REG - SDCL Energy Effcncy. - Annual Results for the Year Ended 31 March 2024
27/06/2024 07:00
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RNS Number : 0544U SDCL Energy Efficiency Income Tst 27 June 2024
27 June 2024
SDCL Energy Efficiency Income Trust plc
("SEEIT" or the "Company")
Announcement of Annual Results for the year ended 31 March 2024
SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or the "Company")
today announces its financial results for the year ended 31 March 2024.
There will be a virtual presentation for analysts and investors at 9.30am
today. To register, please follow this link:
https://www.lsegissuerservices.com/spark/SDCLEnergyEfficiencyIncomeTrust/events/a77985b7-8564-410f-84cd-c852b0a128d1
(https://www.lsegissuerservices.com/spark/SDCLEnergyEfficiencyIncomeTrust/events/a77985b7-8564-410f-84cd-c852b0a128d1)
.
The Company's full Annual Report and Audited Financial Statements for the year
ended 31 March 2024 can be found on the Company's website:
https://www.seeitplc.com/ (https://www.seeitplc.com/) . This has also been
submitted to the National Storage Mechanism and will be available shortly at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Highlights
· Net Asset Value ("NAV") per share((APM)) of 90.5p as at 31 March
2024 (31 March 2023: 101.5p), which includes a reduction of 11p from 90bps
increase in weighted average unlevered discount rate in the year. NAV fell by
just 0.1p in second half of the period (30 September 2023: 90.6p)
· Investment cash inflow from the portfolio((APM)) of £92 million as at
31 March 2024, up 8% on a portfolio basis((APM)) (2023: £85 million)
· Aggregate dividends((APM)) of 6.24p per share declared for the year
ended 31 March 2024, in line with target (March 2023: 6.0p) and fully cash
covered 1.1x
· Target dividend of 6.32p per share for the year to March 2025
· Portfolio valuation((APM)) of £1,117 million as at 31 March
2024, up from £1,100 million at 31 March 2023
· Loss before tax of £56 million for year to 31 March 2024 (31 March
2023: loss of £18.6 million) includes unrealised loss of £118 million from
discount rate increases
· Investment of c.£161 million mainly into existing investments
during the financial year and a further c.£23 million invested since the year
end
· Post-year end sale of its entire investment in UU Solar for
approximately £90 million and at a 4.5% premium to the 30 September 2023
valuation, using the proceeds to reduce short-term gearing ((APM))
· Scope 4 emissions (savings) of 971,828 tCO(2) from Company's
portfolio
Alternative Performance Measure (APM): See Annual Report Glossary of Financial
Alternative Performance Measures for further details on APMs used throughout
this report.
Tony Roper, Chair of SEEIT, said:
"The macro-economic backdrop has created market uncertainty for a second
consecutive year and, in this context, SEEIT's performance has remained
resilient relative to the wider market.
As the world seeks to address the practical challenges of the energy
transition and efforts to decarbonise, energy markets and their supply chains
face scarcities and price volatility. Subsequently, investing in more
efficient supply, demand and distribution of energy, which is SEEIT's focus,
becomes increasingly important and valuable. As such, we believe that SEEIT
remains well positioned to benefit from this opportunity."
Jonathan Maxwell, CEO of SDCL, the Investment Manager said:
"SEEIT delivers essential energy services to commercial industrial, public
sector and retail clients that are low cost, low carbon and reliable. In a
world where energy prices remain high and volatile, where carbon emissions
continue to grow and where energy security is an imperative, the need for
business and government to slash energy consumption by being more efficient is
as pressing as ever.
Particularly where interest rates remain relatively high, we remain cautious
with regards to portfolio construction and effective management of our balance
sheet. The sale of UU Solar supported our asset valuations and reduced our
short-term borrowing facilities. While we consider further selective
disposals, we are also ensuring that returns on any new investments compare
favourably with the alternatives of reducing gearing and buying back shares.
As such, we remain focussed on adding value to our existing investments, and
to providing sustainable returns for our investors".
For Further Information
Sustainable Development Capital LLP T: +44 (0) 20 7287 7700
Jonathan Maxwell
Purvi Sapre
Eugene Kinghorn
Tamsin Jordan
Jefferies International Limited T: +44 (0) 20 7029 8000
Tom Yeadon
Gaudi Le Roux
TB Cardew T: +44 (0) 20 7930 0777
Ed Orlebar M: +44 (0) 7738 724 630
Henry Crane E: SEEIT@tbcardew.com (mailto:SEEIT@tbcardew.com)
About SEEIT
SDCL Energy Efficiency Income Trust plc is a constituent of the FTSE 250
index. It was the first UK listed company of its kind to invest exclusively in
the energy efficiency sector. Its projects are primarily located in North
America, the UK and Europe and include, inter alia, a portfolio of
cogeneration assets in Spain, a portfolio of commercial and industrial solar
and storage projects in the United States, a regulated gas distribution
network in Sweden and a district energy system providing essential and
efficient utility services on one of the largest business parks in the United
States.
The Company aims to deliver shareholders value through its investment in a
diversified portfolio of energy efficiency projects which are driven by the
opportunity to deliver lower cost, cleaner and more reliable energy solutions
to end users of energy.
The Company is targeting an attractive total return for shareholders of 7-8
per cent. per annum (net of fees and expenses and by reference to the initial
issue price of £1.00 per Ordinary Share), with a stable dividend income,
capital preservation and the opportunity for capital growth. The Company is
targeting a dividend of 6.24p per share in respect of the financial year to 31
March 2024. SEEIT's last published NAV was 90.6p per share as at 30 September
2023.
Past performance cannot be relied on as a guide to future performance.
Further information can be found on the Company's website
at www.seeitplc.com (http://www.seeitplc.com/) .
Investment Manager
SEEIT's investment manager is Sustainable Development Capital LLP ("SDCL"), an
investment firm established in 2007, with a proven track record of investment
in energy efficiency and decentralised generation projects in the UK,
Continental Europe, North America and Asia.
SDCL is headquartered in London and also operates worldwide from offices in
New York, Dublin, Madrid, Hong Kong and Singapore. SDCL is authorised and
regulated in the UK by the Financial Conduct Authority.
Further information can be found on at www.sdclgroup.com
(http://www.sdclgroup.com/) .
Chair's Statement
"On behalf of the Board, I am pleased to present the Annual Report and
financial statements (the "Annual Report") for SDCL Energy Efficiency Income
Trust plc ("SEEIT" or the "Company") for the year ended 31 March 2024."
Tony Roper
Chair
I would like to thank shareholders for their support over what is now the
second consecutive financial year characterised by turbulent global market
conditions. I am pleased that in this context SEEIT's performance has been
resilient relative to the wider market.
During the year, SEEIT's portfolio has delivered an aggregated EBITDA (APM) in
line with budget and a fully cash-covered dividend. We have seen positive
results from the steps taken by the Investment Manager to improve asset values
and to progress selective disposals, proving previous asset values and
strengthening SEEIT's balance sheet. Further details can be found in the
Investment Manager's Report.
SEEIT's focus on energy efficiency is differentiated from the other
alternative income investment trusts focused on infrastructure or clean energy
and, in this respect, it is the only large-scale investment trust or FTSE 250
company of its kind benefiting from a diversified portfolio of investments.
Capital Markets
The last year has been characterised by continued relatively high inflation
and interest rates. This has put downward pressure on valuations of income
streams and asset values in the infrastructure sector.
Signs of lowering inflation and hopes for one or more interest rate cuts by
central banks during 2024 collided with stubborn inflation numbers in the last
quarter of the Company's financial year, limiting the opportunity to reduce
discount rates in the short term. Market uncertainty was accompanied by
geopolitical instability as the wider ramifications of the Israel-Hamas and
the Russia-Ukraine conflicts continued to impact supply chains and global
capital markets.
At the same time, areas of the capital markets, particularly in the UK
investment trust market, have been under pressure. March 2024 represented the
34th straight month of net redemptions from multi-asset funds that are
traditional long-term shareholders, creating a background of net selling and
overhang in the investment trust sector as a whole, and in the alternative
income markets in which SEEIT operates.
This has contributed to a significant reduction in SEEIT's share price during
the year. However, the value that this represents has also been identified by
institutional investors and analysts, and as a result, SEEIT has welcomed
several new shareholders to its register and looks forward to continuing to
deliver value and ensure that the best shareholder outcomes can be achieved.
Governance and Engagement with Shareholders ( )
We thank shareholders for a strong vote in favour of SEEIT's continuation in
the vote at the 2023 AGM, when all resolutions were passed. Our 2024 AGM will
be held in September and the notice will be published in July. Emma Griffin
has notified the board of her intention to stand down at this AGM and so will
not be seeking re-election. I wish to take this opportunity to thank Emma for
her valuable contribution and insight, and we will seek to recruit a
replacement as part of our succession planning.
The Board and the Investment Manager have engaged with shareholders throughout
the year and listened to feedback. This has resulted, amongst other things, in
an increase in the level of disclosure that the Company provides in its annual
and semi-annual reporting, providing investors with more information related
to the performance of individual investments as well as the wider portfolio.
Also during the year, the Investment Manager has been engaging with new
prospective shareholders to support the liquidity and marketability of the
Company's shares. This has resulted in new investments made by some
predominantly US-based institutional investors and a change in composition of
our shareholder register.
Addressing the Share Price Discount to Net Asset Value (APM)
During the year the Company bought back £20 million worth of its own shares.
The Board and Investment Manager will continue to assess further buybacks if
deemed in the best interests of shareholders.
In our Interim Results, we set out a plan to help to reduce the discount to
net asset value at which the Company's shares have been trading. This plan
included a series of measures that the Company is well advanced on
implementing, including:
- continuing to add value to the portfolio through active asset
management;
- achieving selective disposals to help to reduce short-term gearing
(APM), to prove net asset value (APM) and to recycle proceeds into
opportunities for increased total return. Following the year end, the sale in
May 2024 of UU Solar ("UU") to UK Power Network services is an example (see
Portfolio Summary for further details);
- increasing marketability and liquidity of the Company's shares by
attracting new institutional investors to the shareholder register, as well as
improving the profile of the Company;
- applying its Capital Allocations Policy to focus on those organic
investments that exceed the minimum return hurdles, being mainly further
investment into RED-Rochester, Onyx and EVN; and
- planning actions based on feedback from investors, leading to regular
meetings with analysts and major shareholders.
We are also considering further steps we could take to narrow the discount,
including:
- additional disclosures to improve investor confidence in investments
and their support for the cash cover of the Company's dividend;
- managing borrowing levels overall, and in particular the level of
short-term borrowings through the Company's RCF;
- marketing of the Company's shares to wider audience of potential
investors, for example in the United States, as well as the traditional market
for UK investment trusts; and
- subject to an improvement in share price, acquisition of other smaller
investment trusts to improve scale and diversification.
Despite some improvements in the last quarter of the financial year, we remain
strongly of the view that the Company's share price does not reflect the value
of its investments, nor the cashflows derived from them that allow the Company
to pay the current level of dividends with progressive growth.
This represents a significant challenge, as well as a substantial opportunity
for new shareholders, who are able to acquire SEEIT's shares in the market
well below net asset value (APM) and with an attractive dividend yield.
Portfolio and Financial Performance
The portfolio generated earnings in line with expectations and cash flows that
were more than sufficient to cover the Company's target dividends.
SEEIT's NAV (APM) per share at 31 March 2024 was 90.5 pence (101.5 pence at 31
March 2023), a decrease of 11% in the year. The NAV is in line with the 30
September 2023 NAV (APM) of 90.6 pence when the Company reported a reduction
of NAV (APM), driven largely by an increase in discount rates reflecting a
"higher for longer" inflation and interest rate environment.
The second half of the Company's financial year saw improvements in
performance and projections from significant investments such as Primary
Energy and Onyx, which have faced delays and provisions in prior periods, as
well as from Oliva and Värtan that had been the subject of regulatory
uncertainty. The Investment Manager's Report expands further on these matters.
Balance Sheet
As at 31 March total gearing (APM) was £485 million. Since the year end, the
Company has sold an investment, enabling it to reduce its short-term portfolio
gearing (APM). Total gearing (APM) has since been reduced by 11% to
approximately £430 million as at 31 May 2024.
This reduction in gearing (APM) was achieved through a repayment of the
revolving credit facility ("RCF") in May 2024, which was funded through the c.
£90 million proceeds of the sale of the Company's investment in UU Solar
after the year end. The drawn RCF is £98 million (as at 31 Mayc 2024),
substantially lower than the £155 million drawn at 31 March 2024 after also
accounting for new investments in Onyx since 31 March 2024. Further details
can be found in the Finance and Valuation Update.
Under the agreed Capital Allocation Policy, new investments during the period
were limited almost entirely to "organic investments" to support existing
portfolios and platforms and where returns exceeded minimum hurdles. Only one
new investment was added to the Company's portfolio of corporate investments,
which is limited to up to 3% of its portfolio in aggregate. This was £2.4
million invested in Rondo, a thermal storage business in the United States.
The Company invested alongside a number of large corporate strategic
investors, including Microsoft, Saudi Aramco and Rio Tinto, in a technology
solution aiming to help decarbonise industrial heat, one of the highest value
and hardest to abate sectors.
While current market conditions and a prudent approach to gearing create
limitations in SEEIT's appetite to fund attractive development and
construction opportunities, it is seeking co‑investment from third-party
investors on certain assets. This is key to SEEIT's ability to deliver ongoing
value and growth.
Dividends
In line with previous guidance, in June 2024 the Company announced its fourth
interim dividend for the year ended 31 March 2024 of 1.56 pence per share.
This provided an aggregate dividend of 6.24 pence per share declared for the
year ended 31 March 2024, which was fully covered 1.1 times by cash flow from
the portfolio.
Based on our assessment of current cash flow projections, the Company is
announcing new dividend guidance of 6.32 pence per share for the year to 31
March 2025, an increase of c.1%, and as before is targeting progressive
dividend growth thereafter. The dividend guidance balances growing the
dividend with the ability to generate higher levels of surplus cash available
for repayment of debt and reinvestment in investment opportunities.
Outlook
The Board and the Investment Manager are committed to delivering value to, and
positive outcomes for, shareholders.
SEEIT is a unique investment company, fully focusing on energy efficiency. It
is investing in solutions to an increasingly carbon-constrained world, with an
investment approach that is consistently cash generative.
The majority of SEEIT's investment cash flows are contracted with high-quality
client counterparties, to which SEEIT is providing essential energy services.
This tends to make SEEIT as important to its clients as they are to it.
SEEIT's clients are typically essential providers of products and services to
their economies, including, for example, steel manufacturers, hospitals,
universities, agricultural facilities, utilities, hospitals and data centres.
The average remaining life of its contracts with clients is over 14 years.
In addition to SEEIT's cash flows generated from its operational assets, the
Company's portfolio offers the opportunity for capital growth, for example
through its exposure to assets at the development and construction phase. The
Investment Manager and management teams of portfolio companies benefit from
deep experience and leadership. As such, the Company is well positioned to
achieve attractive levels of total return for shareholders, underpinned by
income.
The Board remains cognisant of shareholder feedback regarding capital
efficiency, recognising that capital is currently scarce. This means the
Investment Manager is being selective over new investment, focusing on organic
opportunities from the existing portfolio and passing on a number of
opportunities over the last year.
The Investment Manager estimates the scale of organic investments in the
financial year ending 31 March 2025 to be between £75-125m, which will be
funded by a combination of utilisations from the Company's RCF (if
appropriate), debt utilisation at investment level and from selective
disposals.
The target is to keep the RCF at moderate levels. Overall, gearing is well
inside the total gearing limit of 65% of NAV, with a current headroom of
approximately £200m.
In the year ahead, our focus will be on supporting our existing portfolio with
selective capital for organic investment, and on working actively with our
portfolio companies, as well as strategic and selective capital partners, to
support growth and to achieve strong returns.
As the world seeks to address the practical challenges of the energy
transition and efforts to decarbonise, energy markets and their supply chains
face scarcities and price volatility. In this context, investing in more
efficient supply, demand and distribution of energy, which is SEEIT's focus,
becomes increasingly important and valuable. We believe that SEEIT remains
well positioned to benefit from this opportunity.
Tony Roper
Chair
Strategy | Investment Manager: Markets and Outlook
Macroeconomic Context and Outlook for SEEIT
Energy efficiency in the supply of and demand for energy is fundamentally
about reducing cost and improving energy productivity. By reducing losses
traditionally associated with the supply of and demand for energy, it is also
a major source of greenhouse gas emission reductions, energy security and
resilience.
It is important to understand that SEEIT is not a merchant energy investor.
Instead, it seeks to invest in primarily long-term contracted income streams
with high-quality credit counterparties. As such, it has limited exposure to
energy prices in its revenue streams and, wherever it does, it seeks to
mitigate these with contracted arrangements for fuel supply or offtake
contracts for energy services. It is also not a highly leveraged investment
company with short-term refinancing challenges. As such, it has limited
exposure to short-term interest rate movements and availability of project
finance. It is also not a grid-connected, utility scale renewable energy
project investor. While it seeks to deploy renewable energy technologies, it
is not subject to the same competitive dynamics or regulatory uncertainties.
What SEEIT does do is concentrate on investing in efficient energy services,
generated or applied close to or at the point of use. SEEIT's investments in
decentralised energy generation, as opposed to centralised or grid‑focused
energy generation, are designed to meet the needs of large end users of
energy, predominantly in the commercial, industrial, public sector and
transport markets. Its projects seek to deliver energy services in the form of
power, heating and cooling where they are needed at the highest practicable
levels of combined electrical and thermal efficiency.
As such, the majority of SEEIT's projects deliver energy services that are
cheaper, cleaner and more reliable than the grid. This is what makes SEEIT's
decentralised energy generation projects efficient and provides them with an
enduring competitive advantage and value even beyond their initial
contracted lives.
SEEIT also invests in projects that help to reduce the amount of energy needed
by end users to produce the same level of work or economic output. Most energy
losses happen in the supply of energy, mainly as heat losses at the point of
centralised generation, for example in gas-fired power plants designed to
create electricity for the grid. However, large amounts of energy is lost at
the point of use, for example because of sub‑optimal mechanical and
electrical infrastructure such as lighting, heating, air conditioning and
controls. As such, SEEIT's projects seek to invest in the replacement or
upgrading of this infrastructure to reduce energy demand and cut costs.
Associated with demand reduction, more efficient distribution of energy
services, such as district energy and electric vehicle charging
infrastructure, also creates competitive advantages.
The combination of Efficient and Decentralised Generation of Energy helps to
define SEEIT's approach to energy investing and its competitive advantage. We
summarise this strategy and approach with the acronym "EDGE".
The macroeconomic context for energy efficiency is important, both because of
the contribution that it can make to addressing systemic energy‑related
challenges, and because of the impact that the wider market conditions have on
the performance and value of SEEIT's investment portfolio.
Higher energy prices increase the advantage and relative value of SEEIT's
energy services to its clients and can help to extend project lives.
Extensions of major contracts within Primary Energy and Oliva during the
financial year are good examples. Higher energy prices also tend to support
the business case for development and construction of new energy efficiency
projects and, together with a pass-through of higher costs of capital in a
higher interest rate environment, can improve returns on investment. Higher
rates of inflation can also help to increase those contracted revenues in
SEEIT's portfolio that are indexed to inflation.
Higher energy prices also feed into the price of almost all goods and services
in the economy, thereby driving inflation and, ultimately, interest rates.
Energy prices have remained relatively high and volatile, even after falling
from recent peaks in the aftermath of Russia's invasion of Ukraine. Tensions
and conflict in the Middle East have added to supply and price uncertainty.
Increasing supplies and exports of oil and gas from the United States, which
on their own would have reduced energy prices, have been offset by the
production cuts made by other major energy producers and exporters, thus
inflating overall energy prices. Energy prices in turn affect the prices of
most goods and services, including food (from fertilisers to production and
shipping), manufacturing and transport. Increasing energy prices is therefore
inflationary. Central banks tend to raise interest rates to combat inflation.
As the Chair notes in his statement, because interest rates and inflation fell
from their peaks in 2022 and 2023, there were hopes in the market of further
falls during the first quarter of 2024. The United States Federal Reserve
indicated the potential for three interest rate cuts in 2024, which helped to
set positive market expectations.
However, higher-than-expected inflation numbers in the first months of the
calendar year curbed expectations and reversed much of the reduction in
longer-term yields. For instance, the yield on ten-year US Treasuries reduced
from around 5% in October 2023 to around 3.8% in January 2024, only to
increase again to around 4.3% by the end of March 2024. Inflation proved
stubborn, underpinned by energy prices, production, and shipping costs and
growing levels of government debt, while the ramifications of the conflicts in
Ukraine and the Middle East continued to impact supply chains and global
capital markets.
These macroeconomic challenges tend to increase costs, making energy
efficiency projects that reduce costs more attractive, urgent and valuable.
However, the financial implications on SEEIT during the year translated into
higher discount rates applied to the cash flows associated with SEEIT's
investments, which have affected valuations. As such, we have been focusing on
what actions can be taken to improve net asset value (APM) for shareholders
irrespective of broader macroeconomic conditions and what steps can be taken
to reduce the discount at which the Company, like its peer group in the UK
investment trust market, is trading.
Adapting to Market Conditions
Under prevailing market conditions, our approach to investment, portfolio
construction and management of the balance sheet has changed. This reflects an
environment in which the Company has not issued new equity since September
2022 and is unlikely to do so for some time.
As a result, working closely with the Board as Investment Manager, we have
taken several actions.
First, we are progressing selective disposals of assets, which can be sold to
create cash for reinvestment at more attractive rates of return or to repay
short-term borrowings. Disposals can also help to prove valuations in support
of the Company's net asset value (APM). A notable disposal was the sale of UU
Solar, completed shortly after the end of the financial year, which was
achieved at a premium to the last reported valuation.
Second, the Company's short-term borrowing facilities have been reduced from
£155 million, since 31 March 2024, to £98 million at 31 May 2024 using
cash proceeds from the disposal of UU Solar and accounting for further
investment into Onyx. Further repayments of shorter-term borrowing facilities
are planned.
Third, we have agreed a Capital Allocations Policy with the Board in 2023 that
is aimed at ensuring that returns on any new investment compare favourably
with any alternative opportunity; for example, to buy back shares in the
market at a discount to net asset value (APM), or to reduce short-term
borrowing facilities. The Company benefits from a pipeline of projects arising
from its existing portfolio. During the year, we have supported investments
that exceed return thresholds, for example at RED-Rochester, Onyx and EVN that
supports the Company's attractive investment return strategy over the medium
and long term.
Fourth, we have sought to increase the positive correlation between the
revenues from SEEIT's portfolio of investments and inflation. Examples include
the addition of inflation indexation, and reduction of exposure to labour
costs, at the same time Primary Energy extended its major contract with
Cleveland-Cliffs in its Cokenergy project for a further twelve years. An
outcome of SEEIT's disposal of UU Solar has also been an increase in the
overall correlation of its portfolio to inflation.
Fifth, we have sought to position the Company's portfolio for growth. Examples
include:
- Onyx, where the rate of new contract signings has tripled to over 75
megawatts (MW) per annum;
- EVN, where, for example, the largest fast charging hub in the UK was
opened by the Chancellor during the year and where rates of deployment have
grown several times; and
- RED-Rochester, where a substantial growth in capacity is under
construction to serve over 115 existing customers, as well as new ones.
Overall, some 14% of SEEIT's portfolio is invested in projects at the
development or construction phase of their project investment lifecycle, which
provides opportunity for capital growth in addition to the income generated by
operational assets. Within its 10% allocation to development-stage assets,
SEEIT has private equity investments in growth companies, which offer the
potential to generate gains as well as proprietary pipeline.
Sixth, we have been engaging with new prospective shareholders to support the
liquidity and marketability of the Company's shares. This has resulted in
significant new investments made by a number of predominantly US-based
institutional investors and a change in composition of our shareholder
register.
In the short term, we are also seeking to differentiate the Company by:
- promoting its shares, which trade at a discount, to UK and
international investors;
- increasing the Company's profile in the media; and
- distinguishing the Company from renewable energy investment companies,
which have other market and trading characteristics.
We are also exploring other potential actions, including progressing on
additional selective investment disposals or equity joint ventures to create
liquidity, strengthen the balance sheet, improve the opportunity for total
returns, reduce gearing (APM) and to provide the opportunity to return
capital to shareholders, for example via share buybacks or tender offers.
We expect that our investment activity in the near and medium term will remain
somewhat limited and focused on the identified opportunities within the
existing portfolio. For some of these opportunities we expect to utilise the
RCF, but at the same time remain cognisant of the agreed Capital Allocations
Policy and the necessity to ensure that investments remain accretive to the
Company's objective. Through capital recycling we are aiming to substantially
repay the current RCF balance over the medium term, notwithstanding the
possibility that in the near term the balance may increase.
Performance | Company Key Performance Indicators
In the section below, the Company sets out its financial and operational key
performance indicators ("KPIs") used to track the performance of the Company
over time against its objectives.
The Board believes that the KPIs detailed below provide shareholders with
sufficient information to assess how effectively the Company is meeting its
objectives.
Financial KPIs
Definition 31 March 2024 31 March 2023 Commentary
Net Asset Value ("NAV") per share (APM) (pence)
NAV (APM) divided by number of shares outstanding as at 31 March 90.5p 101.5p NAV (APM) has decreased compared with the prior year due to global increases
in risk-free rates pushing discount rates up materially from March 2023 - see
Financial Review and Valuation Update.
Share price (pence)
Closing share price as at 31 March 59.1p 84.0p The share price has decreased predominantly due to market volatility and the
thematic adverse impact on alternative investments focused UK investment
trusts.
Dividends per share (pence)
Aggregate dividends declared per share in respect of the financial year 6.24p 6.0p The dividend increased year on year due to predictability of near-term cash
generation from portfolio, plus new investments made previously. The Company
met its stated dividend targets for the years ended 31 March 2023 and 31
March 2024.
Dividend cash cover (x)
Operational cash flow divided by dividends paid to shareholders during the 1.1x 1.2x The target was for net operational cash inflow to fully cover dividends paid.
year The Company met its target for the years ended 31 March 2023 and 31 March
2024.
Total return on NAV basis (APM) in the year (%)
NAV growth and dividends paid per share in the year (4.7)% (0.9)% The payment of interim dividends contributed to NAV (APM) return in the year,
although offset by significantly higher discount rates, resulting in a
material decrease in return in both years.
Ongoing charges ratio (%)
Annualised ongoing charges (i.e. excluding investment costs and other 1.02% 1.02% Remained consistent year on year. See Financial Review and Valuation Update.
irregular costs) divided by the average published undiluted NAV(APM) in the
period, calculated in accordance with AIC guidelines
Operational KPIs
Definition 31 March 2024 31 March 2023 Commentary
Weighted average contracted investment life (years)
Weighted average number of years of contracted revenue remaining in investment 16.4 15.9 Increase was in line with expectations and mainly due to one material contract
contracts (excludes all recontracting assumptions) successfully renewed during the year.
Largest five investments as a % of gross asset value ("GAV (APM)") (%)
Total value of five largest individual investments divided by the sum of all 52% 54% Target is to maintain good portfolio diversification, achieved in both
investments held in the portfolio plus cash, calculated at year end financial years.
Performance | Financial Review and Valuation Update
Financial Performance
The Company's investment strategy and the Investment Manager's focus on asset
management has helped manage downside risks and target value-accretive
opportunities during the year, notwithstanding market volatility.
Financing
The Investment Manager seeks to maintain a conservative level of total
gearing (APM) consistent with the Company's tolerance for financial risk.
Total gearing (APM) is measured on a look‑through basis by including debt
at Company level through to the investment portfolio level. The Company's
investment policy provides for a target medium‑term gearing (APM) of 35% of
NAV (APM) ("structural gearing" (APM)) and a consolidated borrowing limit of
65%, which includes the longer-term structural gearing (APM) and acquisition
financing facilities used to finance the Company's investments over a shorter
term, both calculated at the time of borrowing.
Refinancing risk at the portfolio level is managed through low gearing (APM),
staggered debt tenors and maintaining low absolute levels of refinancing
requirements over the medium term.
Consolidated Gearing Position
The structural gearing (APM) target is measured across the portfolio,
enabling the Company to optimise for efficiency and risk, utilise debt where
it can be most efficiently sourced and enable a significant part of the
portfolio (41 out of 54 investments) to operate on an unlevered basis.
A large portion of the structural gearing (APM) amortises from free cash
flow generated by the relevant investment and although the absolute exposure
to portfolio-level gearing (APM) in GBP terms has reduced, as a percentage it
has increased due to the reduction in the Company's NAV (APM).
There is no refinancing requirement at a portfolio level until at least 2025,
although the Investment Manager may look to optimise through opportunistic
project-level refinancing. For example, the Cokenergy re-contracting
substantially improves the finance capacity and risk from the perspective of a
lender, from which the Investment Manager anticipates improvement of terms in
the Primary Energy financing whilst retaining benefit from the long-term
interest rate swaps currently in place.
The Company, via Holdco, also has a £180 million RCF in place until June
2026, having recently extended/refinanced the expiry date by twelve months.
The Company intends for this to be a temporary finance, repayable through
surplus distributions from the portfolio, refinancing proceeds at investment
level and investment disposals which the Investment Manager is currently
pursuing.
As at 31 March 2024, the Holdco RCF had been drawn by £155 million to fund
investments. At 31 May 2024, the drawing had reduced to £98 million after
a partial repayment following the disposal of UU Solar in May 2024. Based on
investment outlook, the RCF could be £110-£130 million drawn at 30 September
2024 (before any proceeds from a disposal or portfolio-level refinancing),
subject to returns from proposed investments meeting the Capital Allocation
Policy criteria. The estimated drawings are predominantly based on projected
capital requirements for Onyx and EVN.
% of GAV (APM 1) Debt at 31 Mar 24 Debt as a % of EV(2) Debt as a % of NAV (APM)
Primary Energy (USA) 17% £126m 40% N/A
RED-Rochester (USA) 17% £59m 24%
Onyx (USA) 17% £81m 30%
Vartan Gas (Sweden) 6% £51m 46%
Capshare (Portugal) 1% £14m 30%
Citi Riverdale (UK) <1% £1m 34%
Structural gearing £330m 21% 34%
(medium-term target = 35% NAV (APM)) (32% at March 2023)
Aggregate gearing including RCF £485m 30% 49%
(cap = 65% NAV (APM)) (32% at March 2023)
1. Percentage of investment as a percentage of gross asset value ("GAV")
as at 31 March 2024, consisting of Portfolio Valuation and other assets.
2. Enterprise value ("EV") equals the Investment value included in the
Portfolio Valuation plus debt at investment level.
Gearing summary as at 31 March 2024
Investments geared
12(1)/54 investments
2023: 14/55
Weighted average interest rate of portfolio debt
6.0%
2023: 5.8%
Interest rate exposure of portfolio debt
80% is fixed(2)
2023: 80%
Portfolio-level debt by geography
USA: 80%
Europe: 19%
UK: <1%
2023: USA: 79%, Europe: 20%, UK: <1%
Weighted average life remaining on debt
3.7 years
2023: 4.0 years
Portfolio debt repaid in the year(3)
£26m
2023: £18m
Inflation
Inflation correlation is derived from a combination of explicit linkage to
revenues, through contract or regulatory mechanisms, and de facto linkage
applied on recontracting events or through discretionary annual tariff
increases. Inflation correlation is a relevant metric when evaluating new
investment opportunities and when recontracting on existing projects within
the portfolio. The Company's projects are in a number of different geographic
regions, which diversifies and mitigates the impact of inflation volatility
for the portfolio.
Positive inflation correlation on investment returns has increased since 31
March 2023 as a result of increased contractual inflation linkage related to
new contracts and renewals.
Contracted Revenue over time
The Company derives its return on its investments primarily through receipt of
contracted cash flows through the operational life of the investments in the
portfolio. These are often calculated upfront and can be based on a variety of
factors, including, but not limited to: heat and electricity availability,
output of heat and electricity, opportunity for energy savings or other
energy-related services. Cash flows may however be variable or fluctuating for
certain investments, if they rely on a host counterparty's demand for energy
or can be impacted by volatility in the energy market. The valuation of
certain investments also assumes that cash flows will continue beyond the
current contractual period.
Once operational, investments provide attractive levels of cash distributions,
and are designed to achieve relatively high, contracted and reasonably
predictable cash flows. The quality of these cash flows is supported through
investments with strong delivery partners, where the risks involved in
implementation, operation and the associated revenues can be identified and
mitigated.
Based on the model of projected future cash flows over the next 15 years, the
Investment Manager believes that the Company will generate sufficient cash to
fully cover dividends over the medium to long term, with excess cash flows
after dividend payments expected to be reinvested to grow the Company's
NAV (APM) in line with its target returns(1).
The visibility of revenues derived from the contracts at the operational phase
provides support for an attractive and growing yield to be returned to
investors.
Contracted Uncontracted
Existing - Long-term contracts - Ancillary revenues that are considered side products of primary
revenues in certain projects (e.g. olive oil sales at Oliva Spanish
- Rolling annual contracts (e.g. in Vartan Gas where majority of Cogeneration)
customers have contracts that are rolled over automatically on an annual
basis) - Contract life extensions where the customer can be considered to have
a viable alternative source of energy at the end of the existing contract
- Short-term contracts prior to their expiry (e.g. spill electricity, (e.g. Onyx where it is assumed that the customer will seek an extension for a
RECs, etc.) few years instead of decommissioning)
Growth - Contracts due to be recontracted in the future, where there is a clear - Growth assumptions based on existing contracts (e.g. RED-Rochester
history of recontracting and the customer does not have another viable or where revenue growth is assumed from successful delivery of value accretive
contractual source of energy (e.g. extension of existing contracts in capital expansion and addition of new customers)
RED-Rochester and Primary Energy)
- Expansion of developer platforms (e.g. future C&I solar portfolios
developed by Onyx)
Based on the above characteristics, as at 31 March 2024, 75% (March 2023: 79%)
of the Portfolio Valuation (APM) by value is considered to be contracted and
25% (March 2023: 21%) is considered to be
uncontracted.
Dividends
The Company paid a total of £67 million in dividends to shareholders during
the year. This included the last quarterly interim dividend for the year ended
31 March 2023 and the first three quarterly interim dividends for the year
ended 31 March 2024. The Company has declared the fourth quarterly interim
dividend for the year ended 31 March 2024. This is payable at the end of June
2024, delivering the target of a 6.24 pence per share total dividend related
to the year ended March 2024.
Based on the projected investment cash flows from the current portfolio
prepared by the Investment Manager, the Company has announced new dividend
guidance of 6.32 pence per share for the year to 31 March 2025 and, as before,
will target progressive dividend growth thereafter. The Company has increased
its annual dividend each year since its IPO in 2018. The Company intends to
continue to pay interim dividends on a quarterly basis through four broadly
equal instalments (in pence per share).
The Company paid a stub dividend of 1 pence per share for the four-month
period between its IPO and March 2019. Thereafter, dividends reflect the
full-year dividends declared in relation to each financial year to March 2024
and targeted thereafter.
Analysis of Movement in NAV (APM)
As of 31 March 2024, the NAV per share (APM) was 90.5 pence, a decrease of
11.0 pence from 101.5 pence at 31 March 2023. After taking into account
dividend paid (6.2p), this decrease reflects the impact of increased discount
rates (negative 10.8 pence per share) offset primarily by an uplift in
portfolio performance of 6.1 pence. These are further described below in the
Portfolio Valuation section.
Revisions to medium-term inflation assumptions had a small negative impact on
NAV (APM) of 0.3 pence. The adverse impact of FX movements was limited to 0.1
pence, in line with expectations of using foreign currency hedging to limit
volatility in NAV (APM) from fluctuations in the valuations of non-GBP
investments.
Portfolio Valuation
Approach
The Investment Manager is responsible for carrying out the fair market
valuation of SEEIT's portfolio of investments (the "Portfolio
Valuation" (APM)), which is presented to the Directors for their
consideration and approval. A Portfolio Valuation (APM) is carried out on a
six-monthly basis, at 31 March and 30 September each year. The Portfolio
Valuation (APM) is the key component in determining the
Company's NAV (APM).
The Company has a single investment in a directly and wholly owned holding
company, SEEIT Holdco. It recognises this investment at fair value. To derive
the fair value of SEEIT Holdco, the Company determines the fair value of
investments held directly or indirectly by Holdco (the Portfolio
Valuation (APM)) and adjusted for any other assets and liabilities. The
valuation methodology applied by Holdco to determine the fair value of its
investments is materially unchanged from the Company's IPO and has been
applied consistently in each subsequent valuation.
For the Portfolio Valuation (APM) at 31 March 2024, the Directors
commissioned a report from a third‑party valuation expert to provide their
assessment of the appropriate discount rate range for each investment
(excluding small investments with an aggregate value of less than 2% of the
Portfolio Valuation (APM) at 31 March 2024) in order to benchmark the
valuation prepared by the Investment Manager. The discount rate applied to
each investment by the Investment Manager was within the ranges advised by the
third‑party valuation expert, (with the exception of a few instances where
the Investment Manager selected higher discount rates to compensate for risk
within the underlying cashflows).
In addition, for the Portfolio Valuation (APM) at 31 March 2024, the Company
benefited from full scope third-party valuation reports on Onyx (comprising
its operational, construction and development components), EVN's development
component and four corporate investments in the portfolio (Turntide, Rondo, ON
Energy and Iceotope). The Investment Manager used the outputs of these reports
as their basis for the purpose of valuing these investments in the Portfolio
Valuation (APM) at 31 March 2024.
Movements in Portfolio Valuation
The Portfolio Valuation (APM) as at 31 March 2024 was £1,117 million, an
increase of 2% compared with £1,100 million as at 31 March 2023.
After allowing for investments made of £161 million and cash receipts from
investments of £92 million, the Rebased Portfolio Valuation (APM) is
£1,169 million. Adjusting for changes in macroeconomic assumptions, foreign
exchange movements (excluding the effect of hedging) and changes in discount
rates, this resulted in a portfolio return of £93 million, equating to an
8.0% return in the period. The return takes into account a number of
project-specific valuation movements described under Balance of Portfolio
Return below.
The weighted average remaining life of investments as at 31 March 2024 is 16.4
years (31 March 2023: 15.9 years), when calculated purely on when current
contracts end. When based on the 31 March 2024 Portfolio Valuation (APM),
which includes assumptions for recontracting and contract life extensions, the
weighted average remaining life is 26.4 years (March 2023: 28.0 years).
Valuation Movements
A breakdown of the movement in the Portfolio Valuation (APM) in the year is
illustrated below.
Valuation movements during the year to 31 March 2024 (£'m)
Portfolio Valuation - 31 March 2023 1,100
New investments 161
Cash from investments (92)
69
Rebased Portfolio Valuation ((APM)) 1,169 % on Rebased
Changes in macroeconomic assumptions (3) -0.2%
Changes in foreign exchange (24) -2.0%
Changes in discount rates (118) -10.1%
Balance of portfolio return 93 7.8%
(52)
Portfolio Valuation((APM)) - 31 March 2024 1,117
Return from the Portfolio of the Rebased Portfolio Valuation (APM)
Each movement between the Rebased Portfolio Valuation (APM) of £1,169
million and the 31 March 2024 valuation of £1,117 million is considered in
turn below:
i) Changes in macroeconomic assumptions - impact of
£3 million:
- Inflation assumptions: consistent with March 2023, the approach in all
jurisdictions is to apply a three-year near-term bridge to the relevant
long-term inflation assumption. Given the persistently high global inflation
since March 2023, this has resulted in an uplift in the valuation due to
higher than previously assumed near-term inflation, compared with the
assumptions applied for the March 2023 valuation. The long-term inflation
assumptions remain the same as applied to the March 2023 valuation.
- Tax rate assumptions: there were no changes to corporation tax rate
assumptions during the year.
ii) Changes in foreign exchange rates - impact of
£23.5 million (before hedging):
- The investment portfolio decreased £23 million during the year from
movements in foreign exchange rates, driven by the movement of GBP against the
US dollar, euro, Singapore dollar and Swedish krona since 31 March 2023 or
since new investments were made in the year.
- However, it is important to note that this only reflects the movement
in underlying investment values, and it does not take into account the
offsetting effect of foreign exchange hedging that SEEIT Holdco applies
outside of the Portfolio Valuation (APM).
- SEEIT Holdco experienced an aggregate gain of £24 million due to
foreign exchange hedging.
- Therefore, the overall foreign exchange movements did not have a
significant impact on NAV (APM) during the year, resulting in a net gain of
less than £1 million from foreign exchange movement.
iii) Changes in valuation discount rates - impact of
£(118) million:
- The discount rate used for valuing each investment represents an
assessment of the rate of return at which infrastructure investments, with
similar cash flow assumptions and risk profiles, would trade on the open
market.
- During the year, there were further significant increases in interest
rates globally, including in key geographical areas of SEEIT's portfolio, thus
continuing a trend from the last 18 to 24 months. This has stemmed from
geopolitical uncertainties and a high inflationary environment due, in part,
to high energy costs.
- The Investment Manager considered it necessary to apply a significant
increase to discount rates and, having assessed geographical areas as a whole
and each project individually, has applied discount rate increases that
increased the weighted average discount rate by approximately 90 bps to 8.6%
on an unlevered basis (March 2023: 7.7%). On a levered basis, which assumes
existing portfolio-level debt is refinanced at current market rates,
incorporating existing interest rate swaps into the interest cost assumption,
the weighted average discount rate has increased to 9.4% (March 2023: 8.5% and
September 2023: 9.4%).
- This has led to an increase in discount rates across the whole
investment portfolio in this period that in aggregate resulted in a decrease
in the Portfolio Valuation (APM) of c.£117 million.
- Of this adverse movement in discount rates, c.£31 million relates to
adjustments made to asset‑specific risk premiums. This includes:
- an adjustment of c.£26 million to reflect the uncertainty over
Li-Cycle's future energy demand in light of their construction delays factored
into the valuation of RED-Rochester; and
- an adjustment of c.£5 million to reflect a risk of the value for
which RECs can be sold for in the USA after 2026.
- Since March 2023, there has been limited market activity to help set
benchmarks for appropriate discount rates for the investments in the Portfolio
Valuation (APM).
Weighted average discount rate at 31 March 2024
Levered/unlevered UK US Europe/Asia Combined
Levered
2024 8.1% 9.6% 9.1% 9.4%
2023 7.1% 8.9% 8.4% 8.5%
Unlevered
2024 8.1% 8.8% 8.2% 8.6%
2023 7.1% 7.9% 7.4% 7.7%
Discount rate ranges (unlevered) at 31 March 2024
UK US Europe/Asia Combined
2024 6.10%-10.30% 7.60%-11.25% 5.15%-11.40% 5.15%-11.40%(1)
2023 4.75%-8.75% 6.50%-9.00% 4.75%-10.25% 4.75%-10.25%
Breakdown of discount rate (unlevered) at 31 March 2024
UK US Europe/Asia Combined
Weighted average risk-free rate
2024 4.4% 4.3% 3.0% 4.0%
2023 3.7% 3.7% 3.0% 3.6%
Risk premium
2024 4.4% 3.8% 5.2% 4.6%
2023 4.1% 3.5% 4.3% 4.1%
Weighted average discount rate (unlevered)
2024 8.8% 8.1% 8.2% 8.6%
2023 7.9% 7.2% 7.3% 7.7%
The Investment Manager reviews movements in discount rates for each individual
asset at each valuation date. The key approach to the overall discount rate
can be summarised as:
- risk-free rate of each individual asset is assessed against relevant
government bonds, taking into account length of cash flows and geography; and
- risk premium taking into account asset-specific premiums, considering
inter alia country risk, market risk, construction risk, counterparty risk and
credit risk.
- Credit risk is determined by deducting the risk-free rate applied to
each asset from the most relevant corporate bond yield curve, accounting for
the credit rating and maturity of each asset. Where the counterparty is not
rated, it may require some judgement to determine the appropriate credit
rating.
iv) Balance of portfolio return - impact of £93 million:
- This refers to the balance of valuation movements in the period,
excluding (i) to (iii) above, which provided an uplift of £93 million. The
balance of portfolio return reflects the net present value of the cash flows
unwinding over the period at the average prevailing portfolio discount rate,
and various additional valuation adjustments described below. The portfolio
delivered a return of 8.0% in the year with details on key movements described
below.
- The Portfolio Valuation (APM) as at 31 March 2024, and by implication
the return achieved over the period, includes a number of key estimates and
judgements of future cash flows expected from different investments. In
addition, specific adjustments to future cash flows were required for events
during the period that affected the actual outcome from certain investments.
- The key factors that have had a material impact on the 31 March 2024
Portfolio Valuation (APM) listed out below, have had a value impact of 1% or
higher on the Company's NAV (APM):
- RED-Rochester
- Prior to preparing the Portfolio Valuation (APM) as at 30 September
2023, the Investment Manager and the RED-Rochester management team conducted
an additional in-depth review of actual results and how certain long-term
assumptions were applied in the project financial model. Several revenue and
cost estimates were revised, up and down, with a material net adverse impact
on the overall valuation of c.£26 million. No further changes were made to
the Portfolio Valuation (APM) as at 31 March 2024.
- The Portfolio Valuation (APM) as at 30 September 2023 reflected a
combination of updates to projected loads, business development assumptions,
operating costs, labour costs and timing of new efficiency projects, which
caused a reduction in the overall valuation of c.£17 million. Positive
movements in the second half of the year in relation to new efficiency
projects broadly offset a reduction in value from a downwards revision of
expected revenue from Li-Cycle (also referred to in discount rates updates
above).
- After adjusting for new investment into RED-Rochester and
distributions received during the second half of the financial year, the
valuation of RED-Rochester at 31 March 2024 is in line with the valuation at
30 September 2023.
- Oliva Spanish Cogeneration
- The Spanish Government published regulatory updates in the period
to the RoRi, an incentive scheme to provide a return on operations and
investments, that allows for a substantial reduction in uncertainty and
therefore greater ability to plan financial optimisation of the plants in the
near to medium term. The overall positive impact on the valuation of Oliva was
c.£30 million, after netting off by a reduction of value from standard
updates to commodity pricing that form part of the regulatory updates. The
majority of the positive impact was reflected in the September 2023 valuation
of Oliva, with the valuation of Oliva at 31 March 2024 in line with the
valuation at 30 September 2023.
- Värtan Gas
- The periodic regulatory update in late 2022 relevant to Värtan Gas
changed both the WACC and RAB used in calculating the value of the regulated
investment, causing an adverse impact on the 31 March 2023 valuation. Värtan
Gas has since successfully appealed against the update, resulting in a c.£14
million positive impact (already reflected in the September 2023 valuation)
and thus substantially reversing the adverse impact on the previous valuation.
- Further positive changes to the WACC and RAB added incremental value
of c. £10 million in the second half of the financial year.
- Onyx
- As referred to above, for the valuation of the entire Onyx business at
31 March 2024, an independent valuation expert provided a valuation range from
which the Investment Manager derived its valuation. The valuation included for
the first time a recognition of a pipeline of future investment opportunities
in community solar projects. The valuation applied by the Investment Manager
was towards the conservative end of the range provided and after adjusting for
new investments and distributions during the year, resulted in a positive
impact on the valuation of Onyx of c. £35 million.
Financial Information
The Company meets the conditions of being an investment entity in accordance
with IFRS 10. This report is prepared on a consistent basis to previous
reports whereby the IFRS 10 investment entity exemption is applied to the
financial statements.
To provide shareholders with more transparency into the Company's capacity for
investment, ability to make distributions, operating costs and gearing (APM)
levels, results have been reported in the pro forma tables below on a
non-statutory "portfolio basis" (APM), as it has been done in previous years,
to include the impact if SEEIT Holdco were to be consolidated by the Company
on a line-by-line basis.
The Directors consider the non-statutory portfolio basis (APM) to be a more
helpful basis for users of the accounts to understand the performance and
position of the Company. This is because key balances such as cash and debt
balances carried in Holdco and all expenses incurred in Holdco, including debt
financing costs, are shown in full rather than being netted off.
The impact of including Holdco is shown in the Holdco reallocation column in
the income statement and balance sheet, which reconciles back to the statutory
financial statements (IFRS) and constitutes a reallocation between line items
rather than affecting NAV (APM) and earnings. In the cash flow statement, the
Holdco reallocation column simply represents the net difference between the
portfolio basis (APM) and IFRS for movements that may occur only in Holdco or
only in the Company.
NAV per share (APM) and earnings per share are the same under the portfolio
basis (APM) and the IFRS basis.
Summary Financial Statements
Portfolio basis summary income statement
Year to 31 March 2024 Year to 31 March 2023
£'million Portfolio basis Holdco reallocation IFRS (Company) Portfolio basis Holdco reallocation IFRS (Company)
Total (loss) (33.0) (11.7) (44.7) (1.8) (4.8) (6.6)
Expenses and finance costs (22.7) 11.1 (11.6) (16.7) 4.7 (12.0)
(Loss) before tax (55.7) (0.5) (56.3) (18.5) (0.1) (18.6)
Tax (0.5) 0.5 - (0.1) 0.1 -
(Loss)/earnings (56.3) - (56.3) (18.6) - (18.6)
(Loss)/earnings per share (pence) (5.2) - (5.2) (1.8) - (1.8)
Portfolio basis balance sheet
Year to 31 March 2024 Year to 31 March 2023
£'million Portfolio basis Holdco reallocation IFRS (Company) Portfolio basis Holdco reallocation IFRS (Company)
Investments at fair value 1,117.4 (133.6) 983.86 1,099.6 28.3 1,127.8
Working capital 15.5 (17.9) (2.4) (39.9) 37.2 (2.7)
Debt (155.0) 155.0 - - - -
Net cash 3.9 (3.4) 0.5 65.7 (65.4) 0.3
Net assets attributable to ordinary shares 981.9 - 981.9 1,125.4 - 1,125.4
NAV per share (APM) (pence) 90.5 - 90.5 101.5 - 101.5
- Total income: Income at the Company level is the income it receives
from Holdco which contrasts to portfolio basis (APM) where the income is
received from the portfolio assets.
- Expenses and finance costs: Investment transaction costs are incurred
at Holdco only and therefore not included in the Company income statement.
- Investment at fair value: Company valuation excludes Holdco's other
net assets.
Treasury Management
Cash cover (APM) for dividends paid
The financial year saw cash inflow from investments (on a portfolio
basis (APM)) of £92 million, an increase of c.10% from the previous year's
£84 million. After allowing for Fund-level costs of £20 million
(March 2023: £13.5 million), this enabled the Company to cover its cash
dividends of £67 million by 1.1x, maintaining a similar level as the previous
year (March 2023: 1.2x).
The main factor affecting the increase in Fund-level costs compared to the
previous year is interest payable on drawn amounts on the RCF. In turn, this
caused the cash cover to be marginally lower than last year.
Maintaining positive levels of cash cover (APM) has resulted in cumulative
excess cash cover (APM) of c.£34 million since IPO, demonstrating the
consistent nature of the income from the underlying assets in the portfolio,
as well as the ability of the portfolio to generate excess cash that can be
reinvested for an accretive return.
Hedging Strategy
FX hedging
The Company's hedging strategy is executed at the level of SEEIT Holdco, so
the Company itself is only indirectly exposed to foreign exchange movements.
The objective of the Company's hedging strategy is to protect the value of
both near-term income and capital elements of the portfolio from a material
impact on NAV (APM) arising from movements in foreign exchange rates.
This is achieved on an income basis by hedging forecast investment income from
non-sterling investments for up to 24 months through foreign exchange forward
sales. On a capital basis, it is achieved by hedging a significant portion of
the portfolio value through rolling foreign exchange forward sales. The
Investment Manager also seeks to utilise corporate debt facilities in the
local currency to reduce foreign exchange exposure.
As part of the Company's hedging strategy, the Investment Manager regularly
reviews the non‑sterling exposure in the portfolio and adjusts the hedging
levels accordingly while considering the cost benefit of the hedging activity.
The hedging strategy also involves ensuring regular calculation of sufficient
cash headroom, so as to meet potential liquidity requirements imposed by
hedging counterparties during periods of volatility that may adversely affect
the Company.
As demonstrated below, the portfolio has a substantial exposure to non-GBP
assets. In the execution of hedging strategy, the Investment Manager has
chosen to retain high levels of hedging during the year, typically ranging
between 75-90% of the value of the underlying non-GBP investments.
The hedging strategy effectively mitigated the decrease in portfolio value
attributed to foreign exchange of £23.5 million, resulting in a marginal
foreign exchange loss after taking into account hedging gains of £24 million.
Consequently, the impact on the NAV (APM) due to currency movements in the
year was limited to 0.1 pence per share loss, which equates to less than 1% of
NAV (APM).
Interest Rate Hedging
During the year the Investment Manager assessed hedging options to mitigate
the risk of unfavourable interest rate movements associated with the RCF
floating rate. This resulted in the Company, via Holdco, successfully
executing an interest rate cap ("IR cap") against RCF drawdowns, limiting the
total interest rate exposure to c.7.0%. The IR cap remains in place at the
time of this report, adjusted for RCF movements since 31 March 2024, and
continues to protect against adverse interest rate movements.
Revolving Credit Facility
The Investment Manager periodically considers refinancing options aligned to
the pipeline of new and existing investments. At 31 March 2024, the RCF was
drawn at £155 million. Following the year end, the drawn amount has reduced
to £98 million(1), the net decrease coming from applying disposal proceeds
from UU Solar to the RCF balance.
Ongoing Charges
The portfolio's ongoing charges ratio (APM) remained in line with previous
years at 1.02% (March 2023: 1.02%). Ongoing charges, in accordance with AIC
guidance, are defined as annualised ongoing charges (i.e. excluding
acquisition costs and other non-recurring items) divided by the average
published undiluted net asset value (APM) in the year). Ongoing charges
percentage has been calculated on the portfolio basis (APM) to take into
consideration the expenses of the Company and Holdco.
Portfolio Basis Cash Flow Statement
31 March 2024 31 March 2023
£'million Portfolio basis Holdco reallocation IFRS (Company) Portfolio basis Holdco reallocation IFRS (Company)
Cash from investments 92.5 44.9 137.4 85.1 (0.3) 84.8
Operating and finance costs outflow (20.0) (2.8) (17.2) (13.1) 3.1 10.0
Net cash inflow before capital movements 72.5 47.7 120.2 72.0 2.8 74.8
Cost of new investments including acquisition costs (163.7) 131.0 (32.7) (240.2) (52.2) (292.4)
Share capital raised/(share buybacks) net of costs (20.1) - (20.1) 132.6 - 132.6
Movement in borrowings 120.8 (120.8) - 29.6 (29.6) -
Movement in capitalised debt costs and FX hedging (4.1) 4.1 - (37.3) 38.5 1.2
Dividends paid (67.2) - (67.2) (62.0) - (62.0)
Movement in the period (61.8) 62.0 0.2 (105.3) (40.5) 145.8
Net cash at start of the period 65.6 (65.3) 0.3 170.9 (24.9) 146.1
Net cash at end of the period 3.9 (3.3) 0.5 65.6 (65.3) 0.3
Going Concern
The Directors believe that the Group has adequate resources to continue in
operational existence for the foreseeable future. Therefore, they continue to
adopt the going concern basis of accounting in preparing the financial
statements.
Directors' Responsibility Statement
The 2024 Annual Report which will be published as noted above contains a
responsibility statement in compliance with DTR 4.1.12. This states that on 26
June 2024, the date of the approval of the Annual Report, the Directors
confirm that to the best of their knowledge:
· the Company financial statements, which have been prepared in accordance
with UK-adopted international accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit of the Company; and
· the Strategic Report: Portfolio Review includes a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
Tony Roper
Chair
Statement of Comprehensive Income
For the year ended 31 March 2024
For the For the
year ended year ended
31 March 2024 31 March 2023
£'millions £'millions
Investment loss (44.7) (7.8)
Total operating loss (44.7) (7.8)
Finance income 0.2 1.2
Fund expenses (11.8) (12.0)
Loss for the year before tax (56.3) (18.6)
Tax on loss on ordinary activities - -
Loss for the year (56.3) (18.6)
Total comprehensive loss for the year (56.3) (18.6)
Attributable to:
Equity holders of the Company (56.3) (18.6)
Loss per ordinary share (pence) (5.2) (1.8)
All items in the above Statement derive from continuing operations.
Statement of Financial Position
As at 31 March 2024
31 March 2024 31 March 2023
£'millions £'millions
Non-current assets
Investment at fair value through profit or loss 983.8 1,127.8
983.8 1,127.8
Current assets
Trade and other receivables 0.2 0.6
Cash and cash equivalents 0.5 0.3
0.7 0.9
Current liabilities
Trade and other payables (2.6) (3.3)
Net current liabilities (1.9) (2.4)
Net assets 981.9 1,125.4
Capital and reserves
Share capital 11.1 11.1
Share premium 756.8 1,056.8
Other distributable reserves 339.3 39.3
(Accumulated losses)/retained earnings (125.3) 18.2
Total equity 981.9 1,125.4
Net assets per share (APM) (pence) 90.5 101.5
Statement of Changes in Shareholders' Equity
For the year ended 31 March 2024
Share capital Share premium Other Retained earnings Total equity
£'millions £'millions distributable /(accumulated £'millions
reserves losses)
£'millions £'millions
Balance at 1 April 2023 11.1 1,056.8 39.3 18.2 1,125.4
Share buyback - - - (20.0) (20.0)
Share transaction costs - - - (0.1) (0.1)
Cancellation of share premium account (300.0) 300.0 - -
Dividends paid - - - (67.1) (67.1)
Total comprehensive loss for the year - - - (56.3) (56.3)
Balance at 31 March 2024 11.1 756.8 339.3 (125.3) 981.9
Share capital Share premium Other Retained earnings Total equity
£'millions £'millions distributable /(accumulated £'millions
reserves losses)
£'millions £'millions
Balance at 1 April 2022 9.9 925.1 39.3 98.8 1,073.1
Shares issued 1.2 133.8 - - 135.0
Share issue costs - (2.1) - - (2.1)
Dividends paid - - - (62.0) (62.0)
Total comprehensive income for the year - - - (18.6) (18.6)
Balance at 31 March 2023 11.1 1,056.8 39.3 18.2 1,125.4
Statement of Cash Flows
For the year ended 31 March 2024
For the For the
year ended year ended
31 March 2024 31 March 2023
£'millions £'millions
Cash flows from operating activities
Total comprehensive loss for the year before tax (56.3) (18.6)
Adjustments for:
Loss on investment at fair value through profit or loss 116.2 74.3
Loan interest income (6.5) (9.0)
Operating cash flows before movements in working capital 53.4 46.7
Changes in working capital
Decrease/(increase) in trade and other receivables 0.4 (0.3)
(Decrease)/increase in trade and other payables (0.7) 1.8
Net cash generated from operating activities 53.1 48.2
Cash flows from investing activities
Additional investment in Holdco (38.4) (292.4)
Loan principal repayment received 66.2 18.5
Loan interest income received 6.5 9.0
Net cash generated from/(used in) investing activities 34.3 (264.9)
Cash flows from financing activities
Proceeds from the issue of shares - 135.0
Share buyback payments (20.0) -
Payment of shares issue/buyback costs (0.1) (2.1)
Dividends paid (67.1) (62.0)
Net cash (used in)/generated from financing activities (87.2) 70.9
Net movement during the year 0.2 (145.8)
Cash and cash equivalents at the beginning of the year 0.3 146.1
Cash and cash equivalents at the end of the year 0.5 0.3
The financial information set out above does not constitute the Company's
statutory financial statements for the years ended 31 March 2024 or 2023 but
is derived from those financial statements. Statutory financial statements for
2023 have been delivered to the registrar of companies, and those for 2024
will be delivered in due course. The auditors have reported on those financial
statements; their reports were (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
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