivables and prepayments - - 137 - 137
Financial assets at fair value through profit or loss 12,594 37,137 95,661 1,945,835 2,091,227
Derivative financial assets at fair value through profit or loss
Inflows 357 545 532 - 1,434
Outflows (445) (537) (562) - (1,544)
Total financial assets 24,261 37,145 95,768 1,945,835 2,103,009
Financial liabilities
Other payables and accrued expenses - (2,885) - - (2,885)
Interest bearing loans and borrowings (393) (733) (3,458) (63,372) (67,956)
Total financial liabilities (393) (3,618) (3,458) (63,372) (70,841)
Net exposure 23,868 33,527 92,310 1,882,463 2,032,168
Less than One to Three to Greater than
one month three months twelve months 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
19.7 Fair values of financial assets and financial liabilities
Basis of determining fair value
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 valuation is described in note
19.3.
Derivative financial instruments
The valuation principles used are based on inputs from observable market data,
being a commonly quoted electricity price index, which most closely reflects a
Level 2 input. The fair value of the derivative financial instrument is
derived from its mark-to-market ("MTM") valuations provided by Axpo and LBCM
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 level in the fair value
hierarchy into which the fair value measurement is categorised:
30 September 30 September
Fair value 2024 2023
hierarchy £'000 £'000
Financial assets at fair value through profit or loss
Loan notes Level 3 960,023 1,046,568
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 (110) -
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 0.63% of the portfolio (30 September 2023: 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) 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
2024 2023
£'000 £'000
Opening balance 1,046,568 1,087,331
Purchases of financial assets at fair value through profit or loss(1) 27,301 138,698
Repayments of financial assets at fair value through profit or loss(1) (63,889) (128,012)
Net realised gains on disposal of financial assets at fair value through 1,888 137
profit or loss
Unrealised gains on financial assets at fair value through profit or loss 13,549 15,017
Unrealised losses on financial assets at fair value through profit or loss (65,394) (66,603)
Closing balance 960,023 1,046,568
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 considered the inputs used in the valuation of investments and
the appropriateness of their classification in the fair value hierarchy.
Should the valuation approach change, causing an investment to meet the
characteristics of a different level of the fair value hierarchy, it will be
reclassified accordingly in the appropriate period.
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 £451,000 (30 September 2023: £432,000). At 30
September 2024, liabilities in respect of these services amounted to £111,000
(30 September 2023: £106,000).
At 30 September 2024, the Directors, together with their family members, held
the following shares in the Company:
30 September 2024 30 September 2023
Shares % of total Shares % of total
Director held voting rights held voting rights
Andrew Didham 146,345 0.017 93,024 0.011
Julia Chapman 60,446 0.007 60,446 0.007
Steven Wilderspin 15,000 0.002 15,000 0.002
Dawn Crichard 80,463 0.009 75,261 0.009
Alex Yew 75,000 0.009 20,000 0.002
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 may seek 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 UK 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 £89,000 (30 September 2023: £83,000).
During the year, the Company expensed £8,300,000 (30 September 2023:
£8,670,000) in respect of investment advisory fees, marketing fees and
transaction management and documentation services, and £53,000 (30 September
2023: £17,000) in respect of expenses. At 30 September 2024, liabilities in
respect of these services amounted to £2,062,000 (30 September 2023:
£2,132,000).
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 2024, the key management personnel of
the Investment Adviser, together with their family members, directly
or indirectly held 935,268 ordinary shares in the Company, equivalent to
0.106% of the issued share capital (30 September 2023: 1,017,800 ordinary
shares, 0.115% of the issued share capital).
21. Subsequent events after the report date
The Company declared, on 24 October 2024, a fourth interim dividend of 1.75
pence per ordinary share, amounting to £15.2 million, which was paid on 29
November 2024 to ordinary shareholders who were recorded on the register at
the close of business on 1 November 2024.
Post year end, the Company made two further advances totalling £0.3 million.
The Company received repayments totalling £8.9 million in respect of eight
investments, including £6.8 million in respect of the disposal of a portfolio
of rooftop solar assets installed on domestic properties across the UK.
Post year end, the Company drew down an amount of £8 million and repaid an
amount of £4 million on the RCF, resulting in a total drawn amount of £61
million.
22. Ultimate controlling party
It is the view of the Directors that there is no ultimate controlling party.
23. 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 2024 30 September 2023
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 13.8% 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 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 37.1% Associate 37.2% Associate
GCP Rooftop Solar Finance plc 31.1% Associate 30.8% 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 alternative performance measures ("APMs").
Where possible, reconciliations to IFRS are presented from the APMs to the
most appropriate measure prepared in accordance with IFRS. All items listed
below are IFRS financial statement line items unless otherwise stated.
APMs should be read in conjunction with the 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
2024 2023
Pence Pence
Adjusted earnings per share(1) 7.09 8.58
Dividend per share 7.0 7.0
Times covered 1.01 1.23
Adjusted earnings per share
The Company's adjusted net earnings(1) divided by the weighted average number
of shares.
30 Sep 30 Sep
2024 2023
£'000 £'000
Adjusted net earnings(1) 61,486 75,655
Weighted average number of shares 867,940,448 881,850,353
Adjusted earnings per share (pence) 7.09 8.58
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
2024 2023
£'000 £'000
Capitalised (planned) 14,868 18,253
Capitalised (unscheduled) 7,300 3,706
Loan interest capitalised 22,168 21,959
Capitalised amounts subsequently settled as part of repayments (9,297) (10,822)
Adjusted loan interest capitalised 12,871 11,137
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
2024 2023
£'000 £'000
Loan interest received 65,129 58,791
Capitalised amounts subsequently settled as part of repayments 9,297 10,822
Adjusted loan interest received 74,426 69,613
Adjusted net earnings
In respect of a period, a measure of loan interest accrued(2) 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
2024 2023
£'000 £'000
Total profit and comprehensive income/loss 19,514 30,905
Less: income/gains on financial assets at fair value through profit or loss (37,340) (29,301)
Less: gains on derivative financial instruments at fair value through profit (496) (12,860)
or loss
Add: loan interest accrued 79,808 86,911
Adjusted net earnings 61,486 75,655
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
2024 2023
£'000 £'000
Total aggregate downward revaluations since IPO (109,492) (88,996)
Total invested capital since IPO 1,947,454 1,920,237
Percentage (annualised) (0.41) (0.36)
1. APM - refer to relevant APM above for further information.
2. APM - refer to relevant APM below for further information.
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
2024 2023
Pence Pence
Total net cash received per share(1) 6.61 5.65
Dividend per share 7.00 7.00
Times covered 0.94 0.81
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
2024 2023
Pence Pence
Earnings per share 2.25 3.50
Dividend per share 7.00 7.00
Times covered 0.32 0.50
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(2) 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(3).
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: Investment Adviser
1. APM - refer to relevant APM below for further information.
2. APM - refer to relevant APM above for further information.
3. APM - refer to relevant APM above for further information.
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
2024 2023
£'000 £'000
Total expenses per statement of comprehensive income 11,338 11,422
Adjustment for expense accruals (726) (406)
Total expenses paid 10,612 11,016
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(2).
30 Sep 30 Sep
2024 2023
£'000 £'000
Adjusted loan interest received 74,426 69,613
Total expenses paid(3) (10,612) (11,016)
Finance costs paid (6,550) (8,716)
Total net cash received 57,264 49,881
Total net cash received per share
The Company's total net cash received(3) divided by the weighted average
number of shares.
30 Sep 30 Sep
2024 2023
£'000 £'000
Total net cash received(3) 57,264 49,881
Weighted average number of shares 867,940,448 881,850,353
Total net cash received per share (pence) 6.61 5.65
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 above for further information.
2. APM - refer to relevant APM above for further information.
3. APM - refer to relevant APM above for further information.
Glossary of 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 Corporate Governance Code
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
Axpo
Axpo Solutions AG
Borrower
Owners of the Project Companies to which the Company advances loans
Capture price
The actual electricity price achieved by a generator in the market
Cash earnings cover
Refer to APMs section above
CBF
Community Benefit Fund
CfD
Contract-for-difference
CIF Law
Collective Investment Funds (Jersey) Law 1988
Clydesdale
Clydesdale Bank plc (trading as Virgin Money)
Company
GCP Infrastructure Investments Limited
C shares
A share class issued by the Company from time to time. Conversion shares are
used to raise new funds without penalising existing shareholders. The funds
raised are ring-fenced from the rest of the Company until they are
substantially invested
Deferred shares
Redeemable deferred shares of £0.01 each in the capital of the Company
arising from C share conversion
Discount
Refer to APMs section above
Dividend 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
Fellow Chartered Accountant
FiT
Feed-in tariff
FRC
Financial Reporting Council
FTE
Full-time equivalent
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
HMT
His Majesty's Treasury
IFRS
International Financial Reporting Standards
Interest cover
Refer to APMs section above
IPCC
Intergovernmental Panel on Climate Change
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
LBCM
Lloyds Bank Corporate Markets plc
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
NED
Non-executive Director
OBR
The Office for Budget Responsibility
Official List
The Official List of the UK FCA
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
PRI
Principles for Responsible Investment
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 AIB (UK) plc, Lloyds Bank plc, Clydesdale Bank
plc (trading as Virgin Money) and Mizuho Bank Limited (formerly with RBSI, AIB
Group (UK) plc, Lloyds Group plc, Clydesdale Bank plc and Mizuho Bank)
Rental indexation
Annual rent increase by an amount specified in the lease
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
SBTi
Science Based Targets initiative
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
TCFD
Task Force on Climate-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 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 UK
FCA Handbook, as amended from time to time
UK Code
UK Corporate Governance Code
UK ETS
UK Emissions Trading Scheme
UK FCA
Financial Conduct Authority
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 2025
February
Annual General Meeting
March
Company's half-year end
Payment of first interim dividend
June
Half-yearly results announced
Payment of second interim dividend
September
Company's year end
Payment of third interim dividend
December
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 neither the
Company, the Investment Adviser nor 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. Neither the Company, the Investment Adviser
nor the Administrator accept any liability whatsoever for any loss (whether
direct or indirect) arising from the 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.co.uk
Directors
Andrew Didham (Chairman)
Julia Chapman (Senior Independent Director)
Michael Gray
Steven Wilderspin
Dawn Crichard
Alex Yew
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)1534 722787
Adviser on English law
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Adviser on Jersey Company Law
Carey Olsen Jersey LLP
47 Esplanade
St Helier
Jersey JE1 0BD
Depositary
Apex Financial Services (Corporate) Limited
IFC 5
St Helier
Jersey JE1 1ST
Financial adviser and 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
Independent Auditor
KPMG Channel Islands Limited
37 Esplanade
St Helier
Jersey JE4 8WQ
Investment Adviser, AIFM and Security Trustee
Gravis Capital Management Limited
24 Savile Row
London W1S 2ES
Tel: +44 (0)20 3405 8500
Operational bankers
Barclays Bank PLC, Jersey Branch
13 Library Place
St Helier
Jersey JE4 8NE
BNY Mellon
1 Piccadilly Gardens
Manchester M1 1RN
Lloyds Bank International Limited
9 Broad Street
St Helier
Jersey JE4 8NG
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
Public relations
Burson Buchanan Limited
107 Cheapside
London EC2V 6DN
Registrar
Link Market Services (Jersey) Limited
IFC 5
St Helier
Jersey JE1 1ST
Valuation Agent
Forvis 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
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 Buchanan Limited +44 (0)20 7466 5000
Helen Tarbet
Samuel Adams
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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. END FR DDBDDGBBDGSBRecent news on GCP Infrastructure Investments
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