REG - Renew Infra Grp Ld - Announcement of Final Results <Origin Href="QuoteRef">TRIG.L</Origin> - Part 5
21/02/2017 07:07
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together to give a
total score. Mitigation is considered on a scale of 1 to 5 and this leads to a residual risk rating being derived. The
matrix is updated on an on-going basis and reviewed quarterly and the Board considers all material changes to the risk
ratings and the action which has been, or is being, taken. By their nature, these procedures will provide a reasonable, but
not absolute, assurance against material misstatement or loss.
At each Board meeting, the Board also monitors the Group's investment performance and it reviews the Group's activities
since the last Board meeting to ensure that the Investment Manager is adhering to the Company's investment policy and
approved investment guidelines. The pipeline of new potential opportunities is considered and the prices paid for new
investments during the quarter are also reviewed.
Further, at each Board meeting, the Board receives reports from the Company Secretary and Administrator in respect of
compliance matters and duties they have performed on behalf of the Company.
The Board has considered the need for an internal audit function and it has decided that the systems and procedures
employed by the Investment Manager, the Operations Manager and the Administrator, including their own internal review
processes and processes in place in relation to the Company, provide sufficient assurance that a sound system of internal
control, which safeguards the Company's assets, is maintained. An internal audit function specific to the Group is
therefore considered unnecessary.
The Board recognises that these control systems can only be designed to manage rather than eliminate the risk of failure to
achieve business objectives, and to provide reasonable, but not absolute, assurance against material misstatement or loss,
and relies on the operating controls established by the Company's Administrator, the Investment Manager and the Operations
Manager. The Board considers on a periodic basis whether further third party assurance is appropriate.
The Investment Manager prepares management accounts and updates business forecasts on a quarterly basis, which allow the
Board to assess the Company's activities and review its performance. The Board and the Investment Manager have agreed
clearly defined investment criteria, return targets, risk appetite, and exposure limits. Reports on these performance
measures, coupled with cash projections and investment valuations, are submitted to the Board at each quarterly meeting.
The Operations Manager prepares quarterly project performance and project financial analysis, and highlights the key
activities performed and any specific new risks identified relating to the operating portfolio for consideration by the
Board.
Appointment of the External Auditor
Deloitte LLP was appointed to be external auditor for the TRIG Group on 19 September 2013, following a competitive
tendering process. This process involved a review of the audit proposals and interviewing and challenging of each firm.
The objectivity of the external auditor is reviewed by the Audit Committee which also reviews the terms under which the
external auditor may be appointed to perform non-audit services. The Audit Committee reviews the scope and results of the
audit, its cost effectiveness and the independence and objectivity of the auditor, with particular regard to any non-audit
work that the auditor may undertake. In order to safeguard auditor independence and objectivity, the Audit Committee
ensures that any other advisory and/or consulting services provided by the external auditor does not conflict with their
statutory audit responsibilities.
Advisory and/or consulting services generally only cover reviews of interim financial statements, tax compliance and
capital raising work. Any non-audit services conducted by the external auditor outside of these areas which are above
£20,000 in aggregate in any period require the consent of the Audit Committee before being initiated. The external auditor
may not undertake any work for the Company in respect of the following matters - preparation of the financial statements,
valuations used in financial statements, provision of investment advice, taking management decisions or advocacy work in
adversarial situations.
The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of
the auditors, with particular regard to the level of non-audit fees. Total fees paid amounted to £287,533for the period
ended 31 December 2016 of which £91,490 related to audit and audit related services to the Company and its subsidiaries,
TRIG UK and TRIG UK Investments, and £196,043 related to audit of the Group's project subsidiaries and other audit related
services. The only non-audit services provided by Deloitte in the year to the Company and its subsidiaries are in relation
to the review of the interim financial statements at the half year (£26,000).
Notwithstanding such services the Audit Committee considers Deloitte LLP to be independent of the Company and that the
provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit.
To fulfil its responsibility regarding the independence of the external auditor, the Audit Committee considered:
· changes in audit personnel in the audit plan for the current period;
· a report from the external auditor describing their arrangements to identify, report and manage any conflicts of
interest; and
· the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external audit process, the Audit Committee reviewed:
· the external auditor's fulfilment of the agreed audit plan and variations from it;
· reports highlighting the major issues that arose during the course of the audit; and
· the effectiveness and independence of the external auditor having considered the degree of diligence and
professional scepticism demonstrated by them.
The Audit Committee notes the requirements of the UK Corporate Governance Code and in particular the requirement to put the
external audit out to tender at least every 10 years. This is the fourth year of Deloitte's appointment as the Company's
auditor. The Audit Partner for the Company is David Becker and he has been in place for three years.
The Audit Committee is satisfied with Deloitte's effectiveness and independence as auditor having considered the degree of
diligence and professional scepticism demonstrated by them. As such, the Committee has not considered it necessary during
this period to conduct a tender process for the appointment of its auditors for the year ended 31 December 2017.
The Audit Committee confirms that TRIG has complied with the requirements of The Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order
2014 since it became a member of the FTSE 350 Index on 18 December 2015 and up to 31 December 2016. Deloitte were appointed
as external auditor in 2013 following a competitive process and our Audit Committee terms of reference are in line with the
Order.
The Committee intends to conduct a full review of Deloitte following the issue of these financial statements as it did in
2016 to ensure that the Committee considers all aspects of the auditor's service and performance. The outcome of the review
in May 2016 was positive and led to no material concerns over the performance of the auditor.
Having satisfied itself that the external auditor remain independent and effective, the Audit Committee has recommended to
the Board that Deloitte LLP be reappointed as auditor for the period ending 31 December 2017.
Financial Statements
Income statement
For the year ended 31 December 2016
Year ended Year ended
31 December 2016 31 December 2015
Note £'000's £'000's
Total operating income 6 76,026 15,917
Fund expenses 7 (995) (964)
Operating profit for the year 75,031 14,953
Net finance cost 8 (7,128) 2,061
Profit before tax 67,903 17,014
Income tax credit/(expense) 9 - -
Profit for the period 10 67,903 17,014
Attributable to:
Equity holders of the parent 67,903 17,014
67,903 17,014
Earnings per share (pence) 10 8.8 3.0
All results are derived from continuing operations.
There is no other comprehensive income or expense apart from those disclosed above and consequently a statement of
comprehensive income has not been prepared.
Balance sheetAs at 31 December 2016 As at As at
31 December 2016 31 December 2015
Note £'000's £'000's
Non-current assets
Investments at fair value through profit or loss 13 817,761 711,604
Total non-current assets 817,761 711,604
Current assets
Other receivables 14 815 736
Cash and cash equivalents 15 18,537 14,873
Total current assets 19,352 15,609
Total assets 837,113 727,213
Current liabilities
Other payables 16 (2,847) (621)
Total current liabilities (2,847) (621)
Total liabilities (2,847) (621)
Net assets 12 834,266 726,592
Equity
Share premium 17 827,650 728,227
Other reserves 17 776 706
Retained reserves 17 5,840 (2,341)
Total equity attributable to owners of the parent 12 834,266 726,592
Net assets per Ordinary Share (pence) 12 100.1 99.0
The accompanying Notes are an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board of Directors on 20 February 2017, and signed
on its behalf by:
Jon Bridel Helen Mahy CBE
Director Director
Statement of changes in shareholders' equity
For the year ended 31 December 2016
Share premium Other reserves Retained reserves Total equity
£'000's £'000's £'000's £'000's
Shareholders' equity at beginning of period 728,227 706 (2,341) 726,592
Profit for the year - - 67,903 67,903
Dividends paid - - (52,987) (52,987)
Scrip shares issued in lieu of dividend 6,735 - (6,735) -
Ordinary Shares issued 92,920 - - 92,920
Costs of Ordinary Shares issued (1,684) - - (1,684)
Ordinary Shares issued in period in lieu of Management Fees, earned in H2 20151 706 (706) - -
Ordinary Shares issued in period in lieu of Management Fees, earned in H1 20162 746 - - 746
Ordinary Shares to be issued in lieu of Management Fees, earned in H2 20163 - 776 - 776
Shareholders' equity at end of period 827,650 776 5,840 834,266
For the year ended 31 December 2015
Share premium Other reserves Retained reserves Total equity
£'000's £'000's £'000's £'000's
Shareholders' equity at beginning of period 411,768 428 13,485 425,681
Profit for the year - - 17,014 17,014
Dividends paid - - (28,337) (28,337)
Scrip shares issued in lieu of dividend 4,503 - (4,503) -
Ordinary Shares issued 315,673 - - 315,673
Costs of Ordinary Shares issued (4,626) - - (4,626)
Ordinary Shares issued in period in lieu of Management Fees, earned in 20144 428 (428) - -
Ordinary Shares issued in period in lieu of Management Fees, earned in H1 20155 481 - - 481
Ordinary Shares to be issued in lieu of Management Fees, earned in H2 20151 - 706 - 706
Shareholders' equity at end of period 728,227 706 (2,341) 726,592
In line with the Investment Management Agreement and the Operations Management Agreement, 20 per cent. of the management
fees are to be settled in Ordinary Shares.
1. The £705,933 transfer between reserves represents the 736,190 shares that relate to management fees earned in the six
months to 31 December 2015 and were recognised in other reserves at 31 December 2015, and were issued to the Managers
during the year, with the balance being transferred to share premium reserves, on 31 March 2016.
2. The £745,506 addition to the share premium reserve represents the 781,125 shares that relate to management fees earned
in the six months to 30 June 2016 and were issued to the Managers on 30 September 2016.
3. As at 31 December 2016, 787,847 shares equating to £776,325, based on a Net Asset Value ex dividend of 98.54 pence per
share (the Net Asset Value at 31 December 2016 of 100.1 pence per share less the interim dividend of 1.5625 pence per
share) were due but had not been issued. The Company intends to issue these shares to the Managers around 31 March 2016.
4. The £428,054 transfer between reserves represents the 431,070 shares that relate to management fees earned in the six
months to 31 December 2014 and were recognised in other reserves at 31 December 2014, and were issued to the Managers
during the year, with the balance being transferred to share premium reserves, on 31 March 2015.
5. The £480,556 addition to the share premium reserve represents the 483,455 shares that relate to management fees earned
in the six months to 30 June 2015 and were issued to the Managers on 31 September 2015.
Cash flow statementFor the year ended 31 December 2016 Year ended Year ended
31 December 2016 31 December 2015
Note £'000's £'000's
Cash flows from operating activities
Profit before tax 10 67,903 17,014
Adjustments for:
(Gain)/loss on investments 6, 13 (38,675) 12,120
Investment income 6, 13 (37,351) (28,037)
Movement in other reserves relating to Manager shares 70 278
Accrued share issue costs 62 275
Exchange gains/ (losses) on FX hedges (4,875) 3,176
Finance and other income 8 7,128 (2,061)
Operating cash flow before changes in working capital (5,738) 2,765
Changes in working capital:
Decrease/ (increase) in receivables (78) (280)
(Decrease)/increase in payables (64) (214)
Cash flow from operations (5,880) 2,271
Interest and principal received from investments 13 47,395 24,037
Interest income 36 73
Net cash from operating activities 41,551 26,381
Cash flows from investing activities
Purchases of investments 13 (77,526) (307,275)
Net cash used in investing activities (77,526) (307,275)
Cash flows from financing activities
Proceeds from issue of share capital during period 94,372 316,582
Costs in relation to issue of shares (1,746) (4,903)
Dividends paid to shareholders 11 (52,987) (28,337)
Net cash from financing activities 39,639 283,342
Net increase in cash and cash equivalents 3,664 2,448
Cash and cash equivalents at beginning of period 15 14,873 12,425
Exchange gains on cash - -
Cash and cash equivalents at end of period 15 18,537 14,873
The accompanying Notes are an integral part of these financial statements.
1. General information
The Renewables Infrastructure Group Limited ("TRIG" or the "Company") is a closed ended investment company incorporated in
Guernsey under Section 20 of the Companies (Guernsey) Law, 2008. The shares are publically traded on the London Stock
Exchange under a premium listing. Through its subsidiaries, The Renewables Infrastructure Group (UK) Limited ("TRIG UK"),
and The Renewables Infrastructure Group (UK) Investments Limited ("TRIG UK I"), TRIG invests in operational renewable
energy generation projects, predominantly in onshore wind and solar PV segments, across the UK and Northern Europe. The
Company, TRIG UK and its portfolio of investments are known as the "Group".
These financial statements are for the year ended 31 December 2016 and comprise only the results of the Company as all of
its subsidiaries are measured at fair value as explained below in Note 2 (a).
2. Key accounting policies
(a) Basis of preparation
The financial statements were approved and authorised for issue by the Board of Directors on 20 February 2017.
The financial statements, which give a true and fair view, have been prepared in compliance with the Companies (Guernsey)
Law, 2008 and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union
("EU") using the historical cost basis, except that the financial instruments classified at fair value through profit or
loss are stated at their fair values. All accounting policies have been applied consistently in these financial
statements.
The financial statements are presented in sterling, which is the Company's functional currency. Foreign operations are
included in accordance with the policies set out in this note.
The preparation of financial statements in conformity with IFRS as adopted by the EU requires the Directors to make
judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and
liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods. Note 3 shows critical accounting
judgements, estimates and assumptions.
New and revised accounting standards have been published and will be mandatory for the Company's accounting periods
beginning on or after 1 January 2017 or later periods. However the impact of these standards is not expected to be material
to the reported results and financial position of the Company.
(b) Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and
position are set out in the Strategic Report and also commented on in the Viability Statement contained in the Directors'
Report on page 57. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
described in the Financial Results on pages 75 to 78. In addition, Notes 1 to 4 of the financial statements include the
Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of
its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Group has a range of long-term contracts with various major UK and European utilities and well-established suppliers
across a range of infrastructure projects. In addition, the Company maintains a prudent level of leverage, limited to 30%
of portfolio value, and the Group's project-level financing, limited to 50% of Gross Portfolio Value, is non-recourse to
the Company. As a consequence, the Directors believe that the Group is well placed to manage its business risks
successfully.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for
the foreseeable future. Thus they adopt the going concern basis of accounting in preparing the annual financial
statements.
(c) Basis of consolidation
The Company applies IFRS 10 'Consolidated Financial Statements', and as an investment entity is required to measure all of
its subsidiaries at fair value. The financial statements therefore comprise the results of the Company only. Subsidiaries
are those entities controlled by the Company. The Company has control of an investee, when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those returns through its power over
the investee as defined in IFRS 10 'Consolidated Financial Statements'.
The Directors believe it is appropriate and relevant to the investor to account for the investment portfolio at fair value,
where consolidating it would not be.
The Company's subsidiaries, TRIG UK and TRIG UK I, carry out investment activities and incur overheads and borrowings on
behalf of the Group. The Directors therefore provide an alternative presentation of the Company's results in the Strategic
Report on pages 31 to 35 prepared under the "Expanded basis", which includes the consolidation of TRIG UK and TRIG UK I.
An entity shall consider all facts and circumstances when assessing whether it is an investment entity, including its
purpose and design. Under the definition of an investment entity, as set out in paragraph 27 in the standard, the entity
must satisfy all three of the following tests:
I. Obtains funds from one or more investors for the purpose of providing those investors with investment management
services; and
II. Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation,
investment income, or both (including having an exit strategy for investments); and
III. Measure and evaluate the performance of substantially all of its investments on a fair value basis.
Being an investment entity, TRIG UK and TRIG UK I are measured at fair value as opposed to being consolidated on a
line-by-line basis, meaning its cash, debt and working capital balances are included in the fair value of investments
rather than the Group's current assets.
The Directors are of the opinion that the Company has all the typical characteristics of an investment entity and meets the
definition in the standard.
(d) Financial instruments
Financial assets and liabilities are recognised on the balance sheet when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows from the
instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IAS 39
'Financial instruments: Recognition and measurement'.
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash
and cash equivalents, loans and borrowings, and trade and other payables.
Non-derivative financial instruments are recognised initially at fair value including directly attributable transaction
costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
Investments in equity and debt securities
Investments in the equity and loanstock of entities engaged in renewable energy activities are designated at fair value
through profit or loss.
The Group manages these investments and makes purchase and sale decisions based on their fair value.
The initial difference between the transaction price and the fair value, derived from using the discounted cash flows
methodology at the date of acquisition, is recognised only when observable market data indicates there is a change in a
factor that market participants would consider in setting the price of that investment. After initial recognition,
investments at fair value through profit or loss are measured at fair value with changes recognised in the income
statement.
The Directors consider the equity and loanstock to share the same investment characteristics and risks and they are
therefore treated as a single unit of account for valuation purposes and a single class for disclosure purposes.
(e) Impairment
Financial assets
Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each
balance sheet date. A financial asset is considered to be impaired if objective evidence indicates that one or more events
have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial
asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the
estimated future cash flows discounted at the original effective interest rate. Significant financial assets are tested for
impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar
credit risk characteristics. All impairment losses are recognised in the income statement. An impairment loss is reversed
if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial
assets measured at amortised cost the reversal is recognised in the income statement.
(f) Share capital and share premium
Ordinary Shares are classified as equity. Costs directly attributable to the issue of new shares or associated with the
establishment of the Company that would otherwise have been avoided are written-off against the value of the ordinary share
premium.
(g) Cash and cash equivalents
Cash and cash equivalents comprises cash balances, deposits held on call with banks and other short-term, highly liquid
investments with original maturities of three months or less. Bank overdrafts that are repayable on demand are included as
a component of cash and cash equivalents for the purpose of the cash flow statement.
(h) Investment income
Income from investments relates solely to returns from the Company's subsidiary, TRIG UK. This is recognised when the right
to receive interest income is determined on an accruals basis and dividends when these are received.
(i) Income tax
Under the current system of taxation in Guernsey, the Company is exempt from paying taxes on income, profits or capital
gains.
(j) Foreign exchange gains and losses
Transactions entered into by the Company in a currency other than its functional currency are recorded at the rates ruling
when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the
balance sheet date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are
recognised immediately in the income statement.
(k) Segmental reporting
The Chief Operating Decision Maker (the "CODM") is of the opinion that the Group is engaged in a single segment of
business, being investment in renewable infrastructure to generate investment returns while preserving capital. The
financial information used by the CODM to allocate resources and manage the Group presents the business as a single segment
comprising a homogeneous portfolio.
(l) Fund expenses
All expenses are accounted for on an accruals basis. The Company's investment management and administration fees (refer to
Note 7), finance costs and all other expenses are charged through the income statement.
(m) Acquisition costs
In line with IFRS 3 (Revised), acquisition costs are expensed to the income statement as incurred.
(n) Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends, this is when they are paid.
For scrip dividends, where the Company issues shares with an equal value to the cash dividend amount as an alternative to
the cash dividend, a credit to equity is recognised when the shares are issued.
(o) Statement of compliance
Pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987 the Company is a Registered Closed-Ended
Investment Scheme. As an authorised scheme, the Company is subject to certain on-going obligations to the Guernsey
Financial Services Commission and meets its compliance requirements.
(p) Share-based payments
Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the
goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at
the fair value of the equity instruments granted, measured at that date the entity obtains the goods or the counterparty
renders the service.
3. Critical accounting judgements, estimates and assumptions
The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and
assumptions in certain circumstances that affect reported amounts. The judgements, estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial period are outlined below.
Investments at fair value through profit or loss
IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The Board base the fair value of the investments on
information received from the Investment Manager. Fair value is calculated on a discounted cash flow basis.
Fair values for those investments for which a market quote is not available, in this instance being all investments, are
determined using the income approach, which discounts the expected cash flows at the appropriate rate. In determining the
discount rate, regard is had to relevant long-term government bond yields, specific risks associated with the technology
(on-shore wind and solar) and geographic location of the underlying investment, and the evidence of recent transactions.
The investments at fair value through profit or loss, whose fair values include the use of level 3 inputs, are valued by
discounting future cash flows from investments in both equity (dividends and equity redemptions) and subordinated loans
(interest and repayments) to the Group at an appropriate discount rate.
The weighted average discount rate applied in the December 2016 valuation was 8.4% (2015: 9.0%). The discount rate is
considered one of the most significant unobservable inputs through which an increase or decrease would have a material
impact on the fair value of the investments at fair value through profit or loss.
The other material impacts on the measurement of fair value are the forward looking power price curve and energy yields
which are further discussed in Note 4 under sensitivities.
By virtue of the Company's status as an investment fund, and in conjunction IFRS 10 for investment entities, investments
are designated upon initial recognition to be accounted for at fair value through profit or loss.
The Directors consider that the carrying value amounts of financial assets and financial liabilities recorded at amortised
cost in the financial statement are approximately equal to their fair values.
4. Financial instruments
Financial risk management
The objective of the Group's financial risk management is to manage and control the risk exposures of its investment
portfolio. The Board of Directors has overall responsibility for overseeing the management of financial risks, however the
review and management of financial risks are delegated to the Investment Manager, which has documented procedures designed
to identify, monitor and manage the financial risks to which the Group is exposed. Note 4 presents information about the
Group's exposure to financial risks, its objectives, policies and processes for managing risk and the Group's management of
its financial resources.
Through its subsidiaries, TRIG UK and TRIG UK I, the Company invests in a portfolio of investments predominantly in the
subordinated loanstock and ordinary equity of project finance companies. These companies are structured at the outset to
minimise financial risks where possible, and the Investment Manager primarily focuses their risk management on the direct
financial risks of acquiring and holding the portfolio but continues to monitor the indirect financial risks of the
underlying projects through representation, where appropriate, on the Boards of the project companies, and the receipt of
regular financial and operational performance reports.
Interest rate risk
The Group invests in subordinated loanstock of project companies, usually with fixed interest rate coupons. The portfolio's
cash flows are continually monitored and reforecast, both over the near future and the long-term, to analyse the cash flow
returns from investments. The Group may use borrowings to finance the acquisition of investments and the forecasts are used
to monitor the impact of changes in borrowing rates against cash flow returns from investments as increases in borrowing
rates will reduce net interest margins.
The Group's policy is to ensure that interest rates are sufficiently hedged to protect the Group's net interest margins
from significant fluctuations when entering into material medium/long-term borrowings. This includes engaging in interest
rate swaps or other interest rate derivative contracts.
The Company has an indirect exposure to changes in interest rates through its investment in project companies, many of
which are financed by senior debt. Senior debt financing of project companies is generally either through floating rate
debt, fixed rate bonds or index linked bonds. Where senior debt is floating rate, the projects typically have similar
length hedging arrangements in place, which are monitored by the project companies' managers, finance parties and boards of
directors.
Inflation risk
The Group's project companies are generally structured so that contractual income and costs are either wholly or partially
linked to specific inflation, where possible, to minimise the risks of mismatch between income and costs due to movements
in inflation indexes. The Group's overall cash flows vary with inflation, although they are not directly correlated as not
all flows are indexed. The effects of these inflation changes do not always immediately flow through to the Group's cash
flows, particularly where a project's loanstock debt carries a fixed coupon and the inflation changes flow through by way
of changes to dividends in future periods. The sensitivity of the portfolio valuation is shown further on in Note 4.
Market risk
Returns from the Group's investments are affected by the price at which the investments are acquired. The value of these
investments will be a function of the discounted value of their expected future cash flows, and as such will vary with,
inter alia, movements in interest rates, market prices and the competition for such assets.
Currency risk
The projects, in which the Group invests, all conduct their business and pay interest, dividends and principal in sterling,
with the exception of the euro-denominated investments which at 31 December 2016 comprised 15% (2015: 8%) of the portfolio
by value. The sensitivity of the portfolio valuation is shown in Note 4.
The Group monitors its foreign exchange exposures using its near-term and long-term cash flow forecasts. Its policy is to
use foreign exchange hedging to provide protection to the level of sterling distributions that the Company aims to pay over
the medium-term, where considered appropriate. This may involve the use of forward exchange.
Credit risk
Credit risk is the risk that a counterparty of the Group will be unable or unwilling to meet a commitment that it has
entered into with the Group.
The credit standing of subcontractors is reviewed, and the risk of default estimated for each significant counterparty
position. Monitoring is on-going, and period end positions are reported to the Board on a quarterly basis. The Group's
largest credit risk exposure to a project at 31 December 2016 was to the Crystal Rig II project, representing 11% (2015:
Crystal Rig II project, representing 12%) of the portfolio by value, and the largest subcontractor counterparty risk
exposure was to Siemens who provided turbine maintenance services in respect of 45% (2015: Siemens 49%) of the portfolio by
value.
The Group's investments enter into Power Price Agreements ("PPA") with a range of providers through which electricity is
sold. The largest PPA provider to the portfolio at 31 December 2016 was EDF who provided PPAs to projects in respect of 25%
(2015: EDF 19%) of the portfolio by value.
At 31 December 2016, there were no loans and other receivables considered impaired for the Group.
The Group's maximum exposure to credit risk over financial assets is the carrying value of those assets in the balance
sheet. The Group does not hold any collateral as security.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's
approach to managing liquidity is to ensure, as far as possible, that it will have sufficient financial resources and
liquidity to meets its liabilities when due. The Group ensures it maintains adequate reserves, banking facilities and
reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles
of financial assets and liabilities. The Group's investments are predominantly funded by share capital and medium-term debt
funding.
The Group's investments are generally in private companies, in which there is no listed market and therefore such
investment would take time to realise, and there is no assurance that the valuations placed on the investments would be
achieved from any such sale process.
The Group's investments have borrowings which rank senior and have priority over the Group's own investments into the
companies. This senior debt is structured such that, under normal operating conditions, it will be repaid within the
expected life of the projects. Debt raised by the investment companies from third parties is without recourse to the
Group.
At 31 December 2016, the Company itself did not have any outstanding debt. The Group's revolving acquisition facility,
which was undrawn at 31 December 2016, is held by TRIG UK and TRIG UK I, is guaranteed by the Company. The facility is in
place until September 2019.
Capital management
TRIG UK, the Company's subsidiary, entered into an £80m revolving acquisition facility on 20 February 2014, which was
extended to £120m on 3 February 2015 and further to £150m on 25 June 2015. The facility was renewed on 23 April 2016 and
was undrawn at 31 December 2016 (2015: £0m).
The Group makes prudent use of its leverage. Under the investment policy, borrowings, including any financial guarantees to
support outstanding subscription obligations but excluding internal Group borrowings of the Group's underlying investments,
are limited to 30% of the portfolio value.
From time to time, the Company issues its own shares to the market; the timing of these purchases depends on market
prices.
In order to assist in the narrowing of any discount to the Net Asset Value at which the Ordinary Shares may trade, from
time to time the Company may at the sole discretion of the Directors:
§ make market purchases of up to 14.99% per annum of its issued Ordinary Shares; and
§ make tender offers for the Ordinary Shares.
There were no changes in the Group's approach to capital management during the year.
Fair value estimation
The following summarises the significant methods and assumptions used in estimating the fair values of financial
instruments:
Non-derivative financial instruments
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet
date.
The fair value of financial instruments that are not traded in an active market is determined by using valuation
techniques. The Group uses the income approach, which discounts the expected cash flows attributable to each asset at an
appropriate rate to arrive at fair values. In determining the discount rate, regard is had to relevant long-term government
bond yields, the specific risks of each investment and the evidence of recent transactions.
Derivative financial instruments
The fair value of financial instruments inputs other than quoted prices traded in active markets is based on quoted market
prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid
price. Note 2 discloses the methods used in determining fair values on a specific asset/liability basis. Where applicable,
further information about the assumptions used in determining fair value is disclosed in the notes specific to that asset
or liability.
Classification of financial instruments
31 December 2016 31 December 2015
£'000s £'000s
Financial assets
Designated at fair value through profit or loss:
Investments 817,761 711,604
Other financial assets - -
Financial assets at fair value 817,761 711,604
At amortised cost:
Other receivables 815 736
Cash and cash equivalents 18,537 14,873
Financial assets at amortised cost 19,352 15,609
Financial liabilities
Designated at fair value through profit or loss:
Other financial liabilities 2,633 344
Financial liabilities at fair value 2,633 344
At amortised cost:
Other payables 214 277
Financial liabilities at amortised cost 214 277
The Directors believe that the carrying values of all financial instruments are not materially different to their fair
values.
Other financial assets/liabilities represent the fair value of foreign exchange forward agreements in place at the year
end.
Fair value hierarchy
The fair value hierarchy is defined as follows:
§ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
§ Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices)
§ Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
As at 31 December 2016
Level 1 Level 2 Level 3 Total
£'000's £'000's £'000's £'000's
Investments at fair value through profit or loss - - 817,761 817,761
Other financial assets - - - -
- - 817,761 817,761
Other financial liabilities - 2,633 - 2,633
- 2,633 - 2,633
As at 31 December 2015
Level 1 Level 2 Level 3 Total
£'000's £'000's £'000's £'000's
Investments at fair value through profit or loss - - 711,604 711,604
Other financial assets - - - -
- - 711,604 711,604
Other financial liabilities - 344 - 344
- 344 - 344
Other financial assets/liabilities represent the fair value of foreign exchange forward agreements in place at the year
end.
Investments at fair value through profit or loss comprise the fair value of the investment portfolio, on which the
sensitivity analysis is calculated, and the fair value of TRIG UK and TRIG UK I, the Company's subsidiaries being its cash,
working capital and debt balances.
31 December 2016 31 December 2015
£'000's £'000's
Portfolio value 818,672 712,284
TRIG UK and TRIG UK I
Cash 188 347
Working capital (2,343) (2,762)
Debt1 1,244 1,735
(911) (680)
Investments at fair value through profit or loss 817,761 711,604
1 Debt arrangement costs of £1,244k (2015: £1,735k) have been netted off the £Nil (2015: £Nil) debt drawn by TRIG UK.
Level 2
Valuation methodology
Fair value is based on price quotations from financial institutions active in the relevant market. The key inputs to the
discounted cash flow methodology used to derive fair value include foreign currency exchange rates and foreign currency
forward curves. Valuations are performed on a six monthly basis every June and December for all financial assets and all
financial liabilities.
Level 3
Valuation methodology
The Investment Manager has carried out fair market valuations of the investments as at 31 December 2016 and the Directors
have satisfied themselves as to the methodology used, the discount rates and key assumptions applied, and the valuation.
All investments are at fair value through profit or loss and are valued using a discounted cash flow methodology.
The following economic assumptions were used in the discounted cash flow valuations at:
31 December 2016 31 December 2015
UK inflation rates 2.75% 2.75%
Ireland and France inflation rates 2.00% 2.00%
UK, Ireland and France deposit interest rates 1.00% to 31 March 2021, 2.00% thereafter 1.00% to 31 March 2019, 2.50% thereafter
UK corporation tax rate 20.00%, reducing to 19% from 1 April 2017 and then to 17% from 1 April 2020 20.00%, reducing to 19% from 1 April 2017 and then to 18% from 1 April 2020
France corporation tax rate 33.3% + 1.1% above E763,000 threshold 33.3% + 1.1% above E763,000 threshold
Ireland corporation tax rate 12.5% active rate, 25% passive rate 12.5% active rate, 25% passive rate
Euro/sterling exchange rate 1.1709 1.3569
Energy yield assumptions P50 case P50 case
Discount rates
The discount rates used for valuing each renewable infrastructure investment are based on market information and the
current bidding experience of the Group and its Managers.
The weighted average portfolio valuation discount rate used for valuing the projects in the portfolio is 8.4% (2015: 9.0%)
and a change by plus or minus 0.5% has the following effect:
Discount rate -0.5% change Total Portfolio Value +0.5% change
Directors' valuation - Dec 2016 +£32.0m £818.7 (£30.1m)
Directors' valuation - Dec 2015 +£28.5m £712.3m (£27.0m)
Power Price
The power price forecasts are based on the base case assumptions from the valuation date and throughout the operating life
of the portfolio. The base case power pricing is based on the current
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