Harmony Energy Inc. - Results for Financial Year Ended 31 October 2023
28/02/2024 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240228:nRSb7051Ea&default-theme=true
RNS Number : 7051E Harmony Energy Income Trust PLC 28 February 2024
28 February 2024
Harmony Energy Income Trust plc
(the "Company" or "HEIT")
Results for the Financial Year Ended 31 October 2023
Harmony Energy Income Trust plc, which invests in commercial scale battery
energy storage systems ("BESS") in Great Britain, announces its results for
the financial year ended the 31 October 2023 (the "Period").
Financial Highlights (as at 31 October 2023)
· 8 assets with total capacity of 790.8 MWh / 395.4 MW
· 70% of portfolio operational (by MW capacity)
· Net asset value of £262.12m (115.40p per share)
· Dividend declared and paid in relation to the Period: 8p per
Ordinary Share
· Tonnes of CO(2)e emissions avoided: 15,415 (estimated)
2023 has seen the Company make huge leaps with its operational portfolio, with
five projects coming online, building on the success of the previous two
years, including the Bumpers project (the Company's largest BESS project, and
the largest in Europe by MWh). The Company now owns two of the three largest
operational BESS assets in Europe (by MWh), including the multi-award winning
Pillswood site that was energised in November 2022. As at 31 October 2023, the
Company had five operational, one cold commissioned and two "under
construction" 2-hour duration BESS projects, with a total capacity of 790.8
MWh / 395.4 MW.
Conditions in the energy storage market and wider economy have been
challenging and the current short-term weakness in revenues will require
prudent management. However, independent revenue forecasts still predict that
the Company can generate attractive returns, whilst contributing to net zero
and delivering positive social and environmental impacts.
As at the close of business on 26 February 2024, the latest practicable date
prior to the publication of this document, the Ordinary Share price was 39.50
pence and the NAV was 115.40 pence per Ordinary Share as at the 31 October
2023.
Norman Crighton, Chair of Harmony Energy Income Trust plc, said:
"Our focus for this year has been on the delivery of the Company's portfolio
through construction and ramping up of operations. The Board is pleased with
the progress achieved in this regard. The Company's Pillswood site has been
one of the best performing BESS sites in Great Britain during 2023 and the now
energised 198 MWh/ 99MW Bumpers project is the joint-largest in Europe (by
MWh), resulting in the portfolio moving from 0% to 70% operational within the
12 months since 31 October 2022.
It has been widely publicised that the GB BESS market, particularly
post-Period end, has deteriorated. Despite this recent performance,
independent market experts expect trading conditions to improve over the
course of 2024. HEIT's longer-duration 2-hour batteries have continued to
outperform shorter-duration BESS.
The Board and its advisers are working hard to find solutions to the
challenges we, and the sector, currently face. Our key objectives looking
forward are finishing construction of our outstanding projects, addressing the
discount to the NAV, and maximising the Company's income. In doing so, we will
continue to prove the value of BESS as an asset class and attractive
investment opportunity, as well as demonstrating why HEIT is the best vehicle
to access such opportunity."
In accordance with Listing Rule 9.6.1 copies of the documents have been
submitted to the UK Listing Authority, will shortly be available to view on
the Company's corporate website at
https://www.heitp.co.uk/investors/results-reports-and-presentations/
(https://www.heitp.co.uk/investors/results-reports-and-presentations/) and
https://www.heitp.co.uk/investors/shareholder-documents/
(https://www.heitp.co.uk/investors/shareholder-documents/) . The documents
have also been submitted to the UK Listing Authority and will be shortly
available for inspection from the National Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
END
For further information, please contact:
Harmony Energy Advisors Limited
Paul Mason
Max Slade
Peter Kavanagh
James Ritchie
info@harmonyenergy.co.uk (mailto:info@harmonyenergy.co.uk)
Berenberg +44 (0)20 3207 7800
Ben Wright
Dan Gee-Summons
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Mark Young
Edward Gibson-Watt
Rajpal Padam
Madison Kominski
Camarco +44 (0)20 3757 4980
Eddie Livingstone-Learmonth
Andrew Turner
JTC (UK) Limited +44 (0)20 3832 3877
Uloma Adighibe
HarmonyEnergyIncomeTrustPLC@jtcgroup.com
(mailto:HarmonyEnergyIncomeTrustPLC@jtcgroup.com)
LEI: 254900O3XI3CJNTKR453
About Harmony Energy Advisors Limited (the "Investment Adviser")
The Investment Adviser is a wholly owned subsidiary of Harmony Energy Limited.
The management team of the Investment Adviser have been exclusively focused on
the energy storage sector (across multiple projects) in Great Britain for over
seven years, both from the point of view of asset owner/developer and in a
third-party advisory capacity. The Investment Adviser is an appointed
representative of Laven Advisors LLP, which is authorised and regulated by the
Financial Conduct Authority.
Chair's Statement
Welcome, on behalf of the board of directors (the "Board"), to the second
Annual Report and Accounts of Harmony Energy Income Trust plc ("HEIT" or the
"Company") for the year ending 31 October 2023 (the "Period").
NORMAN CRIGHTON
CHAIR
The Period has seen both successes and challenges.
Impressive progress has been made in building out our portfolio, with 70% now
operational. The sale of the Company's Rye Common project in September 2023 at
a premium to carrying value demonstrated the quality of the Company's
portfolio. Our supplier concentration risk has been reduced with the forming
of new partnerships with suppliers of BESS equipment and revenue optimisation.
Real progress has been made with our Environmental, Social, and Governance
("ESG") strategy and reporting. The Company's operational assets are
supporting the UK's net zero ambition and helping to secure a more resilient
and affordable domestic energy supply. The Company has declared and paid
dividends totalling 8 pence per Ordinary Share in relation to the Period.
Whilst the portfolio has established a leading position relative to peers, a
more challenging environment for BESS assets has emerged through 2023,
limiting revenue opportunities. This challenging environment led to a
reduction in revenue assumptions in late 2023 which was the primary reason
that the Adjusted NAV per share fell 4.5% during the Period (against the
restated figure). Actual revenues achieved have been weaker than independent
forecasts and, coupled with higher interest rates, this has driven a reduction
in the share price of the Company over the Period. Post-Period end, the
Company announced a number of initiatives which the Board considered
appropriate given the prevailing revenue environment. These initiatives
include:
· progressing towards a fully operational portfolio and continuing
to focus on maximising income, including ongoing engagement with National Grid
Energy System Operator ("National Grid ESO") on its planned process
improvements through which it intends to increase the utilisation of BESS in
the Balancing Mechanism ("BM");
· a renegotiation of the Company's debt facilities to reflect the
predominantly operating nature of the portfolio, reducing cost and structuring
the tenor and covenant thresholds to secure the Company's long term financial
health. This was completed on 21 February 2024;
· a postponement of the first quarterly dividend of the current
financial year. According to independent forecasters, the Company was expected
to generate sufficient revenue to meet its target of 8 pence per Share (on a
fully covered basis) in 2023. Due to the historic seasonality of BESS
revenues, a material portion of the Company's returns were expected to be
generated in autumn and winter 2023, coinciding with the completion of the
construction of two large projects. However, the price volatility witnessed
since the start of the Ukraine conflict has resulted in periods where revenues
have been both significantly higher and significantly lower than independent
forecasts. Unfortunately for the Company, the first period of operating
performance of the Company's assets has coincided with a period of
lower-than-expected revenues. Whilst the Board remains committed to meeting
our objective of providing Shareholders with attractive and sustainable levels
of returns over the medium to long term, the Board will review the dividend
policy during H1 2024; and
· consideration of the most effective methods of delivering value
to Shareholders over the short term. As part of this initiative, the Board has
instructed the Investment Adviser to explore the sale of one or more assets,
with the aim of demonstrating to the market the true value of the portfolio
and the continuing disconnect with the Share price. The proceeds of any sale
would be applied, at least partly, to reduce gearing. Depending on the level
of proceeds the Board will also consider buying back Shares if the extreme
discount to NAV at which the Ordinary Shares are trading persists. This
strategy reflects the feedback we have received from Shareholders over recent
weeks.
We will continue to engage proactively with Shareholders and to reflect on the
range of views and preferences communicated, and will provide additional
updates on strategy and trading in due course.
GROWTH OF OPERATING PORTFOLIO AND MULTIPLE AWARD WINS
Despite the challenges referred to above, it is important to highlight the
achievements of the Company during the Period.
Having acquired nine projects, either at or since IPO, the focus for this year
was on delivery of the portfolio through construction and ramping up of
operations. In this respect, the Board is pleased with the progress achieved,
with multiple BESS projects completing construction. The 196 MWh / 98 MW
Pillswood project was the first to commence operations in November 2022, with
a further 359 MWh / 179.5 MW (across four projects) commencing commercial
operations over the rest of the Period. The 198 MWh / 99 MW Bumpers project
(energised in October 2023) is the Company's largest BESS project and the
joint-largest in Europe (by MWh). As a result, the Company has moved from 0%
to 70% operational within the 12 months since 31 October 2022. It is testament
to the Investment Adviser's wider team, and the strength of our relationships
with suppliers and Distribution Network Operators ("DNOs"), that these
projects were delivered either in line with or earlier than expectations,
during a challenging environment where delays in the sector have been common.
To have delivered 555 MWh / 277.5 MW through construction by the second
anniversary of the Company's IPO is a terrific achievement.
The Company successfully divested the 99 MW Rye Common project in September
2023 at a 1.5% premium to its carrying value. See further commentary on this
in the NAV section below.
The Company's Pillswood site, which at the time of launch in November 2022 was
Europe's largest BESS (by MWh), has been one of the best performing BESS sites
in Great Britain during 2023. Pillswood has won multiple awards from industry
stakeholders in 2023 including the "Utility Scale Storage Project of the Year"
award at the Solar & Storage Live Awards, and the "Grid-scale Standalone
Energy Storage Project of the Year" award at the Energy Storage Awards. The
Board is confident that, as the portfolio's track record continues to grow,
the Company's other assets will also outperform our peer group benchmark.
From October 2023 onwards, the Company's portfolio also began to benefit from
contracted Capacity Market ("CM") payments as Pillswood, Broadditch and
Farnham commenced delivery of their respective T-1 CM contracts. The early
energisations of Bumpers and Little Raith have allowed the Company to procure
an additional £935k of revenue (not previously budgeted) by acquiring T-1 CM
contract capacity.
KEY PARTNERSHIPS ANNOUNCED
In line with the Company's policy to mitigate supplier concentration risk,
2023 saw diversification in two key commercial areas: BESS equipment supply
and revenue optimisation. Both these initiatives relate to the Company's
Hawthorn Pit (99.8 MWh / 49.9 MW) and Wormald Green (66 MWh / 33 MW) projects,
which are due to complete construction in the first half of 2024.
Envision Energy International UK Limited was appointed in February 2023 to
supply and install BESS equipment for these two projects. In September 2023,
we were further delighted to announce that bp signed an agreement with HEIT to
be revenue optimiser to these two projects.
UK BESS MARKET
After the extraordinary macro-economic conditions and geo-political events
witnessed during 2021 and 2022, the revenue environment during 2023 has fallen
to levels below those expected by independent forecasters. The UK market for
mainstream ancillary services has moved towards saturation. In addition,
sustained low gas prices have limited wholesale power spreads and volumes
contracted via the BM have been low. Whilst revenues during the Period were,
themselves, lower than expected, the environment deteriorated further
post-Period end over the first few months of the winter of 2023/24. Despite
this recent performance, independent market experts expect trading conditions
to improve over the course of 2024. In particular, the continued enhancement
of new systems and processes by National Grid ESO are expected to improve
access to revenues via the BM. Indeed, positive results from this new system
are already starting to be seen, although not yet on a consistent basis.
Longer-duration 2-hour batteries have continued to outperform shorter-duration
BESS and the Company is very well placed to benefit from the expected increase
in demand and supply on the power network, balancing challenges, widening
wholesale market spreads, and greater BM volumes. Going forward, the key will
be to continue with a strong focus on best-in-class equipment, highly skilled
asset management and regular, active scrutiny of revenue optimisation
performance.
DIVIDENDS
The Company declared and paid dividends totalling 8 pence per Ordinary Share
relating to the Period, meaning the Company has distributed 100% of the target
distributions announced at IPO. Due to the prolonged and unexpectedly low
levels of income generated over the year, these payments were made
predominantly from recycled capital (VAT rebates) which the Board recognises
is not what Shareholders expect over the long term. In addition, for reasons
stated above, the Board in consultation with the Investment Adviser has deemed
it prudent to postpone the first quarterly dividend relating to the current
financial year. Future dividends will depend on the level of revenue generated
by our Projects. Given the depressed but volatile nature of revenue currently
generated by projects, the Board will continue to monitor the performance of
the portfolio closely over the rest of the Financial Year, with the aim of
distributing available income to Shareholders.
NAV PERFORMANCE
During the Period, Adjusted NAV per Ordinary Share decreased 4.5% from 120.84
pence per Ordinary Share to 115.40 pence per Ordinary Share, driven primarily
by the lower revenue environment as referred to above. During the year the
Investment Adviser became aware of an error in calculating the NAV for July
2023, which had also affected some previous NAVs. Although the effect was
relatively small (a reduction of 2 pence per Ordinary Share over the Period),
the Board and the Investment Adviser immediately took steps to establish how
the error occurred, and what processes needed to be changed to minimise the
risk of such an error reoccurring. These changes were implemented shortly
after the error was discovered.
SHARE PRICE PERFORMANCE
The Company's Share price has been negatively affected by a range of factors,
reducing from 111.75p to 72.5p over the Period. Rising interest rates and a
reduction in risk appetite by investors during the Period had a material
effect on the wider UK investment company sector (across multiple asset
classes). In relation to the BESS sector particularly, the difference of
appetite between the private and public markets is especially disappointing,
with examples of private BESS asset transactions during the Period at levels
equivalent to the Company's own valuations. The sale of the Company's own Rye
Common project in September at a 1.5% premium to carrying value was one such
example, and a testament to this misalignment. Since the end of the Period,
the share price has come under further pressure as investors have reacted to
continued deterioration of revenues (as reported by third party analysts) over
the winter, coupled with uncertainty over the Company's ability to service its
debt covenants. In relation to the latter point, the recent announcement of
the debt refinancing may restore confidence (see below). As far as recovery of
BESS revenues is concerned, the Investment Adviser's Report summarises some of
the reasons behind the low revenues and also explains why there is cause for
optimism over 2024 and beyond.
The level of discount to NAV that the Shares are currently trading at is
unacceptable to the Board and the measures detailed above are intended as a
first step to address these issues.
POST-PERIOD END EVENTS: DEBT REFINANCING AND T-1 CAPACITY MARKET
On 21 February 2024, the Company completed the amendment and restatement of
its existing debt facilities with NatWest plc ("NatWest") and Coöperatieve
Rabobank U.A ("Rabobank"). The changes include an increase in tenor, lower
margins and a re-sizing of debt covenant ratios to ensure ongoing headroom in
the current revenue environment. Further details are set out in the Investment
Adviser's Report. As mentioned above, the proceeds of any near-term asset
sales would, at least partly, be applied to reducing gearing levels, which
would further reduce ongoing debt service obligations. In addition, the
Company enjoyed success with six projects bidding successfully for T-1 CM
contracts on 20 February 2024. This raises the amount of contracted revenue
for the 12 months from 1 October 2024 to £3.2 million, or £8k/MW/yr. Further
details are set out in the Investment Adviser's Report.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
The Company's ESG strategy, which was strengthened this year, powers us
towards a sustainable future through battery energy storage infrastructure
that supports the UK's net zero ambition, while bolstering energy security and
promoting affordability.
As noted above, the Company added 555 MWh / 277.5 MW of operational BESS to
the grid during the Financial Year. This has the capacity to power around
833,000 UK homes for two hours. Our batteries stored 30,938 MWh of renewable
energy and avoided an estimated 15,415 tonnes of CO(2)e emissions from
entering the atmosphere.
With the expansion of the Company's portfolio, there comes a responsibility to
develop infrastructure that is truly sustainable in every sense by considering
wider environmental and social, aspects throughout the asset lifecycle.
The Company considers the local environmental and social context in which it
operates and strives to make a positive impact on the communities and
environment around its sites. In 2022/23, the Company put plans in place to
deliver a biodiversity net gain ("BNG") of 15% across all operational sites as
well as launched five community funds with a combined value of £35,000 per
year, while creating skilled jobs at the heart of the energy transition.
The Company also launched its Supplier Code of Conduct ("the Supplier Code")
to strengthen sustainability in its supply chain, with 68% of key Tier 1
suppliers signing the Supplier Code during the Period. The Company increased
collaboration with suppliers and industry associations on key issues such as
human rights and circularity.
As we make progress on our ESG ambitions, it's important that we enhance our
disclosures to support transparency. The Company has published its inaugural
integrated Taskforce on Climate-Related Financial Disclosures ("TCFD") and
Taskforce on Nature-Related Financial Disclosures ("TNFD") report. It has also
submitted its first voluntary United Nations Principles for Responsible
Investment ("UN PRI") report, ahead of publishing its first Transparency
Report in the 2024 reporting cycle.
OUTLOOK
The success of the build-out of the portfolio during the Period has been
tempered by low recent revenues. The Board and its advisers are working hard
to find solutions to the challenges we currently face, with our key objectives
for the coming year being to finish construction of the outstanding projects,
implement the initiatives detailed above to address the discount to the NAV,
and maximise income. In doing so, we will continue to prove the value of BESS
not only as an asset class, but also as an attractive income generating
investment opportunity over the medium to long term.
Shareholders will have many questions which we will be happy to answer at the
AGM to be held in April. I look forward to meeting as many of you as possible
there. In the meantime, if you have any questions, please do not hesitate to
contact me through our brokers Berenberg and Stifel.
Norman Crighton
Chair
Investment Adviser's Report
Harmony Energy Advisors Limited ("HEAL" or "the "Investment Adviser"), hereby
delivers its second annual Investment Adviser's Report in relation to the
Company.
HIGHLIGHTS
555 MWh / 277.5 MW energised during the Period, taking the portfolio to 70% Current portfolio size: 790.8 MWh / 395.4 MW
operational
Acquired 363.8 MWh / 181.9 MW pipeline projects Eight BESS projects
Divested the Rye Common shovel-ready project at a 1.5% premium to carrying 15,415 tonnes of CO(2)e emissions avoided (estimated)
value
Diversified supplier base through contracting with Envision and bp
INTRODUCTION
The Period saw significant delivery and achievement of the Company's goals and
other targets set out at IPO, particularly in relation to delivery of projects
through construction and commencing operations. The benefits of 2-hour
duration have been evident as the portfolio has performed well relative to the
wider GB BESS fleet. However, these achievements have been overshadowed by a
lower-than-expected revenue landscape during the Period. This has subsequently
been exacerbated by a material further deterioration in the three months
post-Period end as the expected uplift over winter failed to materialise. The
primary cause for this weak performance is the continued drop in wholesale gas
price, narrowing the daily spread potential for BESS trading revenues. In
addition, a change to ancillary service auction parameters by National Grid
ESO put further pressure on pricing, whilst the much-publicised new BM
software has not yet delivered in line with expectations.
The recently announced debt re-financing, reflecting the move from a company
developing assets to a lower risk operating one, has also addressed near-term
risks around debt service in the event that the recent low revenue environment
continues. In addition, the Board has instructed the Investment Adviser to
explore potential asset sales in order to reduce gearing levels which would
better position the Company for long-term stability and growth. Once any asset
sale process is concluded, the Company will also consider (and, if applicable,
disclose details of) further initiatives to provide value to Shareholders,
such as share buybacks. The Company remains confident that the revenue
environment will return to more positive levels for BESS. The T-1 auction
result on 20th February is a positive start, providing additional contracted
income for six of the Company's projects.
PORTFOLIO UPDATE
The completion of construction and energisation of five BESS projects during
the Period means that the Company's operating portfolio has jumped from zero
at the start of the Period to 555 MWh / 277.5 MW by the end of the Period.
This represents 70% of the Company's portfolio (by MWh), 12.2% of the
operational GB market share, and places the Company as the second largest
operating BESS owner in GB (by MWh).
This represents phenomenal growth from a standing start and has been
underpinned by strong project management, with a number of projects delivered
ahead of schedule. Where projects have been subject to minor delays, this has
been largely due to grid connection constraints, and the company has worked
hard with DNOs and suppliers to ensure that delays have been less significant
than those experienced by many other GB BESS owners. A report by Modo Energy
in January 2024 noted that 60% of BESS projects were delayed by more than nine
months. Viewed in this context, the Company's delivery track record is very
strong with only the Rusholme project suffering significant delays,
representing 8.8% of the portfolio (by MWh).
As at the date of publication of this report, a further three projects (235.8
MWh / 117.9 MW) remain either "under construction" or "cold commissioned". The
aforementioned delays to the Rusholme project (70 MWh / 35 MW) have been
caused by the DNO's inability to connect the project in line with originally
planned timelines. The project has been "cold-commissioned", meaning all
batteries are on-site and have been tested to the extent possible. The root
cause of this delay has now been successfully resolved, with the DNO having
re-mobilised on site. The project is expected to energise in late Q2 2024.
The other two projects still "under construction" are Wormald Green (66 MWh /
33 MW) and Hawthorn Pit (99.8 MWh / 49.9 MW). These projects were acquired by
the Company in December 2022, along with a third project, Rye Common.
Post-acquisition, the Investment Adviser moved quickly to finalise key
commercial contracts in relation to Wormald Green and Hawthorn Pit in February
2023. This speed of contracting was made possible thanks to the Investment
Adviser proactively undertaking a comprehensive tender process in advance of
acquisition. The aim was to diversify the Company's supplier base, encourage
competitive tension for future tenders, and minimise the amount of time
between acquisition and the start of construction.
As a result of this process, the Company procured (via relevant project SPV's)
the engagement of Envision International Trading Limited and Envision Energy
International UK Limited (together "Envision") to supply and install its
ENS‑L7300‑3300 BESS in relation to the Wormald Green and Hawthorn Pit
projects. Envision Energy International UK Limited is also contracted under
long term maintenance and services agreements in relation to these two
projects.
Key factors which influenced the Company's choice included Envision's track
record in the renewables sector, specifically its independent battery cell
manufacturing capabilities; its commitment around BESS delivery dates (in line
with the Company's project energisation timetables); and its strong ESG
policies and initiatives.
In relation to these two projects, the Company also appointed Keltbray Energy
Limited as balance-of-plant contractor, and bp as the revenue optimiser. The
latter was appointed in September 2023 following an extensive tender process
involving fifteen potential suppliers. The relevant projects will be optimised
utilising software developed by Open Energi (a company acquired by bp in
2021).
Similar to Rusholme, both projects have taken delivery of battery cell modules
and are expected to become operational in Q2 2024. Along with the energisation
of Rusholme, this will make the Company's portfolio of eight BESS projects
100% operational (790.8 MWh / 395.4 MW).
DISPOSAL OF RYE COMMON
The third acquisition in December 2022 alongside Hawthorn Pit and Wormald
Green was the Rye Common project (198 MWh / 99 MW). Similar to Wormald Green
and Hawthorn Pit, this project was acquired "shovel ready", before relevant
construction contracts were in place. Given the challenging capital raising
environment which remained following the Government's 'mini-budget' in
September 2022, it was not possible for the Company to raise the additional
equity required to construct this project. Alternative funding options were
considered including potential vendor financing and other deferred capex
structures, however it was ultimately determined by the Board that a sale of
the project should also be explored.
The sale process took place during summer 2023 and attracted multiple bidders
at attractive prices demonstrating the continued high level of interest for
BESS projects and the quality of Harmony Energy Limited's pipeline. In
aggregate, the proceeds of the sale (together with recycled cash previously
allocated to this project) represented a 1.5% premium to its carrying value as
at 30 April 2023 (as set out in the Company's interim results).
The successful sale of the project at this value demonstrated the appetite for
such projects from private investors whilst also validating the Company's
carrying values for projects.
PIPELINE
The need for substantial amounts of energy storage on the GB network is widely
understood. The ROFR ("Right of First Refusal") enables the Company to have an
exclusive right of first refusal over Harmony Energy Limited's substantial and
well-developed pipeline of projects. The Company has, as at the date of
publication of this report, so far exercised this right in relation to 494.4
MW, leaving at least 505.6 MW still to be acquired (subject to financing).
DEBT FACILITIES INCREASED AND DRAWN
On 10 February 2023, the Company successfully negotiated its debt facilities
with NatWest and Rabobank. This increased the Company's available debt
facilities to a total of £130 million comprising a term loan of £110 million
and a revolving credit facility ("RCF") of £20 million.
These debt facilities provided the Company with funding certainty to complete
construction of the Bumpers, Wormald Green and Hawthorn Pit projects.
During the Period £95 million was drawn across the two facilities with the
remaining £35 million drawn as at the end of December 2023 (post-Period) in
order to fund construction milestones.
HEDGING
At the beginning of the Period, the Company had an interest rate swap (the
"Swap") in place in relation to its initial debt facility of £60 million. The
interest rate swap fixed the SONIA element of interest payments on this
facility at a rate of 2.478% per annum. Multiple rises in Bank of England base
rates since the Swap was contracted increased its value significantly. In
connection with the extension of the debt facility (described above), the
Company chose to break this swap in July 2023, crystalising the mark to market
value at the time of £6.1 million. An interest rate cap of 5.25% was put in
place in relation to the variable SONIA element of the increased facility, at
a cost of £2.8 million. This interest rate cap was valued at £1.1 million as
at 31 October 2023.
Post Period, the Company restructured its debt facilities as described below.
The Company broke its interest rate cap at this point (receiving a payment of
£0.5 million) and replaced it with an interest rate swap for the SONIA
element of this loan. The new interest rate swap fixes the SONIA element of
the loan at a rate of 4.101% per annum.
DEBT RESTRUCTURING POST-PERIOD END
On 21 February 2024, the Company successfully negotiated an amendment and
restatement of its debt facilities with NatWest and Rabobank. The revised
structure recognises that the Company's portfolio is evolving from a
construction portfolio into an operating portfolio. The term loan and RCF have
been consolidated into a single long-term facility with the following key
terms:
· Facility size of £130 million (already fully drawn);
· an extension of the legal maturity date from June 2027 to
February 2031;
· a reduction in margin to 275 bps over SONIA for the first two
years, rising over time to a maximum of 350 bps in the final year; and
· a re-sizing of market standard debt covenant ratios against
conservative revenue forecasts to ensure ongoing headroom in the current
revenue environment.
The structure allows for voluntary prepayments during the term (subject to a
fee) and for cash sweeps in favour of the lenders in the event of material
revenue outperformance above pre-agreed thresholds, enabling an acceleration
of de‑gearing in a cost-efficient manner whilst also reserving operational
free cash flow for shareholder distributions.
When coupled with the new interest rate swap referred to above, the aggregate
cost of debt equates to 6.85% for the first two years.
MARKET COMMENTARY
OVERVIEW
In October 2021, the UK Government set a commitment for all electricity
generation to be decarbonised by 2035, subject to security of supply. To meet
this target, the UK must replace fossil fuel-based electricity generation with
low carbon power from renewable sources such as wind and solar. This ambition
was reinforced by the UK government in a recent pledge at COP 28, together
with other countries, to triple global renewable generation capacity to 11 TW
by 2030.
Largely as a result of this policy, traditional UK baseload power capacity is
forecast to decrease due to challenging economics and the mandated closure of
coal fired power generation whilst the installed capacity of intermittent
renewables (i.e. wind and solar plant) is forecast to increase from 40 GW in
2023 to 135 GW in 2060.
This growth in renewables necessitates an increase in flexible capacity such
as BESS with installed capacity expected to increase from 3.6 GW at the end of
2023 to at least 18 GW by 2060. It should be noted that 3.6 GW is 16% below
National Grid's assumed operating capacity for their Winter Outlook 2023/24,
showing that the amount of installed capacity is lagging behind current
National Grid requirements.
Alongside this supply-side shift to intermittent renewables supported by
Flexibility, are significant changes in the expected demand profile.
Electrification of heat and transport is expected to increase total demand by
90% by 2060, with peak demand forecast to increase by 48%. This is a reversal
of recent trends in which electricity demand has fallen as a result of
improvements in energy efficiency, the cost-of-living crisis and low global
output since Covid-19.
This backdrop of increasing peak demand, coupled with greater penetration of
intermittent renewables, remains central to the business case for BESS.
Baseload power prices will decrease as more power is generated from
renewables, However, the average spread between peak and off-peak pricing (the
"Wholesale Price Spread") is forecast to increase from around £75 / MWh in
2023 to £120 / MWh in 2030 and £136 / MWh in 2060. This is driven by
off-peak prices being increasingly set close to zero when renewable output is
high, whilst peak prices will continue to be set by reference to commodity
prices (gas and carbon) which are both forecast to increase with carbon
increasing significantly throughout the rest of this decade.
Wholesale Price Spreads therefore mirror this projected increase in commodity
prices, and this is the fundamental macro driver behind the BESS business case
which continues to underpin the market valuation of projects.
GB BESS REVENUES DURING 2023 AND RELATIVE COMPANY PERFORMANCE
BESS revenue in the Period was markedly lower than revenue generated in the
same period in 2022. Whilst a reduction from the remarkable highs of 2022 was
expected and built into third party revenue forecasts, the scale and the speed
of the reduction has exceeded market expectations. BESS revenues in November
and December 2023 and January 2024 (i.e. post-Period end), deteriorated
further, contrary to expectations.
There are multiple drivers of this reduction in revenue. The first is the
saturation of ancillary services which began towards the end of 2022 and is
now a well-established position. This saturation was largely expected and
already built into forward-looking revenue projections. The second key driver,
and the most relevant to the Company, is a reduction in wholesale price
volatility. 2021 and 2022 had both seen high wholesale price volatility - in
2021 this was driven by rising fuel prices and low wind output leading to
frequent scarcity events which drove high peak power prices. In 2022 wind
output increased, reducing scarcity events. However, a marked surge in
commodity prices drove power prices higher. This combination of high renewable
output and high commodity prices contributed to high spreads and created the
ideal conditions for BESS revenue performance.
Wholesale Price Spreads in 2023 have narrowed due to the reduction in
commodity prices (particularly gas and carbon prices), GB importing a large
volume of energy from Europe (via interconnectors) and a material reduction in
consumer energy demand.
Chart 5 shows average BESS revenues generated during the Period (as estimated
by Modo Energy). The Company's portfolio performance (also as estimated by
Modo Energy, for like-for-like comparison) is overlaid to demonstrate the
Company's market-leading position against its 2-hour peers. More generally,
and notwithstanding the saturation of ancillary services and lower average
fleet performance relative to 2022, 2-hour duration BESS continued to
outperform compared to 1-hour duration projects.
The revenue mix over the period varied between 1-hour and 2-hour duration
BESS. The key revenues have been categorised below as follows:
Capacity Market
The CM consists of two annual auctions which are designed to provide security
of supply for the following year (based on the T-1 auction) and for four years
into the future (based on the T-4 auction). Contracted assets are paid an
availability fee to guarantee availability to respond to stress events, which
are periods of very high demand. This revenue stream can be combined with all
other revenues and is a secure, passive part of the revenue stack. Details of
the Company's CM contracts can be found in a later section of this report.
Ancillary Services
The current suite of National Grid ESO ancillary services is referred to
collectively in this section as Dynamic Frequency Response ("DFR"). These
services are divided into "high" and "low" frequency services as described
below. Auctions take place on a daily basis for delivery the following day and
prospective service providers bid by communicating to National Grid ESO how
much capacity they are able to provide, and at what price.
Dynamic Frequency Response High ("DFR(H)"):
A high-frequency event is caused by energy supply exceeding demand, which
causes the frequency to be higher than the target set by National Grid ESO.
DFR(H) services are used to correct high frequency events by either increasing
demand or decreasing supply in order to restore balance. BESS responds to this
type of event by consuming power, i.e. charging the battery.
A key strategy for the Company's assets over the reporting Period was to bid
into this type of service for part of the day and then sell any power consumed
on a scheduled, bilateral basis via the wholesale market during the evening
peak period. The Company's assets do not pay for the power consumed whilst
providing DFR(H) services, and therefore a greater spread could be achieved.
This explains why a large proportion of the Company's revenues during the
Period came via Dynamic Regulation - a sub-category of DFR (see section titled
Dynamic Frequency Response Low ("DFR(L)").
This strategy saw increased competition from both 2-hour and shorter duration
BESS during 2023, despite being less effective for shorter duration BESS due
to the limited volume which can be stored. The introduction of the Enduring
Auction Capability in November 2023 places further pricing pressure on this
strategy (see further details below). The Investment Adviser monitors such
trends closely and has regular strategy meetings with Tesla's Autobidder
operators (engaged as revenue optimisers in relation to the Company's current
operating projects). The Autobidder software makes a judgement as to whether
the DFR(H) clearing price(s) represent better value than charging via the
wholesale markets. Until we witness a widening of peak/off-peak spreads in the
wholesale markets, it is anticipated that the Company will continue to
participate in DFR(H) for as long as such strategy continues to demonstrate
best value. Indeed, recent analysis by Modo Energy which tracked and compared
two BESS assets (one 1-hour duration and one 2-hour duration) operating the
same DFR(H) & wholesale strategy concluded that the 2-hour duration BESS
earned more £/MW whilst also cycling less.
Dynamic Frequency Response Low ("DFR(L)"):
A low frequency event is caused by energy demand exceeding supply, causing the
frequency to be lower than the target. DFR(L) services are used to correct low
frequency events by either increasing supply, or reducing demand. BESS
responds to this type of event by generating power, i.e. discharging the
battery.
As with DFR(H) services, the Company's assets would not be paid for the energy
throughput (in this case, the energy discharged from the battery) whilst
participating in this service. For DFR(L), this creates an opportunity cost -
the BESS could reasonably achieve better value discharging via the wholesale
markets - so DFR(L) services have traditionally cleared at higher pricing
levels than DFR(H) services as bidders demand higher compensation for this
opportunity cost.
Wholesale Trading
Wholesale trading refers to the buying and selling of power via the day ahead
or intra-day power exchanges. In its basic form it refers to buying cheap
power when demand is low (and increasingly when renewable energy generation is
high), storing this power for a period of time and then selling when the price
increases, profiting from the "spread" between peak and off-peak prices. The
average spread in the wholesale markets is expected to increase as the growing
proportion of renewable generation increasingly displaces use of older,
thermal plant during periods of off-peak pricing (when it is not economic for
the latter to operate), leaving peak prices linked to commodity prices such as
gas and carbon.
Wholesale markets are active until one-hour prior to delivery of power (known
as "Gate Closure").
Balancing Mechanism
The BM is National Grid ESO's last minute tool to balance supply and demand in
real time. This is active from Gate Closure and spreads are typically
significantly wider than seen in wholesale markets. To date BESS revenues from
BM have been limited by National Grid ESO's systems and ability to dispatch a
large number of small assets. In response to this issue, National Grid ESO
recently released the Open Balancing Platform, covered in more detail below.
NATIONAL GRID'S OPEN BALANCING PLATFORM ("OBP")
The BM is National Grid ESO's primary tool for balancing supply and demand, as
well as managing system needs in real time. BESS can be "dispatched" to either
charge or discharge in short bursts (currently up to 15 minutes) multiple
times per day. Historically, BESS has represented a small proportion of
overall dispatch volumes within the BM (1.7% of total dispatches in 2023), as
the National Grid ESO control room operators have favoured more established
technologies which dispatch in large volumes, rather than cheaper and more
efficient BESS capacity.
Being subject to strong incentives to keep balancing costs down, National Grid
ESO is committed to increasing BESS dispatch rates and volumes in the BM.
National Grid ESO has published its "Balancing Programme" incorporating
multiple enhancements to be implemented on a staggered basis between December
2023 and Summer 2025 with the express purpose of enabling greater use of
storage assets in the BM. The plan includes new control room processes and
training, software updates, regulatory changes and launch of new services. The
three key enhancements which are of particular interest are:
1) The OBP & "Bulk Dispatch" functionality: launched in early January
2024 (after an initial launch in December 2023 was aborted after a few days
due to a technical fault), this new software enables National Grid ESO
controllers to dispatch multiple assets simultaneously (up to maximum of 300
instructions per hour), rather than via individual instructions (average rate
of 6.5 dispatches per hour);
2) Fast Dispatch: expected in Spring 2024, will enhance Bulk Dispatch so
that National Grid ESO can call upon BESS in the BM to respond to
time-sensitive frequency-correcting actions (e.g. in response to a sudden
large outage, such as an interconnector trip); and
3) New Storage Parameters: a change designed to give National Grid ESO
controllers confidence and capability to dispatch BESS for longer than the
current 15-minute limitation. This was due to be available from Winter 2024,
but National Grid ESO recently announced an ambition to bring this initiative
forward to 1 March 2024.
It remains too soon to forecast the net impact of the planned enhancements,
and a frustrating level of inconsistency by National Grid ESO has been
observed whilst OBP "teething" issues are ironed out. However, there are
positive early signs, as since OBP's first launch in early December, the total
BESS volume dispatched via the BM has increased. According to Modo Energy, 1.1
GWh of BESS volume was dispatched per day in January 2024, an 80% increase on
November 2023.
It is already well documented that 2-hour duration BESS can outperform shorter
duration BESS in the BM, as more MWh creates opportunity for more transaction
volume. Modo Energy predicts that the OBP and subsequent enhancements will
enable 2-hour duration BESS to enjoy an uplift in the present value of
lifetime revenues by 13-20% (central/high scenarios).
ENDURING AUCTION CAPABILITY
Post-Period end, on 2 November 2023, National Grid upgraded its auction
methodology and bidding structure in relation to ancillary services. This is
known as the Enduring Auction Capability ("EAC"). The changes implemented
increased the linkage in pricing between services, and also enabled
participants to bid negative pricing to win volume (i.e. pay to provide the
service). This has increased transparency for participants and reduced the
cost for National Grid ESO to procure ancillary services. It follows, however,
that service pricing has been driven down, reducing revenues captured by BESS.
In relation to the Company, the EAC has impacted the DFR(H) & wholesale
trading strategy commonly used during the Period (as described above). This is
because the clearing price for the DFR(H) service can now be negative, meaning
that the Company has to pay to charge (narrowing the potential spread
achievable). As described above, a 2-hour duration BESS continues to
outperform its shorter-duration peers when utilising this strategy, and the
Investment Adviser is keeping the situation under close review.
OUTLOOK
As has been previously explained, short-duration BESS is more reliant upon
ancillary service revenues than 2-hour duration BESS. The continuing
saturation of the ancillary services market along with EAC is, certainly, a
material factor in the recent revenue performance of the whole GB fleet.
However, the Investment Adviser anticipates that 2-hour duration BESS will
accelerate away from ancillary services with a proportionate increase in
revenue generated via the wholesale markets and BM. This should result in
increasing divergence of asset performance, depending upon duration. Despite
the technical teething issues in National Grid ESO's implementation of OBP,
the recent increase in dispatch rates witnessed in the BM is an encouraging
sign of this. More widely, other factors such as the expected increase in
energy demand and the continued strong build out of intermittent renewable
generation plant, coupled with the relative shortfall of GB BESS capacity,
should support Wholesale Price Spread growth, reversing recent trends.
Given the Company's position as the largest portfolio of exclusively 2-hour
duration BESS in GB, we are well positioned to continue to outperform the
wider market and maximise emerging revenue opportunities.
FINANCIAL PERFORMANCE
The NAV per share as at 31 October 2023 was £115.40 pence per Ordinary Share,
a reduction of -4.5% from the Adjusted NAV per share of 120.84 pence per
Ordinary Share as at 31 October 2022 as restated. The NAV total return over
the Period was 1.2%. As at 31 October 2023 NAV total return since IPO was
24.9%.
Material factors which influenced the NAV over the period included:
a) lower near-term revenue assumptions based on the latest revenue
forecasts published by independent providers. The revision to the forecasts
is reflective of the market environment during 2023 which saw wholesale energy
prices fall significantly from their historic highs in 2022;
b) positive revaluations of the Company's BESS projects as they progressed
through construction and commenced operations;
c) dividend payments amounting to 8 pence per Ordinary Share relating to
the Period, which were uncovered as the portfolio became increasingly
operational;
d) a correction relating to an error in valuation methodology in relation
to short-term cash flows which led to a misstatement being introduced at the
31 October 2022 financial year end. It has been ascertained that this resulted
in an overstatement of the NAV at 31 October 2022 of £4,653,154.
Whilst lower revenue forecasts have had a material impact on NAV, discount
rates applied to the Company's "operating" and "under construction" assets
remained stable throughout the Period. The relative stability experienced for
BESS was supported by the Company's sale of the Rye Common asset at a 1.5%
premium to carrying value in September 2023, and corroborated by the Company's
Independent Valuer with reference to other market transactions. The current
discount rates used in modelling are: 10.5% for construction projects; and
10.0% for operational projects. These discount rates are applied to all
revenues, with no differentiation for long-term contracted income generated
through CM contracts.
As part of the biannual valuation exercise carried out by the Independent
Valuer as at 31 October 2023, the Company introduced a new discount rate of
10.25% which has since been applied to newly energised projects. This
withholds an element of construction risk whilst the projects prove an absence
of technical teething issues.
The chart in this report shows the modelled long-term revenue and cost
assumptions used for calculating the NAV of the portfolio as at 31 October
2023. These figures are presented in real terms with a base date of 1st
January 2023. CM revenues are included, and the years are calendar years.
REVENUE GROWTH DRIVEN BY INCREASE IN OPERATIONAL PROJECTS
During the Period, the portfolio generated total revenue of £6.7 million
(equating to £67k / MW/Yr). £5.7 million of this came from the Pillswood
project which became operational in November 2022. The Broadditch and Farnham
projects began contributing from May and June 2023 respectively, however they
contributed less to portfolio revenue due to their relatively small scale.
Bumpers and Little Raith were energised in October 2023, representing 115%
increase to the portfolio's operating capacity. This increase in capacity had
limited impact on revenue for the Period but positions the Company well going
into the next financial year. It should be noted that the Company's projects
did not benefit from CM contracts until October 2023. See section below for
additional information.
Wholesale trading and BM accounted for 42% of portfolio revenue during the
reporting Period. These revenue streams are expected to make up a more
significant proportion of the Company's revenue in the future as the ancillary
services markets become increasingly saturated.
Of the relevant ancillary services (Dynamic Containment, Dynamic Moderation
and Dynamic Regulation), Dynamic Regulation was the most important ancillary
service for the portfolio over the Period. This service favours
longer-duration batteries and is increasingly being used in conjunction with
wholesale trading: by providing the service, the BESS effectively "buys" power
which can then be sold via the wholesale markets, achieving a greater spread
than would be available by buying the same power wholesale. This strategy has
attracted increasing competition from other BESS as other ancillary services
become less attractive.
In May and June 2023, the Company decided to focus the Pillswood 2 project's
revenue strategy on the BM and actively chose not to participate in ancillary
service markets. This strategy proved more profitable than a wholesale market
only, or wholesale plus Dynamic Containment strategy (strategies being pursued
by the majority of owners in GB at the time) whilst also using fewer cycles.
Spreads were significantly higher than could have been achieved in the
wholesale market however volume was relatively lower, limiting the amount of
revenue which could be achieved.
Whilst only operating in the BM, Pillswood 2 cycled 0.6 times per day on
average. National Grid ESO is actively working on improving the use of
batteries in the BM, and released the first iteration of their OBP in December
2023 (see the market commentary section for more information). The Investment
Adviser continues to believe that the BM will be an important market for BESS
in GB with increased volume as a result of OBP being an important first step.
CAPACITY MARKET
T-1 Capacity Market Contract Status
In early February 2023, the Company successfully bid for T-1 CM contracts in
respect of the Pillswood, Broadditch, Farnham and Rusholme projects. The
clearing price for these contracts was £60 per kW/year, the second highest
clearing price ever achieved and significantly higher than the T-1 revenue
assumptions in the Investment Adviser's revenue projections at the time of the
award. Service delivery under these contracts commenced in October 2023,
providing contracted revenues to the relevant projects until 30 November 2024.
The Company's Little Raith and Bumpers projects did not participate in the T-1
auction in February 2023. This is because bidders face financial penalties in
the event that the relevant projects do not pass various construction
milestones in line with timetable. Rather than expose the Company to such
risks, the Investment Adviser instead focused on completing construction of
both projects ahead of expectations, which then allowed such projects to
confidently procure T-1 CM contracts via the secondary market from third
parties who are not able to fulfil their delivery obligations. The Company
successfully procured additional T-1 CM Contracts to the aggregate value of
£935k which is accretive to modelled cashflows over the October 2023 to
September 2024 delivery year. Of this aggregate amount, £403k was secured
during the Period, with the balance secured post-Period end.
T-4 Capacity Market Contract Status
In relation to T-4 CM contracts, the Company's Bumpers, Wormald Green and
Hawthorn Pit projects successfully obtained 15‑year duration, index linked
T-4 CM contracts at the T-4 auction held on 21 February 2023. The auction
cleared at a record high of £63 per kW/year, more than double the previous
record high price. This revenue stream will commence from October 2026.
The above results mean that all projects in the Company's portfolio benefit
from 15-year index linked T-4 contracts commencing from October 2024, October
2025 or October 2026 (depending on the project).
Recent T-1 Auction Results
On 20 February 2024, six of the Company's projects successfully bid for T-1 CM
contracts for delivery from 1 October 2024 through to end September 2025. The
auction cleared at £35.79/kw/yr, lower than last year but higher than the
Company's expectations. Once De-Rating (see glossary) is taken into account,
this increases the Company's contracted revenue for the 12-month period ending
30 September 2024 to £3.2 million (circa £8k/MW), of which £1.7 million has
not yet been factored into the Company's modelled cash flows. The Company's
Broadditch and Farnham projects did not participate in this T-1 CM auction
because their respective T-4 CM contracts will commence from 1 October 2024
(for delivery over 15 years) and it is not permitted for a project to hold two
CM contracts in relation to the same delivery period.
Overview
The table in this report shows the current contracted income (on a De-Rated
basis) to be received from the CM (as at the date of publication of this
report). Combined with pre-existing CM contracts, the total contracted
annualised income for the portfolio is modelled to be £12k/MW until 30
September 2024, and £8k/MW for the subsequent 12 months ending 30 September
2025. Income in 2025/2026 will be increased by additional revenue from T-1 CM
contracts awarded to relevant projects which do not hold T-4 CM contracts for
these delivery years.
TECHNICAL PERFORMANCE
During the Period, the Company's portfolio performed in line with expectations
from a technical perspective. Across the portfolio, availability averaged
97.8% (including grid outages), with round-trip efficiency of 88.2%. Both of
these measures exceed those guaranteed by the manufacturer.
"Cycles" are a common measure of battery utilisation, with one cycle being
equal to the battery discharging its full energy capacity (so one cycle for a
50 MW, 2-hour battery is equal to 100 MWh).
The portfolio has averaged 0.94 cycles per day, which is lower than assumed in
the Company's business plan. Lower cycling leads to lower degradation, which
in turn increases the operational life of the project.
CONSOLIDATED OPERATIONAL PERFORMANCE AND PERFORMANCE MEASURES
As an Investment Company, HEIT does not consolidate for accounting purposes,
however the Investment Adviser believes that presenting financial performance
on an unaudited consolidated basis is helpful in relation to the calculation
of dividend cover and to demonstrate the flow of revenue from project
operations through to distributions to investors.
Dividend cover in the reporting Period is calculated as follows:
TABLE 1: UNAUDITED CONSOLIDATED FY 2023 FINANCIALS
FY2023
Unaudited Consolidated Financials (£)
Revenue 6,698,540
SPV Costs (2,477,800)
HEIT/Holdco Costs (2,009,133)
Management Fee (2,163,222)
Interest Costs (3,248,173)
Tax (26,624)
Operational Free Cash Flow (3,226,411)
Dividend Paid in relation to FY 2023 18,170,264
Weighted Average Operational MW 100.5
Revenue (£/MW/Yr) 66,631
Based on the above, and despite having distributable reserves available, the
Company's dividend was not covered by operational fee cash flow during the
Period. The lack of dividend cover is predominantly due to the small number of
operating projects over the period (weighted average operational MW: 101).
This was compounded by lower than anticipated revenues (£67k/MW/Yr).
Operational free cash flow is expected to increase in future years as the
portfolio becomes fully operational. The Company intends to distribute
operational free cash flow as dividends subject to working capital
requirements. The Investment Adviser and the Board intend to review the
Company's dividend policy in the coming months.
The accounting policies used to determine the figures in Table 1 are
consistent with those described in Note 4 to the financial statements.
TABLE 2: KPIs AND PERFORMANCE MEASURES
As at
31 October
As at 2022
31 October 2023 (Restated)
Key Performance Indicators
NAV (£) 262,108,092 253,156,980
NAV per Ordinary Share (p/share) 115.40 120.55
Dividends paid (£) 15,727,698 2,100,000
Dividends paid per Ordinary Share (p/share) 7p 1p
Alternative Performance Measures
Adjusted NAV (£) 262,108,092 267,699,152
Adjusted NAV Total Return (%) 1.2% 23.4%
Revenues from Operations (£) 6,698,540 n/a
Dividends per Ordinary Share declared and paid in relation to period (p/share) 8p 2p
Other Performance Measures
Operational Capacity (period end) (MWh/MW) 555 MWh / 277.5 MW n/a
Weighted Average Operational Capacity (MW) 100.5 n/a
Weighted Average Revenue per MW Operational (£/MW/Year) 66,631 n/a
Alternative Investment Fund Manager's Report
BACKGROUND
The Alternative Investment Fund Manager's Directive (the "AIFMD") came into
force on 22 July 2013. The objective of the AIFMD was to ensure a common
regulatory regime for funds marketed in or into the EU which are not regulated
under the Undertakings for the Collective Investment in Transferable
Securities regime. This was primarily for investors' protection and also to
enable European regulators to obtain adequate information in relation to funds
being marketed in or into the EU to assist their monitoring and control of
systemic risk issues.
JTC Global AIFM Solutions Limited (the "AIFM") is a non-EU Alternative
Investment Fund Manager (a "Non-EU AIFM"), the Company is a non-EU Alternative
Investment Fund (a "Non-EU AIF") and the Company is currently marketed only in
the UK. Although the AIFM is a non-EU AIFM, so the depositary rules in Article
21 of the AIFMD do not apply, the transparency requirements of Articles 22
(Annual report) and 23 (Disclosure to investors) of the AIFMD do apply to the
AIFM and therefore to the Company. In compliance with those articles, the
following information is provided to the Company's Shareholders by the AIFM.
1. Material Changes in the Disclosures to Investors
During the Period, there were no material changes to the information required
to be made available to investors under Article 23 of the AIFMD before they
invest in the Company from the information set out in the Company's prospectus
dated 15 October, 2021, save as disclosed below and in certain sections of the
annual financial report, those being the Integrated TCFD and the TNFD report.
2. Risks and Risk Management Policy
The current principal risks facing the Company and the main features of the
risk management systems employed by AIFM and the Company to manage those risks
are set out in the section headed "Principal Risks and Uncertainties", the
Directors' Report, the Report of the Audit and Risk Committee and in note 17
to the financial statements.
3. Leverage and borrowing
The Company is entitled to employ leverage in accordance with its investment
policy as set out in the Company's prospectus. As at the balance sheet date,
the Company (via its subsidiary, HEIT Holdings Ltd) had £130 million of
senior debt facilities, consisting of a £20 million unhedged revolving credit
facility and a £110 million term loan facility, hedged by way of an interest
rate cap (on the SONIA element) of 5.25%. As at the balance sheet date, the
Company had drawn £95 million, including £10.6 million under the revolving
credit facility. Post-balance sheet date, the Company drew the remaining
balance of the £130 million and, on 21 February 2024, the Company's
facilities were amended and restated. See Investment Adviser's Report for more
details. There were no changes in the Company's borrowing powers and policies.
4. Environmental, Social, and Governance Issues
Because the AIFM is a non-EU AIFM and the Company is not marketed into the
EEA, the AIFM is not required to comply with Regulation (EU) 2019/2099 on
Sustainability-Related Disclosures in the Financial Services Sector (the
"SFDR"). However, details of the Company's and its advisers' ESG objectives
and actions taken are reported on in the section of this annual financial
report entitled "Environmental, Social, and Governance."
As a member of the JTC group of Companies, the AIFM's ultimate beneficial
owner and controlling party is JTC Plc, a Jersey-incorporated company whose
shares have been admitted to the Official List of the UK's Financial Conduct
Authority ("FCA") and to trading on the London Stock Exchange's Main Market
for Listed Securities (mnemonic JTC LN, LEI 213800DVUG4KLF2ASK33). In the
conduct of its own affairs, the AIFM is committed to best practice in relation
to ESG matters and has therefore adopted JTC Plc's ESG framework (the "ESG
Framework") and a copy of the ESG Framework can be viewed online at https://
www.jtcgroup.com/esg/.
As at the date of this report, JTC Plc is a signatory of the U.N. PRI. The JTC
group is also carbon neutral, works to support the achievement of various U.N.
Sustainable Development Goals and reports under TCFD and the SASB framework.
The AIFM and Harmony Energy Advisors Limited as the Company's alternative
investment fund manager and investment adviser respectively do consider ESG
matters in their respective capacities, as explained in the Company's
prospectus dated 15 October, 2021, a copy of which can be found at Harmony
Energy Income Trust PLC | JTC (jtcgroup.com).
Since the publication of those documents, the AIFM, HEAL and the Company have
continued to enhance their collective approach to ESG matters and detailed
reporting on (a) enhancements made to each party's policies, procedures and
operational practices and (b) our collective future intentions and
aspirations, which is included in the TCFD report, the TNFD report, and the
Section 172 Statement.
The AIFM also has a comprehensive risk matrix (the "Matrix"), which is used to
identify, monitor and manage material risks to which the Company is exposed,
including ESG and sustainability risks, the latter being an environmental,
social, or governance event or condition that, if it occurred, could cause an
actual or a potential material negative impact on the value of an investment.
We also consider sustainability factors, those being environmental, social and
employee matters, respect for human rights, anti-corruption and anti-bribery
matters.
The AIFM is also cognisant of the announcement published by H.M. Treasury in
the UK of its intention to make mandatory by 2025 disclosures aligned with the
recommendations of the Task Force on Climate-Related Disclosures, with a
significant proportion of disclosures mandatory by 2023. The AIFM also notes
the roadmap and interim report of the UK's Joint Government-Regulator TCFD
published by H.M. Treasury on 9 November 2020. The AIFM continues to monitor
developments and intends to comply with the UK's regime to the extent either
mandatory or desirable as a matter of best practice.
5. Remuneration of the AIFM's Directors and Employees
During the Period, no separate remuneration was paid by the AIFM to two of its
executive directors, Graham Taylor and Kobus Cronje, because they were both
employees of the JTC group of companies, of which the AIFM forms part. The
third executive director, Matthew Tostevin, is paid a fixed fee of £10,000
for acting as a director. Mr Tostevin is paid additional remuneration on a
time spent basis for services rendered to the AIFM and its clients. During the
year under review, the AIFM paid £10,000 in fixed fees and £39,637.50 in
variable remuneration to Mr Tostevin. The AIFM does not pay any
performance-related remuneration. Other than the directors, the AIFM has no
employees. The Company has no agreement to pay any carried interest to the
AIFM.
6. Remuneration of the AIFM Payable by the Company
The AIFM was during the Period paid a fee of 0.03% per annum of the equity
capital raised by the Company, subject to a minimum of £30,000 per annum,
such fee being payable quarterly in arrears. Subsequent secondary issues of
shares of the Company in the primary market are supported on a time spent
basis, subject to a cap of £10,000 per each such issue. Other significant
non-routine work may be agreed between the AIFM and the Company from time to
time and charged for on a time spent basis. The total fees paid to the AIFM
during the Period were £67,434.00.
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
27 February 2024
STRATEGIC REPORT
INVESTMENT OBJECTIVE
The Company's investment objective is to provide an attractive and sustainable
level of income returns, with the potential for capital growth, by investing
in commercial scale storage and renewable energy generation projects, with an
initial focus on a diversified portfolio of BESS located in Great Britain
("Projects").
INVESTMENT POLICY
The Company seeks to achieve its investment objective through investment in
energy storage and complementary renewable energy generation assets, with an
initial focus on commercial scale BESS located in diverse locations across
Great Britain.
For the purposes of this policy, unless the context otherwise requires, words
and expressions defined in the Company's Prospectus shall have the same
meanings where used in this policy.
The Company may invest in operational, under construction or "shovel ready"
projects, and may also provide development finance to pipeline projects.
PROJECTS WHICH ARE "SHOVEL READY" WILL HAVE IN PLACE:
· completed lease, lease option or agreement for lease in relation
to the land upon which that project is situated;
· planning permission enabling the construction of a suitable
project on that land (subject to any amendments to reflect final technical
specifications);
· an industry standard grid connection offer from a DNO or
Transmission System Operator ("TSO"); and
· a BESS supply & installation contract with material terms
agreed with a reputable counterparty.
PROJECTS WHICH ARE "UNDER CONSTRUCTION" WILL IN ADDITION, HAVE IN PLACE:
· an agreed lease on satisfactory terms;
· an accepted industry standard grid connection offer from a DNO or
TSO, and having made at least one milestone payment; and
· a fully executed BESS supply & installation contract with a
reputable counterparty.
PROJECTS WHICH ARE "OPERATIONAL" WILL, IN ADDITION, HAVE IN PLACE:
· completed lease on satisfactory terms in relation to the land
upon which that project is situated;
· an executed grid connection agreement with a DNO; and
· satisfactory completion of relevant commissioning tests.
TARGET REVENUE SOURCES
It is intended that, once operational, the main revenue streams from the
Company's portfolio of Projects will be from the following sources:
· Ancillary services - Projects may generate revenues from
short-term contracts procured via regular competitive auctions through which
the Company and/or its subsidiaries will provide, on a firm basis, dynamic or
non-dynamic response services to National Grid ESO as part of its efforts to
cater for changes in network system frequency, balancing the grid and avoiding
power outages;
· Asset optimisation - Projects may generate revenues from
importing and exporting power in the wholesale market and the National Grid
ESO-administered Balancing Mechanism ("BM"); and
· Capacity Markets - projects may generate revenues by access to
the benefit of contracts, or through entering into new contracts, to provide
back-up capacity power to National Grid ESO as the Electricity Market Reform
delivery body via Capacity Market contracts of varying terms between 1 year
and 15 years in duration.
The contractual arrangements which the Company will put in place in respect of
its portfolio of projects are expected to benefit from diversification across
a number of different income streams with various contract lengths,
counterparties and return profiles.
These revenue sources will inevitably evolve as the UK energy and energy
storage markets and National Grid ESO policy and practice develop, and as such
the Company intends to adapt its contractual arrangements to procure what it
considers to be the most advantageous revenue streams as the market develops.
BESS TECHNOLOGY
The Company intends to invest primarily in BESS Projects using 2-hour
lithium-ion battery technology, as such technology is believed by the
Investment Adviser to offer the most efficient operation and return profile
and has a number of advantages over shorter duration batteries. However, the
Company remains agnostic as to which energy storage and generation technology
is used by the projects in which it invests and will monitor projects and may
invest in projects with alternative technologies (including different duration
batteries and combinations and co-location of such technologies), where they
meet the Company's investment objective and policy.
Each BESS project will contain a battery system with a number of battery
modules in each stack, each of which is independent and can be replaced
separately. This reduces the impact of failure of one or more battery modules
and therefore offers protection against the potential risk of the operation of
a project being interrupted.
INVESTMENT IN AND OWNERSHIP OF PROJECTS
The Company intends to invest with a view to holding assets until the end of
their useful life. However, projects may also be disposed of, or otherwise
realised, where the Investment Adviser recommends that such realisation is in
the interests of the Company. Such circumstances may include (without
limitation) disposals for the purposes of realising or preserving value, or of
realising cash resources for reinvestment or otherwise.
The Company may also consider investing in the re-powering of projects by
replacing degraded cells in order to extend Project cash flows, or increasing
the capacity of Projects where the grid connection is under-utilised.
The Company will typically achieve legal and operational control of Projects
through direct or indirect stakes of 100% in the relevant Project Companies,
and may use a range of investment instruments in the pursuit of its investment
objective, including but not limited to debt and equity instruments.
In certain circumstances, the Company may participate in joint ventures or
co-investments, including (without limitation) with other investors or
entities with whom members of the Harmony Group have developed assets, where
this approach enables the Company, within its investment policy, to gain
exposure to assets which the Company would not otherwise be able to acquire on
a wholly-owned basis. In such circumstances the Company will seek to secure
its shareholder rights through contractual and other arrangements to, inter
alia, ensure that the projects are operated and managed in a manner that is
consistent with the Company's investment policy.
DEVELOPMENT FINANCE
The Company may provide loan finance to Pipeline Projects prior to an
anticipated acquisition ("Pre-Acquisition Development Loans"). Such finance
may be for the commissioning of design works, pre-construction studies
(including but not limited to geotechnical studies), acquisition of equipment
or other development costs for the furtherance of the relevant project,
provided that no more than 10% of Gross Asset Value (calculated at the time
that finance is provided based on the latest available valuations) may be
exposed in aggregate to such loans.
The Company may also provide funding via loans or equity contributions to
Project Companies which are owned by the Company ("Post-Acquisition
Development Finance") for the purposes of:
(a) evaluating and/or executing asset management initiatives which the
Investment Adviser reasonably believes to be value accretive and supportive of
the Company's overall target return, such as extension or amendment of leases
and/or renegotiation of consents or grid connection agreements to increase
import/ export capacity; or
(b) developing complementary renewable generation infrastructure to be owned
and operated by the relevant Project Company. This funding may be used for any
reasonable development expenses such as preliminary design work, planning
applications and/or commercial studies,
provided in all cases that no more than 10% of Gross Asset Value (calculated
at the time that finance is provided based on the latest available valuations)
may be exposed in aggregate to such finance.
The total aggregate exposure of the Company to Pre‑Acquisition Development
Loans and Post-Acquisition Development Finance will not exceed 15% of Gross
Asset Value (calculated at the time that finance is provided based on the
latest available valuations).
COMPLEMENTARY RENEWABLE GENERATION ASSETS
Whilst the Company's primary focus under its investment policy is to invest in
BESS and other energy storage projects, the Company may also invest in
renewable generation assets where it would be attractive to do so. This may
include projects with co-located BESS and solar PV generation sharing the same
grid connection or stand-alone solar PV projects, where these would be
complementary to the Company's other investments and support the Company's
overall target return, subject to the investment restrictions below.
INVESTMENT RESTRICTIONS
The Company aims to achieve diversification principally through investing in a
range of Projects benefitting from different income streams with different
counterparties and located in different regions of Great Britain. The Company
will observe the following investment restrictions when making investments:
· following the acquisition of the Seed Projects by the Company,
the acquisition price of any single Project shall not exceed 20% of the
Company's Gross Asset Value measured at the time of investment;
· following the acquisition of the Seed Projects, the Company will
seek to ensure that it has holding interests in not less than five separate
Projects at any one time;
· no more than 35% of Gross Asset Value, calculated immediately
following each investment, will be invested in Projects which are not BESS
Projects;
· no more than 25% of Gross Asset Value, calculated immediately
following each investment, will be invested in assets in relation to which the
Company does not hold a direct or indirect stake of 100%;
· no more than 10%, in aggregate, of the value of the total assets
of the Company at Initial Admission will be invested in UK listed closed-ended
investment funds;
· the Company will not conduct any trading activity which is
significant in the context of the Group as a whole; and
· no investments will be made in fossil fuel assets, including
fossil fuel-powered generators.
Compliance with the above restrictions will be measured at the time of
investment and non-compliance resulting from changes in the price or value of
assets following investment will not be considered as a breach of the
investment restrictions.
Individual projects will be held within special purpose vehicles into which
the Company will invest through equity and/or debt instruments. It is intended
that each Project Company will hold one project but a Project Company may own
more than one project. The investment restrictions will be applied on a
look‑through basis.
BORROWING POLICY
The Company may raise debt and may consider having leverage (at the Company
level and/or the Project Company level) provided that it has sufficient assets
and to the extent funding is available on acceptable terms. In addition, it
may from time to time use borrowing for short-term liquidity purposes which
could be achieved through a loan facility or other types of collateralised
borrowing instruments. The Company is permitted to provide security to lenders
in order to borrow money, which may be by way of mortgages, charges or other
security interests or by way of outright transfer of title to the Company's
assets. The Directors will restrict borrowing to an amount not exceeding 49%
of the Company's Net Asset Value at the time of drawdown.
In circumstances where these aforementioned limits are exceeded as a result of
gearing of one or more Project Companies in which the Company has a
non-controlling interest, the borrowing restrictions will not be deemed to be
breached. However, in such circumstances, the matter will be brought to the
attention of the Board who will determine the appropriate course of action.
CURRENCY, HEDGING POLICY AND DERIVATIVES
Efficient portfolio management techniques may be employed by the Company, and
this may include (as relevant) currency hedging, interest rate hedging and
power price hedging. Derivatives may be used for currency, interest rate and
power price hedging purposes as set out below and for efficient portfolio
management. However, the Directors do not anticipate that extensive use of
derivatives will be necessary.
CASH MANAGEMENT
The Company may hold cash on deposit and may invest in cash equivalent
investments, which may include short-term investments in money market type
funds ("Cash and Cash Equivalents").
There is no restriction on the amount of Cash and Cash Equivalents that the
Company may hold and there may be times when it is appropriate for the Company
to have a significant Cash and Cash Equivalents position. For the avoidance of
doubt, the restrictions set out above in relation to investing in UK listed
closed-ended investment companies do not apply to money market type funds.
CHANGES TO AND COMPLIANCE WITH THE INVESTMENT POLICY
Any material change to the Company's investment policy set out above will
require the approval of Shareholders by way of an ordinary resolution at a
general meeting.
In the event of a breach of the investment guidelines and the investment
restrictions set out above, the AIFM shall inform the Board upon becoming
aware of the same and if the Board considers the breach to be material,
notification will be made to a Regulatory Information Service.
For the purposes of the investment policy, "Gross Asset Value" means the
aggregate of (i) the fair value of the Company's underlying investments
(whether or not subsidiaries), valued on an unlevered basis, (ii) the
Company's proportionate share of the cash balances and cash equivalents of
assets and non-subsidiary companies in which the Company holds an interest and
(iii) other relevant assets and liabilities of the Company (including cash)
valued at fair value (other than third party borrowings) to the extent not
included in (i) or (ii) above.
BUSINESS MODEL
The Company expects to invest predominantly in projects at the "shovel ready"
stage since these are likely to provide the most attractive returns. The
Company may also invest in projects at the "operational" and "under
construction" stage where such projects are available for acquisition in line
with the Company's investment policy.
The Company seeks to enhance further the efficacy of its portfolio by
targeting 2 hour-duration storage technologies.
The Company has the unfettered ability to purchase qualifying assets from any
seller. The Investment Adviser is experienced in sourcing and advising on BESS
transactions and continues to evaluate potential opportunities on the open
market. However, at least over the near-term, it is anticipated that the
Company will continue to take advantage of its exclusive arrangements
described below.
The Company benefits from exclusive access to a well-developed pipeline of
BESS projects at various stages of development in Great Britain. Each project
within this pipeline is controlled by Harmony Energy Limited either solely or
in conjunction with its joint venture partner, Ritchie-Bland Energy (number 2)
Ltd ("RBE") (the "Sellers"). This exclusivity is in the form of:
a) ROFR to acquire up to 1 GW of BESS projects from the Sellers. The
Company has, as at the date of publication of this report, exercised this
right in relation to 494.4 MW, leaving at least 505.6 MW still capable of
acquisition under the ROFR; and
b) a right of first offer ("ROFO") in relation to (i) BESS projects once
the 1 GW ROFR threshold has been reached; (ii) BESS projects co-located with
solar photovoltaics ("PV"); or (iii) stand- alone solar PV projects.
The processes under which these rights are exercised are set out in a pipeline
agreement dated 14 October 2021 and entered into between the Company and the
Sellers (the "Pipeline Agreement"). The Sellers have an obligation to keep the
Company informed as to the development progress of potential projects. This
provides the Company with an element of transparency which, in turn, allows
the Company a reasonable level of certainty around funding timetable and
portfolio growth planning.
The terms of the Pipeline Agreement provide that the Sellers shall be
prohibited from selling any qualifying projects to any other party during the
term of the agreement without first offering them to the Company. Upon any
projects becoming "shovel ready", the Sellers shall give notice of such status
to the Company. The Company will then be entitled to either (i) if the ROFR
applies, acquire the relevant project pursuant to the terms of the pro forma
share purchase agreement (and subject to a valuation calculated using a
minimum discount rate); or (ii) if the ROFO applies, make an offer to the
Sellers pursuant to the Pro Forma Share Purchase Agreement.
All acquisitions are subject to satisfactory external due diligence,
independent valuation and Board approval.
The Company will continue to target BESS projects with 2-hour duration
capability. As demonstrated in the "Market Commentary" section, the Investment
Adviser believes that 2-hour duration BESS offers potential for revenue
outperformance relative to a shorter-duration BESS across a range of market
conditions.
DIVIDEND POLICY
The Board has responded to lower than anticipated revenue performance since
the end of the Period by initiating a review of the Company's dividend policy,
including the announced postponement of the Company's first quarterly dividend
of 2 pence per Ordinary Share. The review will form part of the Investment
Adviser's consideration of the most effective methods of delivering value to
Shareholders over the short term, as described earlier in this report.
However, the Company maintains an ambition to distribute operational free cash
flow subject to working capital requirements.
In the meantime, subject to this review, the Company's policy remains the
targeting of an annual dividend yield of 8 pence per Ordinary Share, payable
in quarterly instalments in March, June, September and December of each year.
All dividends will be in the form of interim dividends. The Board reserves the
right to retain within a revenue reserve a proportion of the Company's net
income in any financial year, such reserve then being available at the Board's
absolute discretion for subsequent distribution to Shareholders, subject to
the requirements of any applicable regulations.
The dividend policy will be subject to Shareholder vote at the 2024 Annual
General Meeting.
Principal Risks and Uncertainties
The Board recognises the importance of effective risk management in enabling
the Company to deliver its strategic objectives. The Investment Policy, as set
out in the Prospectus and as amended from time to time, details the limits on
risk that the Board will take.
WHAT WE MONITOR
The Company's risk register was prepared based on the risks stated in the
Prospectus, and is regularly reviewed by the Investment Adviser, the AIFM and
the Board and updated to reflect any emerging risks or changes to the
identified risks. Day-to-day ownership of risk sits with named individuals at
the Investment Adviser, who monitor and assess both current and emerging
risks. Risks are categorised and assessed to determine likelihood and impact.
Ratings are applied to the risks before any mitigating action and again
following consideration of the adequacy of mitigating actions. Mitigating
actions are summarised in the risk register and are subject to review and
monitoring.
HOW WE MONITOR RISK
The Board retains ultimate responsibility for the Company's activities and
Board meetings are held at least four times a year, at which the risk register
of the Company is reviewed, and updates are reported by the AIFM on any
changes to the risks or their ratings.
The Audit and Risk Committee meets at least three times each year. The
Committee reviews the adequacy and effectiveness of the Company's internal
controls and risk management systems and every six months it carries out a
reassessment of the principal risks facing the Company.
The AIFM provides risk management services to the Company, including
implementation of risk management policies to identify, measure, manage and
monitor the risks that the Company is or might be exposed to and ensuring that
the Company's risk management policy and implementation comply with applicable
regulations. Representatives of the AIFM meet with Investment Adviser
representatives at least quarterly to review the risk register and discuss any
changes proposed. The proposed updates to the Company's risk register are
further reviewed and approved by the AIFM's internal Risk Committee in advance
of circulation to the Board.
The identified risk owners within the Investment Adviser are responsible for
formal quarterly reporting of current and emerging risks and issues to the
Investment Adviser's leadership. A formal quarterly review of the risk
register is carried out by the Investment Adviser and any recommendations for
updates are made to the AIFM. Any major emerging risks and issues are
escalated outside of the quarterly review framework.
TABLE OF PRINCIPAL RISKS AND UNCERTAINTIES
The Board considers the following to be the principal risks and uncertainties
facing the Company as at the date of approval of the accounts. The risks are
presented in order of significance based on net residual risk, following
mitigations.
Due to the nature of Company's activities, climate and the natural environment
are central to its key strategic, investment, and operational decisions.
During the Period, the Company conducted a screening assessment with
specialist third-party consultants to identify material climate and nature-
related financial risks, opportunities, dependencies and impacts. HEAL has
worked closely with the AIFM to integrate the risks identified as part of the
recent screening into the risk register. Following careful consideration of
these risks by the Board, none of the risks identified was considered to be
sufficiently material to qualify as a principal risk.
EXISTING RISKS
RISK DESCRIPTION POSSIBLE CONSEQUENCES MITIGATING ACTIONS
MERCHANT NATURE OF BESS REVENUES
Lower-than-expected market price of ancillary services, revenues generated · Reduced revenue; · Subscriptions to Modo, Aurora and Baringa for long-term revenue
from wholesale trading and/or the Balancing Mechanism. National Grid ESO is
forecasts, regular market intelligence and understanding of macro-drivers.
responsible for the structure and operation of both the Balancing Mechanism · Reduced NAV;
and the ancillary service markets, and wholesale trading prices are influenced
· Engagement with industry stakeholders and policymakers, including
by factors outside of the Company's control. · Inability to declare future dividends; National Grid ESO.
· Inability to pay debts as they become due. · Scrutiny of revenue optimiser performance to maintain high
standards.
· Close monitoring of cash flow levels and scenario modelling to
ensure mitigating actions can be implemented in a timely manner to improve
cash position if necessary.
HEIT'S NAV AT END OF 2024
HEIT's NAV is lower than £250m by the end of the 2024. · Such event will trigger a continuation vote, which could result · All parties will continue to monitor the situation at each Board
in Company executing a managed wind down. meeting.
PROJECT SUPPLIER RISK
Adverse changes to estimated costs and delivery timetable from key suppliers; · Increased costs. · Tender processes for future contracts are conducted with
battery installation delays.
suppliers with a strong track record.
· Delay to income generation.
· EPC (or BESS supply) contracts contain robust obligations
· Reduced NAV. regarding price and delivery timetables.
· Contingency is included in project budgets for unexpected price
increases.
GENERAL RISKS AFFECTING THE SHARES
The value of shares in the secondary market may fluctuate due to factors · Inability to raise additional equity capital. · The Joint Brokers and Investment Adviser monitor the share price
outside the control of the Company. It may be difficult for Shareholders to
daily in the secondary market and report to the Board regularly and where
realise their shares at close to NAV and there may not be a liquid market. The · Inability to purchase additional projects. necessary. The Board actively considers a range of options to address the
market price of the shares may not reflect their underlying net asset value.
discount. These include, inter-alia: share buy backs, asset sales, gearing
reduction, increased marketing.
Share buy backs may not adequately influence the discount in the secondary
market. · The Board will discuss share buybacks at every quarterly Board
meeting whilst shares are trading at a significant discount to NAV.
· Stifel has been appointed as joint broker and there is an
increased focus on marketing HEIT to new investors. The Board, the Joint
Brokers and the Investment Adviser monitor the market on a regular basis with
a view to taking actions if and when it is necessary.
VALUATION RISK
HEIT invests in unquoted assets and valuations will involve the Investment · The possible sale of assets for less than market value · The Investment Adviser has subscribed to services from Modo,
Adviser, AIFM and Board.
Aurora and Baringa to provide support for quarterly NAV valuations.
· Errors in NAV calculations and announcements
The Company is relying on the judgement of the Investment Adviser.
· Semi-annual valuations are provided by an Independent Valuer. The
Independent Valuer regularly updates its valuation of each Project based upon,
Errors in valuations could lead to shareholder complaints or suits for losses among other things, recent market comparables and the relative liquidity of
and regulatory censure. the assets. The sale of Rye Common in September, 2023 validated the 30 April
2023 project valuations.
· The NAV methodology was reviewed and enhanced to ensure it
remains fit for purpose.
DELAYS TO GRID CONNECTION TIMETABLES
Delays to grid connection timetables in relation to pipeline projects and · The increased pressure on DNOs and TSOs to facilitate new grid · The Investment Adviser engages in a continuous dialogue with its
portfolio projects which are not yet connected. connections raises the risk of DNOs failing to meet pre-agreed timetables. relationship contacts at relevant DNOs and works with them to proactively
manage the connection timetable, identifying and managing potential connection
· New pipeline projects may be allocated long-dated connection issues as early as possible and thus minimising the risk of delays.
times, thus delaying the overall deployment of low carbon generation and
progress towards net zero. · The Investment Adviser also seeks to make prompt payment to the
DNOs of relevant milestone amounts which enables the DNOs to order requisite
equipment within appropriate timescales. In relation to future Pipeline
Projects, the Investment Adviser also engages with DNOs early in the
development process (prior to acquisition by the Company) to filter out those
projects most at risk of delay caused by requisite network infrastructure
upgrade works.
EMERGING RISKS
RISK DESCRIPTION POSSIBLE CONSEQUENCES MITIGATING ACTIONS
PERFORMANCE OF REVENUE OPTIMISERS
Revenue optimisers may not perform as effectively as expected, leading to · Reduced revenue; · Each revenue optimiser regularly reports to the Investment
reduced revenue receipts.
Adviser who uses its skills and experience to input into strategy evolution on
· Inability to declare future dividends; a regular basis.
In a challenging revenue environment, revenue optimisation capability becomes
increasingly important. · Reduced cash availability. · Regular comparison with publicly reported BESS industry
performance data.
· The revenue optimisers are engaged on rolling short-term
contracts so can be replaced in the event of prolonged poor performance.
· Each revenue optimiser's fee is structured as a percentage of
project revenues so there is an incentive to outperform.
RELATED-PARTY TRANSACTIONS
During the Period, the Company acquired three projects from Harmony Energy
Limited at fair value, in accordance with the Company's Related Party policy.
The Independent Valuer provided a fair value opinion on all purchases at the
time of acquisition and the consideration paid was considered by the
Independent Valuer to be within a reasonable market range on both a discount
rate and multiple basis.
Detailed information on related-party transactions can be found in this
report.
Viability and Going Concern Statement
GOING CONCERN
As at 31 October 2023, the Company and its subsidiaries had net current assets
and net cash balances of £26 million along with undrawn debt facilities of
£35 million. The combination of net current assets and undrawn debt facility
was sufficient to meet commitments made under construction contracts signed by
subsidiaries.
The Company, through its wholly owned subsidiary HEIT Holdings Ltd, had access
to a £130 million (including a £20 million RCF) debt facility with NatWest
(in syndication with Rabobank). £84.4 million had been drawn under the main
facility, with £10.6 million drawn under the RCF. Both facilities were fully
drawn in December 2023.
These facilities were successfully amended and restated in February 2024,
providing the Company with reduced interest costs and significant head-room in
relation to debt covenant tests which, if failed, would lead to a lock-up of
cash or an event of default.
The Company is a guarantor to its wholly owned subsidiary HEIT Holdings Ltd in
respect of the debt facilities and also provides parent company guarantees to
subsidiaries in relation to certain construction and/or battery supply
contracts. As at the date of publication the aggregate outstanding value of
such guarantees is £29 million.
The Company's prospectus at the time of IPO commits the Directors to put
forward a continuation vote at the subsequent annual general meeting of the
Company if NAV of the Company is below £250 million at the end of 2024. This
possibility, and the probability of such a vote passing have been taken into
account by the Directors in making their assessment. Whilst it is acknowledged
that there is a risk of this threshold being triggered during the Going
Concern Period (as defined below), any such vote would take place outside of
the Going Concern Period.
The Directors are aware and understand that the Company's revenues can be
volatile and therefore have reviewed the results of financial models analysing
the expected position of the Company under a prudent scenario as well as a
reasonable worst-case scenario. Both scenarios take into account the
availability of cash reserves and receivables whilst assuming that all
projects are brought into operations during the Going Concern Period.
The prudent scenario assumes revenue performance of the Company's operating
projects remains broadly in line with recent operating performance
In addition, the Directors have considered a reasonable worst-case scenario
which assumes non-contracted revenue earned by underlying investee companies
is c.35% lower than in the prudent scenario.
Under both scenarios the financial model shows that sufficient cash is
expected to be available to meet the Company's obligations and commitments
(including but not limited to construction contracts, working capital
requirements and debt service). The Directors have considered the outcomes of
a reverse stress test whereby non-contracted revenue falls below the level
assumed in the reasonable worst-case scenario. The Directors have concluded
that the revenue levels generated by this reverse stress test are not
plausible.
The Directors note that the Company is not reliant on revenues from operating
projects in order to meet its commitments in relation to the funding of
project construction costs. Having considered the results of the modelled
scenarios, the Directors have a reasonable expectation that the Company is
able to manage cash flow and meet its working capital and debt service
commitments via a combination of operating revenues and/or contracted revenue
products over the Going Concern Period, and are working with the Investment
Adviser to assess the optimal combination of such options so as to ensure that
the Company can maximise returns to Shareholders whilst managing solvency
risk. The Company also has the option of selling an asset(s) if it wishes to
do so. The Directors are confident that key risks have been considered in this
assessment.
The Directors have adopted the going concern basis in preparing the Annual
Report and Financial Statements and have concluded that the Company's
available funding and expected income are sufficient for the Company to
continue its operations for at least 12 months from the date of signing these
financial statements (the "Going Concern Period").
VIABILITY STATEMENT
The Directors have considered the period to February 2026 for the purposes of
assessing the Company's viability (the "Viability Period"). The same prudent
and reasonable worst case scenarios described above have been reviewed over
the Viability Period.
The Directors have considered the potential impact of a continuation vote
which could take place during the Viability Period as described above. The
Directors understand that the impact of such a vote may result in a managed
sell-down of assets, but that this sell-down of assets could take a
significant period of time to complete in order to maximise shareholder value.
The Directors have received no indication that such a continuation vote, if
necessary, would not pass.
The Directors have further analysed projected headroom in relation to debt
covenants which could impact the Company's viability if triggered.
Having considered the above, the Directors have concluded that there are no
significant doubts that the Company remains viable under a reasonable
worst-case scenario.
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
As a company traded on the London Stock Exchange, the Company is subject to
the FCA's Listing Rules and Disclosure Guidance and Transparency Rules, as
well as to all applicable laws and regulations in England and Wales where it
is registered.
The Annual Report and Financial Statements have been prepared in accordance
with UK adopted international accounting standards. Under company law, the
Directors must not approve the Financial Statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and
of the profit or loss for the Period. In preparing these Financial Statements,
the Directors should:
· select suitable accounting policies in accordance with IAS 8 and
then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· specify which generally accepted accounting principles have been
adopted in their preparation;
· prepare the Financial Statements on the going concern basis,
unless it is inappropriate to presume that the Company will continue in
business; and
· prepare a directors' report, a strategic report and directors'
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping proper accounting records which are
sufficient to show and explain the Company's transactions and disclose, with
reasonable accuracy at any time, the financial position of the Company and
enable them to ensure that the Financial Statements comply with the
requirements of the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities. The
Directors are responsible for ensuring that the annual report and accounts,
taken as a whole, are fair, balanced, and understandable, and provide the
information necessary for Shareholders to assess the Company's position and
performance, business model and strategy.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Annual Report and the Financial
Statements are made available on the Company's website. Financial statements
are published on the Company's website in accordance with legislation in the
UK governing the preparation and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The maintenance and
integrity of the Company's website is the responsibility of the Directors. The
Directors' responsibility also extends to the ongoing integrity of the
financial statements contained therein.
DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO DISCLOSURE GUIDANCE AND
TRANSPARENCY RULES 4
The Directors confirm to the best of their knowledge that:
· the financial statements have been prepared in accordance with UK
adopted international accounting standards and give a true and fair view of
the assets, liabilities, financial position and profit and loss of the
Company; and
· the annual report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors confirm that:
· so far as each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
· the Directors have taken all the steps that they ought to have
taken as Directors in order to make themselves aware of any relevant audit
information and to establish that the Company's auditor is aware of that
information.
Signed by order of the Board,
Norman Crighton
Chair
27 February 2024
Financial Statements
Statement of Comprehensive Income
1 October
1 November 2021 to
2022 to 31 October
31 October 2022
2023 Total
Revenue Capital Total Revenue Capital (Restated*)
Notes £ £ £ £ £ £
Income
Net (loss)/gain on investment at fair value through profit and loss 10 - (7,161,610) (7,161,610) - 48,426,937 48,426,937
Service fee income 6 1,837,458 - 1,837,458 1,853,151 - 1,853,151
Investment income 6 11,936,674 - 11,936,674 2,083,035 - 2,083,035
13,774,132 (7,161,610) 6,612,522 3,936,186 48,426,937 52,363,123
Expenses
Administrative and other
expenses 7 (3,475,884) - (3,475,884) (3,999,189) - (3,999,189)
Profit/(loss) before taxation 10,298,248 (7,161,610) 3,136,638 (63,003) 48,426,937 48,363,934
Taxation 8 - - - - - -
Profit/(loss) after tax and Total Comprehensive income for the year/Period 10,298,248 (7,161,610) 3,136,638 (63,003) 48,426,937 48,363,934
Earnings per share (basic and diluted): Ordinary Share 9 0.01 0.23
All Revenue and Capital items in the above statement are derived from
continuing operations.
The Total column of this statement represents the Company's Statement of
Comprehensive Income prepared in accordance with UK adopted international
accounting standards ("IAS"). The return on ordinary activities after taxation
is the total comprehensive income and therefore no additional statement of
other comprehensive income is presented.
The supplementary revenue and capital columns are presented for information
purposes in accordance with the Statement of Recommended Practice issue by the
Association of Investment Companies ("AIC").
The notes form an integral part of these Financial Statements.
* Refer to Note 2 Basis of preparation for disclosures on the restatement
Statement of Financial Position
31 October 2022
31 October 2023 (Restated*)
Note £ £
Non-current assets
Investments held at fair value 10 240,025,781 141,032,691
240,025,781 141,032,691
Current assets
Trade and other receivables 11 4,452,273 1,381,693
Loan to shareholder 12 - 1,443,506
Cash and cash equivalents 13 18,093,379 124,571,626
22,545,652 127,396,825
Total assets 262,571,433 268,429,516
Current liabilities
Trade and other payables 14 463,341 730,364
Financial liability at fair value 15 - 14,542,172
463,341 15,272,536
Net current assets 22,082,311 112,124,289
Total net assets 262,108,092 253,156,980
Shareholders' equity
Share capital 19 2,271,283 2,100,000
Share premium 19 21,370,889 -
Capital reduction reserve 19 194,094,197 202,693,046
Revenue reserve 20 3,106,396 (63,003)
Capital reserve 20 41,265,327 48,426,937
Total Shareholders' equity 262,108,092 253,156,980
Net asset value per Ordinary share (pence) 21 115.4 120.55
The Financial Statements of Harmony Energy Income Trust Plc (registered number
13656587) were approved by the Board of Directors and authorised for issue on
27 February 2024. They were signed on its behalf by:
Norman Crighton
Chairman
27 February 2024
* Refer to Note 2 Basis of preparation for disclosures on the restatement
Statement of Changes in Equity
Share
premium: Capital Total
Ordinary Ordinary reduction Revenue Capital Shareholders'
Share capital Shares reserve reserve reserve equity
Notes £ £ £ £ £ £
Balance at 1 October 2021 - - - - - -
Transactions with owners:
Issue of share capital 19 2,100,000 207,900,000 - - - 210,000,000
Equity issue costs 19 - (3,106,954) - - - (3,106,954)
Transfer to capital reduction reserve 19 - (204,793,046) 204,793,046 - - -
Dividends paid 19 - - (2,100,000) - - (2,100,000)
Total comprehensive income for the Period:
Profit/(loss) for the Period (Restated*) - - - (63,003) 48,426,937 48,363,934
Balance at 31 October 2022 (Restated*) 2,100,000 - 202,693,046 (63,003) 48,426,937 253,156,980
Transactions with owners:
Conversion of C shares to Ordinary Shares 19 171,283 21,370,889 - - - 21,542,172
Dividends paid 19 - - (8,598,849) (7,128,849) - (15,727,698)
Total comprehensive income for the year:
Profit/(loss) for the year - - - 10,298,248 (7,161,610) 3,136,638
Balance at 31 October 2023 2,271,283 21,370,889 194,094,197 3,106,396 41,265,327 262,108,092
* Refer to Note 2 Basis of preparation for disclosures on the restatement
Statement of Cash Flows
1 October 2021 to
1 November 2022 to 31 October 2022
31 October 2023 (Restated*)
Notes £ £
Cash flows from operating activities
Profit for the year/Period 3,136,638 48,363,934
Adjustments for non-cash items:
Net loss/(gain) on investment at fair value through profit and loss 10 7,161,610 (48,426,937)
Investment income 6 (11,582,996) (2,083,035)
Service fee income 6 (1,837,458) (1,853,151)
Operating cash flows before movements in working capital (3,122,206) (3,999,189)
Increase in trade and other receivables (1,233,122) (1,381,693)
(Decrease)/increase in trade and other payables 14 (267,023) 730,364
Net cash outflow from operating activities (4,622,351) (4,650,518)
Cash flows used in investing activities
Loan to shareholder discharged/(granted) 12 1,443,506 (1,443,506)
Purchases of investments (101,223,411) (65,185,873)
Proceeds from sale of investments 10 13,651,707 -
Net cash outflow from investing activities (86,128,198) (66,629,379)
Cash flows used in financing activities
Proceeds from issue of Ordinary Shares - 186,516,305
Proceeds from borrowings - 14,542,172
Share issue costs - (3,106,954)
Dividends paid 22 (15,727,698) (2,100,000)
Net cash (outflow)/inflow (used in)/from financing activities (15,727,698) 195,851,523
Net (decrease)/increase in cash and cash equivalents for the year/Period (106,478,247) 124,571,626
Cash and cash equivalents at the beginning of the year/Period 124,571,626 -
Cash and cash equivalents at the end of the year/Period 13 18,093,379 124,571,626
* Refer to Note 2 Basis of preparation for disclosures on the restatement
Notes to the Financial Statements
For the year from 1 November 2022 to 31 October 2023
1. GENERAL INFORMATION
The Company was incorporated as a Public Company, limited by shares, in
England and Wales on 1 October 2021 with registered number 13656587. The
registered office of the Company is The Scalpel 18th Floor, 52 Lime Street,
London, England EC3M 7AF. The Company's principal activity is to invest in
commercial scale battery energy storage and renewable energy generation
projects, with an initial focus on a portfolio of utility scale BESS, located
in diverse locations across Great Britain.
REORGANISATION
The Company is able to raise debt finance at either the Company or Special
Purpose Vehicle ("SPV") level. In order to facilitate this, HEIT Holdings Ltd
was incorporated on 4 February 2022, with the Company being its sole
shareholder.
Prior to the issue of debt by HEIT Holdings Ltd, it was necessary to carry out
a reorganisation of the Company. This reorganisation occurred over two
periods. On 9 March 2023 and 4 May 2023 respectively, the Directors of the
Company resolved to approve:
· the proposed disposal by the Company of the entire issued share
capital of all of its other subsidiaries to the HEIT Holdings Ltd in exchange
for shares issued in HEIT Holdings Ltd equalling the fair value of the
investment at the date of transfer;
· the proposed novation of the Company's obligations under all loan
agreements with all its other subsidiaries to HEIT Holdings Ltd and the
entering into of a new loan agreement with HEIT Holdings Ltd;
· the proposed novation of the Company's obligations under certain
share purchase agreements to HEIT Holdings Ltd; and
· a loan agreement to be entered into between (1) the Company and
(2) HEIT Holdings Ltd.
Further details on the reorganisation and transfer of investments to HEIT
Holdings Ltd are disclosed on note 10.
2. BASIS OF PREPARATION
The audited Annual Report and Financial Statements have been prepared in
accordance with the International Financial Reporting Standards as adopted by
the UK ("IFRS") and in conformity with the requirements of the Act and also
considers the Statement of Recommended Practice ("SORP") "Financial Statements
of Investment Trust Companies and Venture Capital Trusts", updated by the AIC
in July 2022. The Financial Statements are prepared on a historical cost
basis, except where balances are recognised at fair value. The principal
accounting policies are set out in Note 4.
In terms of the AIC SORP, the Company presents a Statement of Comprehensive
Income, which shows amounts split between balances which are revenue and
capital in nature. The determination of the revenue or capital nature of a
transaction is determined by giving consideration to the underlying elements
of the transaction. Capital transactions are considered to be those arising as
a result of the appreciation or depreciation in the value of assets due to the
fair value movements on investments held at fair value through profit and loss
as well as any gains or losses occurred on the sale of investments. Revenue
transactions are all transactions, other than those which have been identified
as capital in nature.
The Company is an investment entity in accordance with IFRS 10 'Consolidated
Financial Statements' which holds all its subsidiaries at fair value and
therefore only prepares separate accounts. The Financial Statements are also
prepared on the assumption that approval as an investment trust will continue
to be granted.
The Directors considered the impact of climate change on the investments
included in Company's Financial Statements and have assessed that it does not
materially impact the estimates and assumptions used in determining the fair
value of the investments.
FUNCTIONAL AND PRESENTATION CURRENCY
The currency of the primary economic environment in which the Company operates
(the functional currency) is British Pounds Sterling which is also the
presentation currency.
GOING CONCERN
A fundamental principle of the preparation of financial statements in
accordance with IFRS is the judgement that an entity will continue in
existence as a going concern for a period of at least 12 months from signing
of The Annual Report, which contemplates continuity of operations and the
realisation of assets and settlement of liabilities occurring in the ordinary
course of business.
In reaching its conclusion, the Board has considered the risks that could
impact the Company's liquidity over the period from 28 February 2024 to 28
February 2025 (the "Going Concern Period"). Bearing in mind the nature of the
Company's business and assets, the Directors consider the Company to have
adequate resources to continue in operational existence.
The Investment Adviser and the Directors have assessed the cash flow forecasts
and debt servicing commitments in light of recent trading performance. Through
this scenario analysis the Board has determined that the Company has
sufficient ability to generate cash to ensure that the Company can continue to
operate as a going concern for at least 12 months from the signing. of these
Financial Statements (the "Going Concern Period").
As at 31 October 2023, the Company and its subsidiaries had net current assets
and net cash balances of £26 million along with undrawn debt facilities of
£35 million. The combination of net current assets and undrawn debt facility
was sufficient to meet commitments made under construction contracts signed by
subsidiaries.
The Company, through its wholly owned subsidiary HEIT Holdings Ltd, had access
to a £130 million (including a £20 million RCF) debt facility with NatWest,
in syndication with Rabobank. £84.4 million had been drawn under the main
facility, with £10.6 million drawn under the RCF. Both facilities were fully
drawn in December 2023.
These facilities were successfully amended and restated in February 2024,
providing the Company with reduced interest costs and significant head-room in
relation to debt covenant tests which, if failed, would lead to a lock-up of
cash or an event of default.
The Company is a guarantor to its wholly owned subsidiary HEIT Holdings Ltd in
respect of the debt facilities and also provides parent company guarantees to
subsidiaries in relation to certain construction and/or battery supply
contracts. As at the date of publication the aggregate outstanding value of
such guarantees is £29 million.
The Company's prospectus at the time of IPO commits the Directors to put
forward a continuation vote at the subsequent annual general meeting of the
Company if NAV is below £250 million at the end of 2024. This possibility,
and the probability of such a vote passing has been taken into account by the
Directors in making their assessment. Whilst it is acknowledged that there is
a risk of this threshold being triggered during the Going Concern Period, any
such vote would take place outside of the Going Concern Period.
The Directors are aware and understand that the Company's revenues can be
volatile and therefore have reviewed the results of financial models analysing
the expected position of the Company under a prudent scenario as well as a
reasonable worst-case scenario. Both scenarios take into account the
availability of cash reserves and receivables whilst assuming that all
projects are brought into operations during the Going Concern Period.
The prudent scenario assumes revenue performance of the Company's operating
projects remains broadly in line with recent operating performance.
In addition, the Directors have considered a reasonable worst-case scenario
which assumes non-contracted revenue earned by underlying investee companies
is c.35% lower than in the prudent scenario.
Under both scenarios the financial model shows that sufficient cash is
expected to be available to meet the Company's obligations and commitments
(including but not limited to construction contracts, working capital
requirements and debt service). The Directors have considered the outcomes of
a reverse stress test whereby non-contracted revenue falls below the level
assumed in the reasonable worst-case scenario. The Directors have concluded
that the revenue levels generated by this reverse stress test are not
plausible.
The Directors note that the Company is not reliant on revenues from operating
projects in order to meet its commitments in relation to the funding of
project construction costs. Having considered the results of the modelled
scenarios, the Directors have a reasonable expectation that the Company is
able to manage cash flow and meet its working capital and debt service
commitments via a combination of operating revenues and/or contracted revenue
products over the Going Concern Period, and are working with the Investment
Adviser to assess the optimal combination of such options so as to ensure that
the Company can maximise returns to Shareholders whilst managing solvency
risk. The Company also has the option of selling an asset(s) if it wishes to
do so. The Directors are confident that key risks have been considered in this
assessment.
The Directors have adopted the going concern basis in preparing the Annual
Report and Financial Statements and have concluded that the Company's
available funding and expected income are sufficient for the Company to
continue its operations for at least 12 months from the date of signing these
financial statements.
The Company has no direct exposure to either Ukraine or Russia or to Palestine
and Israel and therefore does not consider either of these conflicts to have
an impact on the going concern operations of the Company.
The Directors acknowledge their responsibilities in relation to the Financial
Statements for the year ended 31 October 2023 and the preparation of the
Financial Statements on a going concern basis remains appropriate. The Company
expects to meet its obligations as and when they fall due for at least the
next twelve months after the date of approval of the Financial Statements.
As such, the Directors have adopted the going concern basis in preparing the
Annual Report and Financial Statements.
PRIOR YEAR ERROR AND RESTATEMENT
During the preparation of the 31 July 2023 NAV, the Investment Adviser
discovered an error in the NAV methodology for valuing short term cash flows,
which was introduced at the 31 October 2022 financial year end. It has been
ascertained that this resulted in an overstatement of the NAV at 31 October
2022 of £4,653,154.
The comparatives for 31 October 2022 disclosed in this annual report have been
restated with the updated valuation figures as a result of the above error.
The restatement impacts the Statement of Financial Position, the Statement of
Comprehensive Income, the Statement of Changes in Equity, the Statement of
Cash Flows and related notes to the Financial Statements as at 31 October
2022. A detailed breakdown of the impact of the valuation error per project
has been disclosed in note 10.
Impact on Statement of Comprehensive Income
31 October 2022
31 October 2022* Error adjustment (Restated)
£ £ £
Net (loss)/gain on investment at fair value through profit
and loss 53,080,091 (4,653,154) 48,426,937
Earnings per share (basic and diluted): Ordinary Share 0.25 (0.02) 0.23
Impact on Statement of Financial Position
31 October 2022
31 October 2022* Error adjustment (Restated)
£ £ £
Non-current assets
Investments held at fair value 145,685,845 (4,653,154) 141,032,691
Shareholders' equity
Capital reserve 53,080,091 (4,653,154) 48,426,937
Net asset value per Ordinary share (pence) 122.77 (2.22) 120.55
* 31 October 2022 results as published before the restatement
3. NEW AND REVISED STANDARDS AND INTERPRETATIONS
NEW AND REVISED STANDARDS AND INTERPRETATIONS
The accounting policies used in the preparation of the Financial Statements
have been consistently applied during the year ended 31 October 2023.
There have been no new standards, amendments to current standards, or new
interpretations which the Directors consider to have an impact on these
Financial Statements.
NEW AND REVISED IFRS IN ISSUE BUT NOT YET EFFECTIVE
The following standards have been issued but are not effective for this
accounting year and have not been adopted early:
· IAS 1 (amended) - Amendment to IAS 1 - Non-current liabilities
with covenants- effective from 1 January 2024.
· IAS 8 (amended) - Amendment to IAS 7 and IFRS 7 - Supplier
finance - effective from 1 January 2024.
Adoption of the new and revised standards and relevant interpretations in
future periods is not expected to have a material impact on the Financial
Statements of the Company.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies used in the preparation of the Financial Statements
have been consistently applied during the year ended 31 October 2023.
The principal accounting policies applied in the preparation of the Financial
Statements are set out below:
SEGMENTAL INFORMATION
The Board is of the opinion that the Group is engaged in a single segment
business, being the investment in energy storage and complementary renewable
energy generation assets, with an initial focus in a diversified portfolio of
utility scale BESS assets, located in diverse locations across Great Britain.
INCOME
Income comprises Investment income and Service fee income. Investment income
arising from fair value gains pertaining to interest on the portfolio assets
loan investments is recognised in the Revenue account of the Statement of
Comprehensive Income. The remaining fair value gains and losses are disclosed
in net gain on investments at fair value through profit and loss and recorded
in the Capital account. Service fee income is recognised on an accruals basis
from fees charged to each portfolio company regarding the Company's resources
used for project related matters. The Service fee income is recognised in the
Revenue account of the Statement of Comprehensive Income.
EXPENSES
Operating expenses are the Company's costs incurred in connection with the
ongoing management of the Company's investments and administrative costs.
Operating expenses are accounted for on an accruals basis and charged to the
Statement of Comprehensive Income. Expenses are charged through the Revenue
account except those which are capital in nature, these include those which
are incidental to the acquisition, disposal or enhancement of an investment,
which are accounted for through the Capital account. In terms of the AIC SORP
the Company applies the general accounting basis and charges the full
Investment Adviser fees to revenue ("the non-allocation approach"). Costs
directly relating to the issue of Ordinary Shares are charged to share
premium.
TAXATION
The Company is approved as an Investment Trust Company ("ITC") under sections
1158 and 1159 of the Corporation Taxes Act 2010 and Part 2 Chapter 1 of
Statutory Instrument 2011/2999 for accounting periods commencing on or after
25 May 2018. The approval is subject to the Company continuing to meet the
eligibility conditions of the Corporations Tax Act 2010 and the Statutory
Instrument 2011/29 99. The Company intends to ensure that it complies with the
ITC regulations on an ongoing basis and regularly monitors the conditions
required to maintain ITC status.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and call deposits held with
the bank on a 32 day notice which can be readily converted to cash. The fixed
deposit account held with the bank is used for cash management purposes.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at fair value and
subsequently stated at amortised cost less loss allowance which is determined
using the simplified approach to measuring expected credit losses, the effect
of which is considered immaterial.
TRADE AND OTHER PAYABLES
Trade and other payables are recognised initially at fair value and
subsequently stated at amortised cost.
EQUITY
Equity instruments issued by the Company are recorded as the amount of the
proceeds received, net of directly attributable issue costs. Costs not
directly attributable to the issue are immediately expensed in the Statement
of Comprehensive Income.
FINANCIAL INSTRUMENTS
In accordance with IFRS 9, the Company classifies its financial assets and
financial liabilities at initial recognition into the categories of amortised
cost or fair value through profit or loss. Derivative instruments are measured
at fair value through profit and loss.
FINANCIAL ASSETS
The Company's financial assets, other than cash and cash equivalents and trade
and other receivables, are measured at fair value through profit or loss as
they are held in the business model whose performance is evaluated and
assessed on a fair value basis.
FINANCIAL LIABILITIES MEASURED AT AMORTISED COST
The Company classifies all financial liabilities as financial liabilities at
amortised cost except the C Share Liability which was measured at fair value
through profit or loss.
RECOGNITION AND DERECOGNITION
Financial assets are recognised on trade date, the date on which the Company
commits to purchase or sell an asset. A financial asset is derecognised where
the rights to receive cash flows from the asset have expired, or the Company
has transferred its rights to receive cash flows from the asset. The Company
derecognises a financial liability when the obligation under the liability is
discharged, cancelled or expired.
IMPAIRMENT OF FINANCIAL ASSETS
The Company holds trade receivables with no financing component and which have
maturities of less than 12 months at amortised cost and, as such has chosen to
apply the simplified approach to measuring expected credit losses, as
permitted by IFRS 9, which uses a lifetime expected loss allowance for all
trade receivables.
DIVIDENDS PAYABLE
Dividends are recognised when they become legally payable, as a reduction in
equity in the Financial Statements. Interim equity dividends are recognised
when paid. Dividends on the shares are paid quarterly, all in the form of
interim dividends.
5. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Financial Statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amount of assets, liabilities, income and
expenses. Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to the accounting estimates are recognised in the year in
which the estimates are revised and in any future periods affected.
During the year the Directors considered the following significant judgements,
estimates and assumptions:
SIGNIFICANT JUDGEMENT
Assessment as an Investment Entity
Entities that meet the definition of an investment entity within IFRS 10 are
required to measure their subsidiaries at fair value through profit or loss
rather than consolidate them unless their main purpose and activities are
providing services related to the Company's investment activities. To
determine that the Company continues to meet the definition of an investment
entity, the Company is required to satisfy the following three criteria:
a) the Company obtains funds from one or more investors for the purpose
of providing those investors with investment management services;
b) the Company commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
c) the Company measures and evaluates the performance of substantially
all of its investments on a fair value basis.
The Company meets the criteria as follows:
· the Company's investment objective is to provide investors with
an attractive and sustainable level of income returns, with the potential for
capital growth, by investing in commercial scale energy storage and renewable
energy generation projects, with an initial focus on a diversified portfolio
of BESS located in Great Britain ("Projects");
· the Company provides investment management services and has
several investors who pool their funds to gain access to infrastructure
related investment opportunities that they might not have had access to
individually; and
· the Company has elected to measure and evaluate the performance
of all of its investments on a fair value basis. The fair value method is used
to represent the Company's performance in its communication to the market,
including investor presentations. In addition, the Company reports fair value
information internally to Directors, who use fair value as the primary
measurement attribute to evaluate performance.
In respect of the second criterion, Projects may also be disposed of, or
otherwise realised, where the AIFM recommends (acting upon advice given by the
Investment Adviser) that such realisation is in the interests of the Company.
Such circumstances may include (without limitation) disposals for the purposes
of realising or preserving value, or of realising cash resources for
reinvestment or otherwise. The Directors are responsible for the determination
of the Company's investment policy and strategy and has overall responsibility
for the Company's activities including the review of investment activity and
performance. The Board will also make the decision to acquire or dispose of
Projects, based on recommendations made by the AIFM acting upon advice given
by the Investment Adviser.
A further indicator of whether a Company is an investment entity is the
expectation they hold more than one asset. During the year the Company
transferred all of its subsidiaries to HEIT Holdings Ltd, details of these
transactions are disclosed in note 10. Following the transfer of those
subsidiaries and the sale of Harmony RC Limited in the year, the Company holds
one investment directly but several indirectly, as there is a portfolio of
assets within HEIT Holdings Ltd.
The Directors have evaluated whether the Company is an investment entity and
concluded that it meets the definition set out in IFRS 10. Therefore, its
subsidiaries are measured at fair value through profit or loss, in accordance
with IFRS 9 'Financial Instruments'.
ASSESSMENT OF HEIT HOLDINGS LTD AS AN INVESTMENT ENTITY
HEIT Holdings Ltd is not consolidated as the company is also considered to be
an investment entity (see Note 10). The board of directors of HEIT Holdings
Ltd has considered the requirements of IFRS 10 as shown above and confirmed
that HEIT Holdings Ltd meets these criteria.
SIGNIFICANT ESTIMATION UNCERTAINTY
Valuation of Investments
Significant estimates in the Company's Financial Statements include the
amounts recorded for the fair value of the investments in the subsidiary of
the Company, HEIT Holdings Ltd. These estimates and assumptions are subject to
measurement uncertainty by their nature. The impact on the Company's Financial
Statements of changes in the next financial year may be significant.
These estimates and sensitivities are further discussed in note 18.
6. INCOME
31 October 2023 31 October 2022
£ £
Service fee income 1,837,458 1,853,151
Investment income 11,582,996 1,614,060
Bank interest income 340,939 453,973
Interest income on loan to shareholder 12,739 15,002
13,774,132 3,936,186
Refer to note 10 for further detail on interest on loans to subsidiaries
recognised in Investment income.
7. ADMINISTRATIVE AND OTHER EXPENSES
31 October 2023 31 October 2022
£ £
Administrative fees 57,300 48,000
AIFM fees 67,424 61,573
Director and officer insurance 40,725 44,917
Directors' fees 225,750 226,577
Fees payable to the auditor for the audit of the Company's Financial 184,000 140,000
Statements
Fees payable to the auditor for the audit of the Company's initial accounts - 100,000
Legal and professional fees 519,464 791,052
Listing fees expensed - 377,035
Investment adviser fees 2,163,222 1,848,845
Secretarial fees 82,097 45,000
Sundry expenses 135,902 316,190
3,475,884 3,999,189
The Company has no employees and therefore no employee-related costs have been
incurred.
During the year the year the audit fees relating to the statutory audits of
HEIT Holdings Ltd and its subsidiaries totalled £64,675 (2022: £53,500).
ADMINISTRATIVE AND SECRETARIAL FEES
JTC (UK) Limited has been appointed to act as administrator and secretary for
the Company through the Administration and Company Secretarial Agreement with
effect from 14 October 2021. JTC (UK) Limited is entitled to a minimum fee of
£48,000 per annum for accounting and administration services to the Company
as well as a minimum fee of £45,000 per annum for the provision of Governance
and Company Secretarial services.
During the year, fees incurred with JTC (UK) Limited amounted to £139,397
(2022: £123,000) and £28,000 (2022: £93,000) remained payable as at 31
October 2023.
AIFM
JTC Global AIFM Solutions Limited has been appointed to act as the AIFM for
the Company through the AIFM Agreement with effect from 14 October 2021. The
AIFM is entitled to charge an annual rate of 0.03% of the Company's equity
raised subject to a minimum annual fee of £30,000.
During the year, fees incurred with the AIFM amounted to £72,222 (2022:
£61,573) and £5,620 (2022: £21,000) remained payable as at 31 October 2023.
INVESTMENT ADVISER
Investment Adviser fees are payable monthly in arrears. Details on how the
fees are charged are disclosed in note 23.
8. TAXATION
The Company is recognised as an ITC for accounting periods beginning on or
after 1 October 2021 and is taxed at the main rate of 19% until 31 March 2023
and then at 25% until 31 October 2023. An ITC may claim a tax deduction for
the distribution of income that arises from interest receipts on the loan
notes. Therefore, no corporation tax charge has been recognised for the
Company for the Period to 31 October 2023.
31 October
31 October Capital 2022
Revenue Capital 2023 Revenue (Restated) (Restated)
£ £ £ £ £ £
a) Tax charge in profit and loss UK Corporation tax - - -
b) Reconciliation of the tax charged for the year
Profit before tax 10,298,248 (7,161,610) 3,136,638 (63,003) 48,426,937 48,363,934
Tax at UK main rate of 25% (2022:19%) 2,318,940 (1,612,638) 706,302 (11,970) 9,201,118 9,189,148
Tax effect of:
Non-taxable investment gains on investments - 1,612,638 1,612,638 - (9,201,118) (9,201,118)
Non-deductible expenses 56,343 - 56,343 71,637 - 71,637
Tax deductible interest distributions (2,476,959) - (2,476,959) (59,667) - (59,667)
Deferred tax not recognised 101,676 - 101,676 - - -
Tax charge for the year - - - - -
(C) FACTORS THAT AFFECT FUTURE TAX CHARGES
ITCs which have been approved by HM Revenue & Customs are exempt from UK
corporation tax on their capital gains. Due to the Company's status as an
approved ITC, and the intention to continue meeting the conditions required to
maintain that approval for the foreseeable future, the Company has not
provided for deferred tax in respect of any gains or losses arising on the
revaluation of its investments. Taxes are based on the UK Corporate tax rates
which was 25% as at 31 October 2023 while a blended rate of 22.5% had been
used for the year. The main rate of corporation tax change from 19% to 25%
from 1 April 2023 for companies with profits over £250,000.
As at 31 October 2023 the Company had not provided deferred tax assets or
liabilities. At that date, based on current estimates and including the
accumulation of net allowable losses, the Company had unrelieved losses of
£452,504.
9. BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated by dividing the profit or
loss for the year attributable to ordinary equity holders of the Company by
the weighted average number of Ordinary Shares in issue during the year. As
there are no dilutive instruments outstanding, basic and diluted earnings per
share are identical.
Net profit
Weighted attributable to
average number Shareholders EPS
of Ordinary 31 October 2023
Shares £ £
Ordinary Shares 223,045,660 3,136,638 0.01
Weighted Net profit EPS
average number attributable to 31 October 2022
of Ordinary Shareholders (Restated)
(Restated)
Shares £ £
Ordinary Shares 210,000,000 48,363,934 0.23
10. INVESTMENTS HELD AT FAIR VALUE
Place of business Percentage Equity Loan Closing Equity Loan Closing
ownership balance: balance:
equity equity and
and loans loans
31 October 31 October 31 October 31 October 31 October 31 October
2023 2023 2023 2022 2022 2022
£ £ £ (Restated) £ (Restated)
£ £
HEIT Holdings Ltd Bond End, Knaresborough 100% 84,185,808 155,839,973 240,025,781 2,399,841 1,412,105 3,811,946
HEIT PW Limited Bond End, Knaresborough 100% - - - 19,286,787 4,250,070 23,536,857
HEIT PW 2 Limited Bond End, Knaresborough 100% - - - 19,754,327 1,682,509 21,436,836
HEIT BD Limited Bond End, Knaresborough 100% - - - 3,400,762 2,608,865 6,009,627
HEIT FM Limited Bond End, Knaresborough 100% - - - 5,091,619 6,028,478 11,120,097
HEIT RH Limited Bond End, Knaresborough 100% - - - 4,822,367 8,457,458 13,279,825
HEIT LR Limited Bond End, Knaresborough 100% - - - 7,331,176 10,866,742 18,197,918
HEIT BF Limited Bond End, Knaresborough 100% - - - 19,862,817 23,776,768 43,639,585
84,185,808 155,839,973 240,025,781 81,949,696 59,082,995 141,032,691
On 15 December 2022 the Company announced the acquisition of three "shovel
ready" pipeline projects totalling 181.9 MW / 363.8 MWh, increasing the
Company's portfolio to nine BESS projects with a total capacity of c.500 MW /
1 GWh.
The Company has acquired the projects pursuant to a Pipeline Agreement entered
into on IPO which granted the Company a right of first refusal of up to 1GW of
BESS projects, from Harmony Energy Limited and Ritchie Bland Energy No. 2
Limited. The total consideration for the three projects were c. £21.9 million
(supported by the independent valuation performed by Mazars) being satisfied
through the payment of c.14.5 million in cash (being the net proceeds of the C
Share issue by the Company as announced on 12 October 2022) in conjunction
with the issue of 7 million new C Shares to the Developers and a further cash
payment of £0.4 million for initial project costs.
The three projects, HEIT WG Limited, HEIT HP Limited and Harmony RC Limited,
known as Wormald Green, Hawthorn Pit and Rye Common (Phases I and II), were
expected to be energised in Q2 2024, Q3 2024 and Q4 2024 financial year
respectively, with grid offers secured.
As described in note 1, on 9 March 2023, the Company sold its investments in
HEIT PW Limited, HEIT PW 2 Limited, HEIT BD Limited, HEIT FM Limited, HEIT RH
Limited, HEIT LR Limited, and HEIT BF Limited to its subsidiary HEIT Holdings
Ltd for a total consideration of £91,105,212, which was the fair value of the
projects at the date of transfer. HEIT Holdings Ltd satisfied this transfer by
issuing and allotting 91,105,212 Ordinary Shares of £1 each to the Company.
On 4 May 2023, the Company sold 2 further investments in HEIT HP Limited and
HEIT WG Limited to its subsidiary HEIT Holdings Ltd for a total consideration
of £8,893,079, which was the fair value of the projects at the date of
transfer. HEIT Holdings Ltd satisfied this transfer by issuing and allotting a
further 8,893,079 Ordinary Shares of £1 each to the Company.
On 4 September 2023 the Company announced the sale of its Rye Common Project,
Harmony RC Limited, to Pulse Clean Energy Limited at a premium to its carrying
value.
The table below summarises the movement of investments held at fair value for
the year ended 31 October 2023:
31 October 2022
31 October 2023 (Restated)
£ £
Opening balance (restated) 141,032,691 -
Investments purchased during the year 21,936,818 33.522,759
Investment in equity of HEIT Holdings Ltd 99,998,291 -
Loans advanced during the year 86,286,593 57,468,935
Interest on loans 11,582,996 1,614,060
Sale of equity of subsidiaries to HEIT Holdings Ltd (99,998,291) -
Sale of Harmony RC Limited (13,651,707) -
Net loss on investments held at fair value through profit or loss (7,161,610) 48,426,937
Closing balance 240,025,781 141,032,691
INVESTMENT HELD IN HEIT HOLDINGS LTD
The Company owns 100% of the Ordinary Shares in HEIT Holdings Ltd. The Company
has a number of indirectly held subsidiaries held by HEIT Holdings Ltd. The
investment totalling £240,025,781 in HEIT Holdings Ltd comprises of the
underlying investments in the following subsidiaries (2022: Nil Investments
held through HEIT Holdings Ltd). The Fair value measurements and sensitivities
used to measure these investments are disclosed in note 18.
Subsidiaries Project Place of business Percentage ownership Fair value £
HEIT PW Limited (previously Harmony (PW) Limited) Pillswood 1 Bond End, Knaresborough 100% 48,918,397
HEIT PW 2 Limited (previously Harmony (PW) 2 Limited) Pillswood 2 Bond End, Knaresborough 100% 49,012,689
HEIT BD Limited (previously Harmony BD Limited) Broadditch Bond End, Knaresborough 100% 11,516,954
HEIT FM Limited (previously Harmony FM Limited) Farnham Bond End, Knaresborough 100% 20,578,103
HEIT RH Limited (previously Harmony RH Limited) Rusholme Bond End, Knaresborough 100% 27,130,822
HEIT LR Limited (previously Daisy No. 2 Limited) Little Raith/Daisy No. 2 Bond End, Knaresborough 100% 42,789,696
HEIT BF Limited (previously Harmony BF Limited) Bumpers Bond End, Knaresborough 100% 87,028,196
HEIT HP Limited (previously Harmony HP (JV) Limited) Hawthorn Pit Bond End, Knaresborough 100% 27,508,395
HEIT WG Limited (previously Harmony WG (JV) Limited) Wormald Green Bond End, Knaresborough 100% 17,402,843
Total fair value of projects 331,886,095
Working capital 3,196,508
Senior loan facility (95,056,822)
Total investment 240,025,781
As at 31 October 2023 ("Valuation Date"), the Company's subsidiary HEIT
Holdings Ltd had live investments in the following nine BESS projects in the
UK - Pillswood 1, Pillswood 2, Broadditch, Farnham, Rusholme, Little Raith,
Bumpers, Wormald Green and Hawthorn Pit. These projects, taken together, have
a combined rated power capacity of 395.4 MW and an energy storage capacity of
c.790.80 MWh.
The Company's final seed portfolio project, Rusholme (70 MWh / 35 MW), has
completed construction and has been cold commissioned. This project is
currently awaiting confirmation of the energisation date from the relevant DNO
which is now expected to be in Q1 2024.
All other seed projects are operational. Hawthorn Pit and Wormald Green are
due to complete construction in the first half of 2024.
The Projects attract four different streams of revenues: trading revenue
(wholesale, Balancing Mechanism and churn), Ancillary Services (Frequency
Response Revenue, Dynamic Containment and Dynamic Regulation), CM revenue and
embedded benefits (via the Embedded Export Tariff). Given the difficulty in
accurately forecasting revenues over the long-‑term, the Company purchases
independent forecasts from three providers. By blending the three forecasts,
the Company is able to take account of differing views of long-term drivers of
value.
Two of these providers focus on long-term fundamental-based forecasts whereas
one is focused on shorter-term battery specific performance.
Subsidiaries Opening balance: Equity Loans: Loans: interest Cost at Net Fair value Closing
equity and loans acquisitions principal charged 31 October movement balance: equity
£ during the advanced/ £ 2022 (Restated) and loans
period (repaid) £ £ (Restated)
£ £ £
HEIT PW Limited - 8,224,633 4,075,047 175,023 12,474,703 11,062,154 23,536,857
HEIT PW 2 Limited - 8,931,692 1,631,222 51,287 10,614,201 10,822,635 21,436,836
HEIT BD Limited - 592,489 2,451,079 157,786 3,201,354 2,808,273 6,009,627
HEIT FM Limited - 2,821,324 5,777,562 250,916 8,849,802 2,270,295 11,120,097
HEIT RH Limited - 5,039,989 8,144,129 313,329 13,497,447 (217,622) 13,279,825
HEIT LR Limited - 7,912,631 10,565,352 301,390 18,779,373 (581,455) 18,197,918
HEIT Holdings Ltd - 1 1,379,402 32,703 1,412,106 2,399,840 3,811,946
HEIT BF Limited - - 23,445,142 331,626 23,776,768 19,862,817 43,639,585
TOTAL - 33,522,759 57,468,935 1,614,060 92,605,754 48,426,937 141,032,691
PRIOR PERIOD ERROR AND RESTATEMENT
As disclosed in note 2 during the preparation of the 31 July 2023 NAV, the
Investment Adviser discovered an error in the NAV methodology for valuing
short term cash flows, which was introduced at the 31 October 2022 financial
year end. It has been ascertained that this resulted in an overstatement of
the NAV at 31 October 2022 of £4,653,154.
Impact of correction of error on Investments held at fair value as at 31
October 2022
As previously
reported As restated Value of error
Subsidiaries £ £ £
HEIT PW Limited 24,532,949 23,536,857 (996,092)
HEIT PW 2 Limited 22,338,183 21,436,836 (901,347)
HEIT BD Limited 6,158,235 6,009,627 (148,608)
HEIT FM Limited 12,381,065 11,120,097 (1,260,968)
HEIT RH Limited 13,114,108 13,279,825 165,717
HEIT LR Limited 18,515,385 18,197,918 (317,467)
HEIT Holdings Ltd 3,811,946 3,811,946 -
HEIT BF Limited 44,833,974 43,639,585 (1,194,389)
TOTAL 145,685,845 141,032,691 (4,653,154)
11. TRADE AND OTHER RECEIVABLES
31 October 2023 31 October 2022
£ £
Prepayments 48,486 35,172
VAT receivable 1,367,690 482,555
Intercompany loans receivable 748,668 482,925
Amounts due from related parties 2,247,402 381,041
Other receivables 40,027 -
4,452,273 1,381,693
12. LOAN TO SHAREHOLDER
31 October 2023 31 October 2022
£ £
Drawings under Credit Facility granted to Shareholder:
Opening balance 1,443,506 -
Drawdowns during the year/Period 350,913 1,443,506
Loan discharged (1,794,419)
Closing balance - 1,443,506
On 1 July 2022, the Company granted a £5,000,000 revolving credit facility to
a shareholder Harmony Energy Limited ("the Facility"). Interest was charged on
the Facility at a margin rate of 3% plus 1 year SONIA (sterling overnight
index average).
The Facility was discharged on 14 December 2022 as part of the sale agreement
for the three projects purchased during the year as disclosed in note 10.
13. CASH AND CASH EQUIVALENTS
31 October 2023 31 October 2022
£ £
Cash at bank 18,093,379 105,471,626
Fixed Deposit account - 19,100,000
18,093,379 124,571,626
14. TRADE AND OTHER PAYABLES
31 October 2023 31 October 2022
£ £
Trade creditors and operating accruals 101,599 301,013
Administrator fees 28,000 48,000
AIFM fees 5,621 21,000
Audit fees 184,000 140,000
Investment adviser fee accrual 144,121 220,351
463,341 730,364
15. FINANCIAL LIABILITY AT FAIR VALUE
31 October 2023 31 October 2022
£ £
Opening Balance 14,542,172 -
Issuance of C Shares 7,000,000 14,771,364
Less equity costs - (229,192)
C Shares converted into Ordinary Shares (21,542,172) -
- 14,542,172
On 12 October 2022, the Company issued 14,771,364 C Shares of £0.10 each at a
price of £1.00 per C Share. The C Shares issued had equal voting rights with
Ordinary Shares. As described in note 10 a further 7,000,000 C Shares were
issued during the year as part consideration for the purchase of the three new
projects resulting in a total of 21,771,364 C Shares being in issue.
On 26 January 2023, the Company announced the conversion of all of its C
Shares to Ordinary Shares at a ratio of 1:0.786735 resulting in the 21,771,364
C shares being converted into 17,128,295 Ordinary Shares.
The Conversion Ratio is the ratio of the net asset value per C Share to the
net asset value per Ordinary Share as at the Conversion Calculation Date. On
conversion, the new Ordinary Shares issued as a result of the conversion of C
Shares ranked pari passu with the existing Ordinary Shares in issue on the
date of conversion.
16. CATEGORIES OF FINANCIAL INSTRUMENTS
31 October 2022
31 October 2023 (Restated)
£ £
Financial Assets -
Financial Assets at fair value through profit and loss -
Investments held at fair value 240,025,781 141,032,691
Financial assets at amortised cost -
Trade and other receivables 4,452,273 1,381,693
Loan to Shareholder - 1,443,506
Cash and Cash Equivalents 18,093,379 124,571,626
Total financial assets 262,571,433 268,429 ,516
Financial liabilities
Financial liabilities at fair value through profit and loss
Financial liability at fair value - 14,542,172
Financial liabilities at amortised cost
Trade and other payables 463,341 730,364
Total financial liabilities 463,341 15,272,536
At the balance sheet date, all financial assets and liabilities were measured
at amortised cost except for the investments held at fair value which are
measured at fair value as further explained in note 15 and 18 respectively.
The carrying amount for the financial assets and liabilities measured at
amortised costs approximates fair value.
17. FINANCIAL RISK MANAGEMENT
The Company is exposed to certain risks through the ordinary course of
business and the Company's financial risk management objective is to minimise
the effect of these risks. The management of risks is performed by the
Directors of the Company and the exposure to each financial risk considered
potentially material to the Company, how it arises and the policy for managing
it is summarised below:
CREDIT RISK
The Company is exposed to third-party credit risk in several instances and the
possibility that counterparties with which the Company and its subsidiaries,
together the "Group", contracts may fail to perform their obligations in the
manner anticipated by the Group.
Counterparty credit risk exposure limits are determined based on the credit
rating of the counterparty. Counterparties are assessed and monitored on the
basis of their ratings from Standard & Poor's and/or Moody's. No financial
transactions are permitted with counterparties with a credit rating of less
than BBB- from Standard & Poor's or Baa3 from Moody's unless specifically
approved by the Board. Cash and bank deposits are held with major
international financial institutions who each hold a Moody's credit rating of
A2 or higher.
Cash and other assets that are required to be held in custody will be held at
a bank. In the event of the insolvency of the bank, the Company will rank as a
general creditor in relation thereto and may not be able to recover such cash
in full, or at all.
In addition, credit risk relating to receivables at subsidiary level is
managed by diversifying exposures among a portfolio of counterparties and
through the setting and monitoring of credit limits.
CURRENCY RISK
The Company is not exposed to currency risk as all its assets, liabilities and
transactions during the current year were denominated in British Pound
Sterling.
LIQUIDITY RISK
The objective of liquidity management is to ensure that all commitments which
are required to be funded can be met out of readily available and secure
sources of funding. The Company's only financial liabilities are trade and
other payables. The Company intends to hold sufficient cash across the Company
and subsidiaries' operating accounts to meet the working capital needs.
As at 31 October 2023, the Company held cash at bank of £18,093,379 (2022:
£124,571,626) and had trade and other payables totalling £463,341 (2022:
£730,364). The following table reflects the maturity analysis of financial
assets and liabilities.
Although the Company has no direct external debt, it has indirect external
debt through its subsidiary as described in note 2 under Going Concern and in
the interest rate risk note. The Board and Investment Adviser review the
projected cash flow for the group on a regular basis to ensure that there is
sufficient cash flow to cover the debt and interest repayments of the external
debt as they fall due.
<1 year 1 to 2 years 2 to 5 years >5 years Total
As at 31 October 2023 £ £ £ £ £
Financial assets
Financial assets at fair value through profit and loss:
Loan investment to subsidiaries* - - - 155,839,973 155,839,973
Financial assets at amortised cost:
Cash at bank 18,093,379 - - - 18,093,379
Total financial assets 18,093,379 - - 155,839,973 173,933,352
<1 year 1 to 2 years 2 to 5 years >5 years Total
As at 31 October 2023 £ £ £ £ £
Financial liabilities
Financial liabilities at fair value through profit and loss:
Financial liabilities at amortised cost:
Trade and other payables 463,341 - - - 463,341
Total financial liabilities 463,341 - - - 463,341
<1 year 1 to 2 years 2 to 5 years >5 years Total
As at 31 October 2022 £ £ £ £ £
Financial assets
Financial assets at fair value through profit and loss:
Loan investment to subsidiaries* - - - 59,082,995 59,082,995
Financial assets at amortised cost:
Cash at bank 124,571,626 - - - 124,571,626
Total financial assets 124,571,626 - - 59,082,995 183,654,621
<1 year 1 to 2 years 2 to 5 years >5 years Total
As at 31 October 2022 £ £ £ £ £
Financial liabilities
Financial liabilities at fair value through profit and loss:
Financial liability at fair value 14,542,172 - - - 14,542,172
Financial liabilities at amortised cost:
Trade and other payables 730,364 - - - 730,364
Total financial liabilities 15,272,536 - - - 15,272,536
* Includes the interest on loans advanced and excludes the equity
portion of the investment.
MARKET RISK
Market risk is the risk that the fair value or cash flows of a financial
instrument will fluctuate due to changes in market prices. Market risk
reflects: (i) other price risks, and (ii) interest rate risk. The objective is
to minimise market risk through managing and controlling these risks to
acceptable parameters, while optimising returns. The Company uses financial
instruments in the ordinary course of business in order to manage market
risks. Further commentary on financial and market risks is provided in the
Principal Risks and Uncertainties section, including inflation.
(i) PRICE RISK
The Company's investments are susceptible to market price risk arising from
uncertainties about future values its portfolio assets. The Company's
Investment Adviser provides the Company with investment recommendations. The
Company relies on market knowledge of the Investment Adviser, the valuation
expertise of the third-party valuer and the use of third-party market forecast
information to provide comfort with regard to fair market values of
investments reflected in the Financial Statements.
Price risk is the risk that the fair value or cash flows of a financial
instrument will fluctuate due to changes in market prices. At 31 October 2023,
if the valuation of investments had been 10% higher with all other variables
held constant, the increase in net assets attributable to Shareholders for the
year would have been £24,002,578 (2022: £14,103,269, restated) higher,
arising due to the increase in the fair value of financial instruments. A 10%
decrease would have the equal and opposite effect.
The impact of changes in unobservable inputs to the underlying investments is
considered in note 18.
(ii) INTEREST RATE RISK
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or the fair values of financial instruments.
The Company is exposed to interest rate risk on its cash balances held with
counterparties, and through loans to related parties. As at 31 October 2023
the Company held no fixed bank deposits. The loan to its subsidiary is carried
at a fixed rate of interest. Therefore, the Company is not exposed to changes
in variable market rates of interest and has therefore not considered any
sensitivity to interest rates.
The Company does not have any borrowings as at 31 October 2023 however the
Company has access to a £20 million RCF loan as well as a £110,000,000 long
term facility through its subsidiary HEIT Holdings Ltd. As at 31 October 2023
HEIT Holdings had drawn down £10,629,073 on its RCF and £84,427,749 on its
long-term facility. It is a five-year facility with an initial margin of
300bps over SONIA, rising over time to a maximum of 375bps by year 5.
HEIT Holdings Ltd uses interest rate swaps to mitigate the interest rate risk
on its external borrowings. At the beginning of the Year, the Company had an
interest rate swap (the "Swap") in place in relation to its initial debt
facility of £60 million. The interest rate swap fixed the SONIA element of
interest payments on this facility at a rate of 2.478% p.a. Multiple rises in
Bank of England base rates since the Swap was contracted increased its value
significantly. In connection with the extension of the debt facility during
the year, the Company chose to break this swap in July 2023, crystallising the
mark to market value at the time of £6.1 million. An interest rate cap of
5.25% was put in place in relation to the variable SONIA element of the
increased facility, at a cost of £2.8 million.
As at 31 October 2023 the interest rate cap in place in HEIT Holdings Ltd was
fair valued at £1,110,781 (2022: £nil). The Swap previously held by HEIT
Holding Ltd as at 31 October 2022 was fair valued at £4,090,988.
As described in the Going Concern note, the Company is guarantor to its wholly
owned subsidiary, HEIT Holdings Ltd in respect of the long-term facility of
£110m and ancillary revolving credit facility of up to £20 million.
Where not a requirement of the underlying loan facilities, the Company will
consider the costs and benefits of hedging on a case‑by‑case basis.
At 31 October 2023, the Company is indirectly exposed to interest rate risk
through its investment in the subsidiary. The Company may be exposed to
changes in variable market rates of interest and this could impact the
discount rate and therefore the valuation of the projects that underpin the
value of its investment in subsidiary. The sensitivity of the valuation of the
investment projects due to discount rates is disclosed in note 18.
CAPITAL RISK MANAGEMENT
The capital structure of the Company at year end consists of equity
attributable to equity holders of the Company of £262,108,092 (2022:
£253,156,980, Restated), comprising issued capital and reserves. The Board
continues to monitor the balance of the overall capital structure so as to
maintain investor and market confidence. The Company is not subject to any
external capital requirements.
18. FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT AND HIERARCHY
Fair value is the price that would be received on the sale of an asset, or
paid to transfer a liability, in an orderly transaction between market
participants at the measurement date. If a fair value measurement uses
observable inputs that require significant adjustment based on unobservable
inputs or any other significant unobservable inputs, that measurement is a
Level 3 measurement.
The following table analyses within the fair value hierarchy the Company's
assets measured at fair value at 31 October 2023:
Level 1 Level 2 Level 3
£ £ £
Investment in subsidiary - - 240,025,781
The following table analyses within the fair value hierarchy the Company's
assets measured at fair value at 31 October 2022 (restated):
Level 1 Level 2 Level 3
£ £ £
Investment in subsidiaries - - 141,032,691
The Company only invests in assets at fair value through profit or loss that
are Level 3 in the fair value hierarchy and the reconciliation in the movement
of this Level 3 investment is presented below. No transfers between levels
took place during the year.
31 October 2022
31 October 2023 (Restated)
£ £
Opening balance (restated) 141,032,691 -
Investments purchased during the year 21,936,818 33.522,759
Investment in equity of HEIT Holdings Ltd 99,998,291 -
Loans advanced during the year 86,286,593 57,468,935
Interest on loans 11,582,996 1,614,060
Sale of equity of subsidiaries sold to HEIT Holdings Ltd (99,998,291) -
Sale of Harmony RC Limited (13,651,707) -
Unrealised (loss)/gain on investments held at fair value through profit or (8,668,181) 48,426,937
loss
Realised gains on sale of investments 1,506,571 -
Closing balance 240,025,781 141,032,691
The Company's policy is to recognise transfers into and transfers out of fair
value hierarchy levels as of the date of the event or change in circumstances
that caused the transfer.
VALUATION METHODOLOGY
The fair value of the investment in HEIT Holdings Ltd represents its net
assets as determined by the Company's administrator (reviewed by the
Investment Adviser) and further presented by the Investment Adviser and
reviewed by the Company's Board of Directors.
The Investment Adviser's assessment of fair value of investments in the
underlying projects in HEIT Holdings Ltd is determined in accordance with the
International Private Equity and Venture Capital 2018 ("IPEVC") Valuation
Guidelines, using levered and unlevered discounted cash flow principles.
The valuation of all the Company's subsidiaries' investments is based
primarily on a discounted cash flow methodology ("DCF"), "Income Approach",
which indicates value based on the sum of the economic income that an asset,
or group of assets, is anticipated to produce in the future. Free cash flow to
total invested capital is typically the appropriate measure of economic
income. The method discounts free cash flows using an estimated discount rate
Weighted Average Cost of Capital ("WACC"). The selected discount rate is
supported by the benchmarking of discount rates for assets in the same, or
analogous sectors as the portfolio.
VALUATION PROCESS
Valuations are the responsibility of the Board of Directors. The Investment
Adviser is responsible for submitting fair market valuations of the Company's
assets to the Directors. The Directors review and approve these valuations
following appropriate challenge and examination. Valuations are carried out
quarterly, with Mazars acting as independent valuer providing a valuation
report semi-annually. The current portfolio consists of non-market traded
investments and valuations are based on a DCF methodology.
The Board, supported by the Audit and Risk Committee, reviews the operating
and financial assumptions, including the discount rates, used in the valuation
of the Company's underlying portfolio and approves them based on the
recommendation of the Investment Adviser.
The AIFM acts as an oversight function in order to ascertain whether the
valuation risk is being appropriately managed.
As at 31 October 2023, the fair values of all the investments held within the
portfolio of the Company's subsidiary HEIT Holdings Ltd, have been determined
by Mazars LLP (reviewed by the Investment Adviser) and further presented by
the Investment Adviser and reviewed by the Company's Board of Directors.
SENSITIVITY ANALYSIS
The following tables reflect the range of sensitivities in respect of the fair
value movements of the underlying projects held by HEIT Holdings Ltd. The
individual project valuations are disclosed in note 10.
The Directors consider the changes in inputs to be within a reasonable
expected range based on their understanding of market transactions. This is
not intended to imply that the likelihood of change or that possible changes
in value would be restricted to this range.
The Directors consider the following to be the most significant key
unobservable inputs to the discounted cash flows ("DCF") calculation.
Estimated Estimated effect
effect on fair value
on fair value 31 October
31 October 2022
Valuation 2023 (Restated)
Subsidiary Project Significant input Base valuation technique Sensitivity £ £
HEIT PW Limited Pillswood 1 Discount rate 48,918,397 DCF +0.5% (1,962,728) (1,422,863)
-0.5% 2,116,324 1,521,936
Revenue +10% 5,061,300 5,166,096
-10% (5,090,193) (5,218,459)
HEIT PW 2 Limited Pillswood 2 Discount rate 49,012,689 DCF +0.5% (1,918,210) (1,422,118)
-0.5% 2,067,967 1,521,177
Revenue +10% 5,052,974 5,166,553
-10% (5,096,376) (5,219,204)
HEIT BD Limited Broadditch Discount rate 11,516,954 DCF +0.5% (454,100) (324,307)
-0.5% 488,989 347,013
Revenue +10% 1,135,280 1,140,544
-10% (1,138,960) (1,147,759)
HEIT FM Limited Farnham Discount rate 20,578,103 DCF +0.5% (880,030) (642,185)
-0.5% 947,875 687,815
Revenue +10% 2,136,741 2,057,807
-10% (2,157,962) (2,079,858)
HEIT RH Limited Rusholme Discount rate 27,130,822 DCF +0.5% (1,356,277) (1,001,684)
-0.5% 1,461,224 1,073,703
Revenue +10% 3,450,997 3,226,431
-10% (3,503,648) (3,243,602)
HEIT LR Limited Little Raith/Daisy No. 2 Discount rate 42,789,696 DCF +0.5% (1,819,262) (1,302,349)
-0.5% 1,957,919 1,399,499
Revenue +10% 4,941,061 4,190,210
-10% (5,053,689) (4,186,939)
HEIT BF Limited Bumpers Discount rate 87,028,196 DCF +0.5% (4,010,981) (2,990,498)
-0.5% 4,318,710 3,212,404
Revenue +10% 9,685,739 8,679,227
-10% (9,930,227) (8,674,979)
HEIT WG Limited Wormald Green Discount rate 17,402,843 DCF +0.5% (1,154,003) -
-0.5% 1,246,378 -
Revenue +10% 3,170,805 -
-10% (3,354,679) -
HEIT HP Limited Hawthorn Pit Discount rate 27,508,395 DCF +0.5% (1,733,055) -
-0.5% 1,870,705 -
Revenue +10% 4,708,722 -
-10% (4,804,294) -
PORTFOLIO SENSITIVITY
The table below reflects a range of sensitivities which the Directors consider
to have a significant impact on the portfolio of investments held by the
Company:
Estimated effect
Estimated effect on fair value
on fair value 31 October
31 October 2022
2023 (Restated)
Unobservable input Sensitivity £ £
Inflation +0.5% 18,522,081 13,322,583
-0.5% (18,269,983) (12,444,295)
Construction costs +10% (9,880,088) (25,583,573)
-10% 11,205,647 25,295,180
Operating costs +15% (9,251,227) (7,803,622)
-15% 9,031,841 7,789,333
Cell replacement costs +15% (2,769,237) (1,290,494)
-15% 2,786,110 1,327,324
19. SHARE CAPITAL
Capital
reduction
Number of Share capital Share premium reserve Total
Ordinary Shares £ £ £ £
As at 31 October 2022 210,000,000 2,100,000 - 202,693,046 204,793,046
Conversion of C Shares to Ordinary Shares 17,128,295 171,283 21,370,889 - 21,542,172
Dividends paid - - - (8,598,849) (8,598,849)
As at 31 October 2023 227,128,295 2,271,283 21,370,889 194,094,197 217,736,369
Capital
reduction
Number of Share capital Share premium reserve Total
Ordinary Shares £ £ £ £
As at 1 October 2021 - - - - -
Issue of fully paid Ordinary Shares at £1 210,000,000 2,100,000 207,900,000 - 210,000,000
Ordinary Shares Equity issue costs - - (3,106,954) - (3,106,954)
Transfer to capital reduction reserve - - (204,793,046) 204,793,046 -
Dividends paid - - - (2,100,000) (2,100,000)
As at 31 October 2022 210,000,000 2,100,000 - 202,693,046 204,793,046
SHARE CAPITAL, SHARE PREMIUM ACCOUNT AND CAPITAL REDUCTION RESERVE
On 12 October 2021, the Board approved the proposed placing and offer for
subscription of Ordinary Shares of £0.01 nominal value each in the capital
of the Company at a price of £1.00 per Ordinary Share.
Following a successful application to the High Court and lodgement of the
Company's statement of capital with the Registrar of Companies, the Company
was permitted to cancel its share premium account. This was effected on
15 December 2021 by a transfer of the balance of £204,793,046 from the share
premium reserve to the capital reduction reserve. The capital reduction
reserve is classed as a distributable reserve and dividends to be paid by the
Company can be offset against this reserve.
On 26 January 2023, the Company announced the conversion of its C Shares. The
total number of C Shares that was converted into new Ordinary Shares with
voting rights was 17,128,295. Immediately following admission, the total
number of the Ordinary Shares in issue was 227,128,295 (Refer to note 15).
20. RESERVES
The nature and purpose of each of the reserves included within equity at 31
October 2023 are as follows:
· Share premium reserve: represents the surplus of the gross
proceeds of share issues over the nominal value of the shares, net of the
direct costs of equity issues and net of conversion amount.
· Capital reduction reserve: represents a distributable reserve
created following a Court approved reduction in capital. This reserve is
distributable and may be used, where the Board considers it appropriate, by
the Company for the purpose of paying dividends to Shareholders.
· Revenue reserve: represents a distributable reserve of cumulative
net gains and losses recognised in the Revenue account of the Statement of
Comprehensive Income; and
· Capital Reserves: represents a non-distributable reserve of
cumulative net capital gains and losses recognised in the Statement of
Comprehensive Income.
The only movements in these reserves during the year are disclosed in the
Statement of Changes in Equity.
21. NET ASSET VALUE PER SHARE
Basic NAV per share is calculated by dividing the Company's net assets as
shown in the statement of financial position that are attributable to the
ordinary equity holders of the Company by the number of Ordinary Shares
outstanding at the end of the year. As there are no dilutive instruments
outstanding, basic and diluted NAV per share are identical.
31 October 2023
Net Asset Value
Shares in Assets Liabilities Profit Pence per £
Ordinary Shares 227,128,295 262,571,433 463,341 3,136,638 115.40 262,108,092
31 October 2022 (Restated)
Net Asset Value
Shares in Assets Liabilities Profit Pence per £
Ordinary Shares 210,000,000 268,429,516 15,272,536 48,426,937 120.55 253,156,980
22. DIVIDENDS
Dividend per Share is a measure to show the distributions made to Shareholders
during the Period.
Total
Dividend per share £
For the 6 month period ended 31 October 2022 (paid: December 2022) 1 pence 2,100,000
For the 3 month period 31 January 2023 (paid: March 2023) 2 pence 4,542,566
For the 3 month period ended 30 April 2023 (paid: June 2023) 2 pence 4,542,566
For the 3 month period ended 31 July 2023 (paid: September 2023) 2 pence 4,542,566
The distributions paid during the Year were paid out of the capital reduction
reserve and revenue reserve.
On 30 November 2023, the Company declared a distribution of 2 pence per
Ordinary Share £4,542,566 in relation to the period 1 August 2023 to 31
October 2023 which was paid on or around 22 December 2023 to Shareholders on
the register as at the close of business on 7 December 2023.
The table below sets out the final interim dividend, together with the interim
dividends paid, in respect of the financial year, which is the basis on which
the requirements of Section 1158 of the Corporation Tax Act 2010 are
considered.
31 October 2023 31 October 2022
£ £
Interim dividends paid 2023 - 6 pence (2022:1 pence) 13,627,698 2,100,000
Final interim dividend for 2023 - 2 pence (2022: 1 pence) 4,542,566 2,100,000
18,170,264 4,200,000
23. TRANSACTIONS WITH RELATED PARTIES
The Company and the Directors are not aware of any person who, directly or
indirectly, jointly or severally, exercises or could exercise control over the
Company. The Company does not have an ultimate controlling party.
Details of related parties are set out below:
NON-EXECUTIVE DIRECTORS
Details of the fees paid to Directors in the year are set out in the
Directors' Report.
Total Directors' fees of £225,750 (2022: £226,577) were incurred in respect
of the year with none being outstanding and payable at the end of the year.
Director and officer insurance for the year were £40,725 (2022: £44,917).
SUBSIDIARIES
Included in note 11 are amounts receivable from HEIT Holdings Ltd and its
subsidiaries. These amounts are interest free and repayable on demand.
On 15 December 2022, the Company announced the acquisition of the Wormald
Green, Hawthorn Pit and Rye Common projects from Harmony Energy Limited and
Ritchie Bland Energy No 2 Limited at fair value, in accordance with the
Company's Related Party policy. The total consideration paid was c. £21.9
million (£21.5 million as consideration for the projects and £0.4 million to
repay initial project costs incurred by the Developers on behalf of the
Company). This was satisfied partly in cash and partly through the issue of 7
million new C Shares to the Developers. See note 10 for relevant details. The
independent valuer provided a fair market opinion on all purchases at the time
of acquisition and consideration paid was considered by the independent valuer
to be within a fair market range.
On 9 March 2023, the Company sold its investments in HEIT PW Limited, HEIT PW
2 Limited, HEIT BD Limited, HEIT FM Limited, HEIT RH Limited, HEIT LR Limited,
and HEIT BF Limited to its subsidiary HEIT Holdings Ltd for a total
consideration of £91,105,212, which HEIT Holdings Ltd satisfied by issuing
and allotting 91,105,212 Ordinary Shares of £1 each to the Company.
On 4 May 2023, the Company sold two further investments in HEIT HP Limited and
HEIT WG Limited to its subsidiary HEIT Holdings Ltd for a total consideration
of £8,893,079, which HEIT Holdings Ltd satisfied by issuing and allotting
8,893,079 Ordinary Shares of £1 each to the Company.
As described in the going concern note in note 2, the Company was a guarantor
to its wholly owned subsidiary, HEIT Holdings Ltd in respect of the £110
million debt facility and the £20 million RCF. The Company also provides
parent company guarantees to subsidiaries in relation to certain construction
and/or battery supply contracts. As at 31 October 2023, total committed
funding to subsidiaries was £55.2 million.
INVESTMENT ADVISER
The Investment Adviser, Harmony Energy Advisors Limited is entitled to
advisory fees under the terms of an investment advisory agreement dated 14
October 2021. The Company shall pay to the Investment Adviser an annual fee
(exclusive of value added tax, which shall be added where applicable) payable
monthly in arrears calculated at the rate of:
a. One twelfth of 0.9% per calendar month of the lesser of the (i) NAV or
(ii) Average Market Capitalisation of the Company up to the threshold of
£250,000,000; and
b. One twelfth of 0.8% per calendar month of the lesser of the (i) NAV or
(ii) Average Market Capitalisation of the Company in excess of £250,000,000
An advisory fee of £2,163,222 (2022: £1,848,845) was incurred during the
year and £144,121 (2022: £220,351) remained payable as at 31 October 2023.
Harmony Energy Limited is the parent of the Investment Adviser and therefore
an entity with significant control over the Investment Adviser. Harmony Energy
Limited is also a significant shareholder of the Company. See transactions
with subsidiaries for further details.
OTHER RELATED PARTIES
James Ritchie-Bland is a director of Harmony Energy Limited as well as an
indirect shareholder of Harmony Energy Limited through Ritchie-Bland Energy
(Number 1) Limited. He is also a director of the Investment Adviser and a
shareholder in the Company.
Ritchie-Bland Energy (Number 2) Limited, of which James Ritchie-Bland is also
a director and an indirect shareholder (through Renewable Environmental
Investments Limited) is party to a joint venture agreement with Harmony Energy
Limited in regard to the three projects purchased by the Company during the
year as disclosed in note 10.
24. CAPITAL COMMITMENTS
As described in the going concern note in note 2, the Company was a guarantor
to its wholly owned subsidiary, HEIT Holdings Ltd in respect of the £110
million debt facility and the £20 million RCF.
The Company also provides parent company guarantees to subsidiaries in
relation to certain construction and/or battery supply contracts. These
guarantees are expected to be in place until the end of June 2024. As at 31
October 2023, total committed funding to subsidiaries was £55.2 million.
Other than as reported above, the Company had no contingencies and no
significant capital commitments at the reporting date.
25. POST BALANCE SHEET EVENTS
On 30 November 2023, the Company declared a distribution of 2 pence per
Ordinary Share £4,542,566 in relation to the period 1 August 2023 to 31
October 2023 which was paid on or around 22 December 2023 to Shareholders on
the register as at the close of business on 7 December 2023.
On 21 February 2024, the Company successfully negotiated an amendment and
restatement of its debt facilities of £130 million with NatWest (together
with Rabobank).
There were no other events after the reporting date which require disclosure.
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/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR ZZGZZGRZGDZG
Recent news on Harmony Energy Income Trust
See all newsHarmony Energy Inc. - Scheme of Arrangement Becomes Effective
Harmony Energy Inc. - Court Sanction of Scheme of Arrangement
Brief: Harmony Energy Income Trust Announces Shareholder Approval Of Recommended Cash Acquisition By Foresight BidCo
Brief: Drax Group Says Bidco's Cash Offer For HEIT Has Lapsed
Drax Group Plc Harmony Energy Inc. - Offer Lapsed