REG - SDCL Energy Effcncy. - Annual Results
30/06/2022 07:16
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RNS Number : 7278Q SDCL Energy Efficiency Income Tst 30 June 2022
30 June 2022
SDCL Energy Efficiency Income Trust plc
("SEEIT" or the "Company")
Announcement of Annual Results for the year ended 31 March 2022
SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or the "Company")
today announced its financial results for the year ended 31 March 2022.
Highlights
· Net Asset Value ("NAV") per share 1 of 108.4p as at 31 March 2022,
up from 102.5p as at 31 March 2021 and a total return on a NAV basis(1) in the
year of 11.2%
· Profit Before Tax of £79.8 million for year to 31 March 2022, up
from £32.4 million for the prior year to 31 March 2021
· Earnings per share of 10.0p for year to 31 March 2022 (March 2021:
7.0p)
· Aggregate dividends of 5.62p per share declared relating to the year
ended 31 March 2022, in line with target
· Target dividend 2 of 6.00p per share for year to March 2023, a 7%
increase from year to March 2022
· Portfolio Valuation(1) of £913 million at 31 March 2022, up from
£553 million at 31 March 2021
· Investment at fair value on balance sheet of £928 million at 31
March 2022, up from £573 million 31 March 2021
· Market Capitalisation of £1,164 million at 31 March 2022, up from
£758 million at 31 March 2021 and a total shareholder return(1) of 39.4%
since IPO to 24 June 2022
· Investment of approximately c. £305 million in 12 investments during
the year and a further c. £43 million in cash after the year end
· Capital raised of £350 million during the financial year from three
well-supported equity issues, with proceeds substantially deployed or
committed to be deployed into investments from the Company's new investment
pipeline
· Carbon Savings of 1,060,617 tCO2 (2021: 657,030 3 tCO2) from
Company's portfolio, which also produced 2,455,305 MWh of electricity (2021:
1,750,071(3) MWh)
Tony Roper, Chair of SEEIT, said: "The past year has been a watershed period
for the energy efficiency sector. SEEIT is well positioned to take advantage
of this by continuing its investment in solutions in this key sector. Despite
facing significant challenges within the market, compounded by the tragic
situation in Ukraine, SEEIT has produced another robust set of results,
demonstrating the resilience of the business. The Investment Manager has
continued to invest in and manage the portfolio effectively. SEEIT will
continue seek opportunities to grow and diversify its portfolio and deliver
cheaper, cleaner, and more reliable solutions to energy users."
Jonathan Maxwell, CEO of SDCL, the Investment Manager said: "SEEIT has
continued to perform during a period of upheaval in capital markets, the
energy sector and the wider economy. SEEIT is investing in one of the most
important and fastest growing sectors of the infrastructure market, making
investments that reduce carbon emissions and energy cost and that improve
resilience and energy security. Against a background of high and rising energy
prices during the past year and particularly following Russia's invasion of
Ukraine, energy efficiency is more important than ever before. Energy
efficiency has a key role to play in reducing demand for scarce energy
resources, improving productivity, and achieving rapid decarbonisation at
anything like the scale needed to achieve the '1.5C' or 'net zero' targets set
at COP26".
For Further Information
Sustainable Development Capital LLP T: +44 (0) 20 7287 7700
Jonathan Maxwell
Eugene Kinghorn
Purvi Sapre
Tom Hovanessian
Jefferies International Limited T: +44 (0) 20 7029 8000
Tom Yeadon
Gaudi Le Roux
Neil Winward
TB Cardew T: +44 (0) 20 7930 0777
Ed Orlebar M: +44 (0) 7738 724 630
Lucas Bramwell 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 to invest exclusively in the energy
efficiency sector. Its projects are primarily located in the UK, Europe and
North America 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 6.00p per share in respect of the financial year to 31
March 2023. SEEIT's last published NAV was 108.4p per share as at 31 March
2022.
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, Hong Kong and Singapore. SDCL is authorised and regulated in
the UK by the Financial Conduct Authority.
Further information can be found 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 the SDCL Energy Efficiency
Income Trust Plc (''SEEIT'' or ''the Company'') for the year ended 31 March
2022.
The past year has set the scene for a watershed period for the energy
efficiency sector and the Company is well positioned to invest in solutions
that reduce carbon emissions, cut energy costs, and improve energy security.
At the beginning of the financial year, the COVID-19 pandemic was a dominant
risk for the global economy. Though the pandemic remains ongoing, associated
risks began to recede during the period in the Company's key markets and, in
the year, it has not had a material impact on the financial performance of the
investment portfolio.
Increasing focus on corporate social responsibility, environmental
sustainability, climate change and decarbonisation, and specifically on
limiting global warming to 1.5 ̊C, was galvanised by the 26(th) annual
Conference of the Parties to the United Nations Framework Convention on
Climate Change (COP26). Hosted by the United Kingdom in Glasgow, COP26
resulted in commitments to strengthen climate targets and phase down unabated
coal power. For the first time, energy efficiency was included alongside the
deployment of clean power generation in the "Calls Upon Parties" in the
Glasgow Climate Pact. In addition to the official negotiations, side
announcements and pledges were made to cut methane emissions, to end and
reverse deforestation by 2030, and to make all new car sales zero emission by
2040 and by 2035 in leading markets.
In 2021 there has been global supply chain dislocation, spiking of energy
prices and surging inflation for several months. Since February 2022 the
ongoing and tragic situation in Ukraine has had further massive impacts on
energy prices, supply-chains, and general inflation, making markets -
particularly energy markets - even more volatile and uncertain. The Russian
invasion of Ukraine has further highlighted the need for resilience in the
global energy system, including through diversification of energy sources,
large-scale, near-term clean energy solutions, energy cost mitigation and
energy security.
There is now an increasingly widespread recognition of the role that energy
efficiency can play, particularly in the short to medium term, in reducing the
amount of energy that the world uses by cutting waste both on the supply and
demand side. While the scale of the challenge to displace fossil fuels, which
still represent some 80% of the world's energy system, with lower carbon and
renewable energy is very large and will take time, energy efficiency measures
can be taken in the meantime and can reduce the amount of overall energy
needed. The global efforts to tackle the climate crisis and the latest climate
data only further underpin the urgency and growth drivers in the energy
efficiency sector. Many of our clients are committed to reaching net-zero
emissions by 2050 or before and most of the world recognises the urgency of
limiting global temperature rise to 1.5 ̊C.
Within the energy sector, efficiency may not be the whole answer, but it is
probably at least half of it. Efficient and decentralised energy generation
represents one of the largest and fastest growing investment categories of
energy and infrastructure markets 4 and the Company, as the first UK listed
investment company to invest exclusively in the energy efficiency sector, is a
market leader and well placed to continue to expand its diversified portfolio
of investments capable of delivering cheaper, cleaner, and more reliable
solutions to energy users.
Further information on the Investment Manager's activities is included in the
Investment Manager's Report in and the Investment Portfolio Summary.
Financial Performance
Profit before tax for the year ended 31 March 2022 was £79.8 million (2021:
£32.4 million) and earnings per share were 10.0 p (2021: 7.0p). The
Company's net asset value ("NAV") 5 at 31 March 2022 was £ 1,073.1 million
(2021: £693.8 million) and NAV per share was 108.4p (2021: 102.5p).
The Company's investment portfolio ("Portfolio Valuation") was valued at
£912.7 million at 31 March 2022, up from the Portfolio Valuation of £785.0
million at 30 September 2021 and £552.7 million at 31 March 2021,
predominantly as a result of investments made during the year which, along
with other movements in the Portfolio Valuation, are described in the
Valuation of the Portfolio section.
The Company's Ongoing Charges ratio(6) reduced to 1.00 % (2021: 1.13%),
benefitting from spreading costs across a larger net assets base. Further
detail on the Company's financial performance and the alternative performance
measures of Portfolio Valuation and Ongoing Charges can be found in the
Financial Review.
Investment cash inflow from the portfolio during the year ended 31 March 2022
was £64.7 million (2021: £42.1 million) on a Portfolio Basis(6) (see the
Financial Review for details), delivering 1.2x cash cover for interim
dividends paid during the year.
Total return on a NAV per share basis 6 for the year was 11.2%, comprising a
5.9p increase in NAV from 102.5p at 31 March 2021 to 108.4p at 31 March 2022
and total dividends paid during the year totalling 5.6p. Total return on a NAV
per share basis 7 since IPO is 8.1% p.a.
The Company's currency hedging strategy was successful in limiting the impact
on the NAV arising from material movements in foreign exchange rates. Further
details on the Company's hedging strategy can be found in the Financial
Review.
While yields and discount rates in the infrastructure sector continue to
tighten, improvements in the portfolio's value are also created from focused
investment and active asset management activity which is discussed further in
the Investment Manager's Report. Total return for the Company remains on
track against target and the Company's NAV has remained resilient as the
Investment Manager continues to effectively mitigate investment and portfolio
level risk amidst a challenging market backdrop.
Dividends
In line with previous guidance, in June 2022 the Company announced its fourth
interim dividend for the year ended 31 March 2022 of 1.405p per share,
providing an aggregate dividend of 5.62p per share declared for the year ended
31 March 2022 which was fully covered by net cash income and earnings. The
Company paid a total of £44.2 million in interim dividends during the
financial year which included the last quarterly dividend for the year ended
31 March 2021 and three quarterly dividends for the year ended 31 March 2022.
Based on the projected investment cash flows from the current portfolio
prepared by the Investment Manager and approved by the Board, the Company is
announcing new dividend guidance of 6.00 p per share for the year to March
2023 (an increase of 7%) and as before, targeting a progressive dividend
growth thereafter. See the Investment Manager's Report for further details.
The Company intends to continue to pay interim dividends on a quarterly basis
through four broadly equal instalments (in pence per share).
Investment Activity
The Company holds a single investment, its subsidiary SEEIT Holdco Limited
("SEEIT Holdco" or "Holdco") through which SEEIT's portfolio of investments
are held. During the financial year, SEEIT increased and diversified its
portfolio, making over £300 million of new investments and commitments. In
addition, the Company invested a further c. £37 million in the portfolio
after the financial year end. Details of these new investments are provided in
the Investment Manager's Report.
The Company's target geographies remain the UK, Europe and North America, plus
other countries where the Company can invest on a risk-adjusted basis to
secure returns that support its objectives.
The Company has carefully targeted key markets and technologies as it
continues to build and diversify its portfolio, including district energy,
green gas, solar and storage, geothermal, energy efficient motors and
chillers, and EV charging infrastructure.
The Investment Manager entered into new, exclusive framework agreements during
the year that demonstrate its ability to secure pipelines of further
investment opportunities from existing investments and relationships. A
significant proportion of the Company's investment activity during the year
came from follow-on investment opportunities, which is expected to continue.
Our investment strategy of targeting high credit quality counterparties and
providing services to key industries through contractual structures that limit
exposure to demand or commodity price risk is proving to be successful.
The Board is pleased with the timely deployment of capital into new and
follow-on investments during the year, which have been consistent with the
Company's targeted technologies and geographic markets. This success
demonstrates the Investment Manager's ability to source and secure attractive
investments that meet the Company's investment strategy and objectives.
Funding
The Company published a new prospectus in September 2021 (the "September 2021
Prospectus") which was followed by the successful £250 million capital raise.
This capital raise was the largest completed by the Company to date and was
well-supported by investors with strong demand.
In March 2022, despite volatile market conditions due to the Russian invasion
of Ukraine, the Company raised a further £100 million of capital (having
targeted £75 million), and provided the Company the opportunity to maintain
investment flexibility through prudent use of cash reserves.
The Company's share register has remained supportive and stable during the
past financial year and the Board thanks its shareholders for their continued
support in allowing SEEIT to pursue and achieve its objectives.
At the time of this report, the Group's gearing is approximately 34% of the
Company's 31 March 2022 NAV, on the basis of a look through consolidated debt
in the group, all of which is currently at investment level and in line with
the Company's target structural gearing of 35%.
Portfolio Performance
The Company's investment portfolio performance remained broadly in line with
projections during the financial year. Many of the operational assets within
the portfolio provide key services to essential industries and continued to
operate with minimal disruption, despite some challenges associated with the
COVID-19 pandemic, disruptions to the energy market due to the Russian
invasion of Ukraine and certain investments being affected by changes in
offtake requirements such as Ironside which is affected by the idling of the
blast furnace it provides energy services to. The Investment Manager remains
focused on minimising the Company's exposure to risks associated with energy
availability, input pricing, inflation, supply-chain disruptions, and
additional macroeconomic factors that are creating volatility across the
industry.
The Investment Manager places a significant emphasis on managing the
investment portfolio through its asset management function, not only to
protect the value of each investment but also to seek opportunities to create
additional value for stakeholders. It plays an active role, both in oversight
and in support of the management teams of its portfolio companies, with a
focus both on risk management and value improvement.
The Investment Manager succeeded in securing additional value for certain
portfolio investments, as well as identifying other accretive opportunities
despite the headwinds described above. Further details on matters that
specifically affected certain investments are described in the Investment
Manager's Report.
Sustainable Future and ESG
SEEIT focuses exclusively on energy efficiency investments that contribute to
a greener future. The Company is dedicated to accelerating the transition to a
net-zero carbon economy and delivering long-term value for shareholders and
society as a whole.
In November 2021, SEEIT published its second ESG report, wherein it reported
on the Company's ESG considerations and carbon savings achieved in the
investment portfolio in the previous year.
The Company recognises that in 2023 full disclosure on compliance with The
Task Force on Climate Related Financial Disclosures ("TCFD") is required. The
Company welcomes the adoption of the TCFD guidelines, and the Investment
Manager is working towards implementing the full scope of the disclosure
recommendations, which will allow the Company to highlight the intrinsic
environmental benefits of its investment activities, while also providing
valuable guidance on improving risk assessment and management approaches. This
is part of the Company's broader strategy for reporting on climate-related
issues and other ESG concerns, which includes TCFD.
See the ESG Management section for further details.
Board and Governance
The Directors' overarching duty is to promote the success of the Company for
the benefit of investors, with due consideration of other stakeholders'
interests. The Company seeks to maintain high standards of business conduct
and corporate governance, ensuring, via the Investment Manager, that
appropriate oversight, control, and policies are in place to ensure the
Company treats its stakeholders fairly.
The Board seeks to guarantee the alignment of its purpose, values, and
strategy with a culture of openness, debate, and integrity through ongoing
dialogue and engagement with key stakeholders.
During the year, following the 2021 board evaluation, the Board commenced a
recruitment process using a third party. This culminated in the Board
appointing Sarika Patel as an independent Non-Executive Director and also as
the chair of the Audit and Risk Committee, with effect from 1 January 2022.
Sarika will support the other Directors' skills through her experience. The
Board and the Investment Manager support equal opportunities in the
recruitment and management of employees, regardless of age, race, gender, or
personal beliefs and preferences.
Key Risks
The Board, its Audit and Risk Committee, and the Investment Manager monitor
the risks that the Company and its investment portfolio face on an ongoing
basis. Where relevant, mitigants against these risks are put in place in line
with the Company's risk appetite and adjusted over time as necessary.
The majority of the risks identified, including the principal risks, affect
only the Company's investment portfolio and therefore potentially impacts the
Company, its performance and its ability to achieve its investment objective
only indirectly.
The principal risks for the Company and its investment portfolio are described
below:
· Credit risk of contracted counterparties
· Operational risks that may impact day-to-day operations
· Global macroeconomic factors
The principal risks to the Company have not changed materially from the prior
year. The economic and political consequences of the Russian invasion of
Ukraine have introduced an entirely new level of uncertainty to markets
globally. The Investment Manager, through its asset management team, is
monitoring these events with a view to mitigate their potential impacts on the
Company where possible.
Pipeline and Outlook
SEEIT benefits from a substantial pipeline of new investment opportunities.
SEEIT's target markets are also expected to continue to grow. Market drivers
include increasing levels of focus on decarbonisation targets in the public
and private sectors globally, the need for increased energy security and
resilience, and relatively high and volatile energy prices. These factors
continue to drive demand for on-site generation, efficient distribution, and
demand side reduction solutions to the challenges faced by commercial,
industrial and public sector clients.
The Investment Manager has remained very selective in making new investments,
with a limited number of the new opportunities it sees making it to the stage
of being reviewed by the Investment Committee. Looking ahead, organic growth
of the existing SEEIT portfolio makes up, by value, around half of the
near-term pipeline through follow-on opportunities, often at pre-agreed rates
of return, while the Investment Manager continues to explore the most
attractive secondary market investment opportunities for new investments.
The current investment pipeline has a good balance of smaller and larger
opportunities, often involving bilateral negotiations where the Investment
Manager has a particular strength or relationship, which helps the Company
avoid competitive processes where possible. The Investment Manager exercises
robust pricing discipline when evaluating any opportunities within its target
markets and geographies.
In conclusion, we are pleased to report on another successful year for the
Company. I would like to thank our shareholders again for their continued
support. The Company is well positioned to deliver upon our stated investment
objectives.
Tony Roper
Chair
INVESTMENT MANAGER'S REPORT
The Investment Manager
Sustainable Development Capital LLP ("SDCL", or the "Investment Manager") is a
leading and specialist investor in energy efficiency infrastructure.
SDCL was established in 2007 and has a proven track record of financing,
investing in and developing clean energy, energy efficiency and decentralised
energy infrastructure projects in the UK, Europe, North America and Asia.
SDCL was launched to facilitate investment into environmental infrastructure
markets and has always focussed on investing in projects that are good for the
environment, good for people and commercially sustainable.
Market Review for Energy Efficiency
During the financial year, Europe and North America started to emerge from
Covid-19 lockdowns. Economies rebounded with a combination of demand and
stimulus-fuelled growth. Supply chain and resource constraints added to high
inflationary trends. Energy prices escalated in the second half of 2021 in
Europe against a background of, amongst other things, low wind yields and
insufficient storage of gas, highlighting energy security vulnerabilities,
notably in Europe. Gas markets responded globally, with substantial price
volatility that continued throughout the financial year. No sooner had the
United Nations climate change conference in Glasgow, COP26, aligned countries
on the objective to work towards net zero and limiting global temperature rise
to a 1.5 ̊C above pre-industrial levels, the energy price and security
crisis took on another geo-political dimension as Russia invaded Ukraine.
Alongside the terrible human tragedy associated with the loss of life,
suffering and displacement resulting from the war in Ukraine, Europe has been
confronted with a critically challenging question: how to replace the 40% of
natural gas that it sources from Russia. 8 The answers are uncomfortable.
80% 9 of the world's energy is generated from natural gas, oil, and coal.
Replacing Russian gas, and oil, with alternative sources of conventional and
clean energy takes time and substantial investment.
Meanwhile, the world is wasting much of the energy it is producing. The World
Economic Forum demonstrated that in 2019, the United States lost some 70% of
its original energy through conversion, generation, transmission, and
distribution losses before getting to the point of use. This is another
uncomfortable truth, but one that we believe is crucial to address. However,
there are encouraging signs that international governments have recognised the
vital role that energy efficiency can play are encouraging. For example, the
Glasgow Climate Pact signed at COP26 called for energy efficiency, for the
first time, alongside clean power generation. The European Commission
increased prioritisation of its "energy efficiency first principle" in a
recast Energy Efficiency Directive and guidelines on its application.
The conditions of acute energy security needs, high energy costs, and the
urgency to decarbonise all point towards energy efficiency, which is one of
the largest, fastest, and cheapest sources of greenhouse gas emission
reductions, economic productivity and resilience and energy security.
The IEA refers to energy efficiency as the "first fuel". SEEIT's portfolio is
uniquely focussed on solutions that reduce generation, transmission and
distribution losses through on-site generation, storage, and efficient
distribution at local, municipal or district level. It is also investing in
demand side measures such as lighting, heating, ventilation, air conditioning,
building management systems and controls. Taken as a whole, investing in
energy efficiency improves the energy system, so that when the new clean
energy generation does eventually arrive at scale, it's not wasted.
Objectives and dividends
During the financial year, the Company achieved its financial objectives by
generating sufficient net income from its investment portfolio to support its
dividends and a positive NAV total return, consistent with its targets.
The Investment Manager prepared projections for the Directors and proposed
6.00 pence per share for the target dividend for the year ending 31 March
2023, an increase of approx. 7%. In making the proposal, the Investment
Manager took into account a number of factors. These included the new
investments made during the year, projected levels of cash generation from the
investment portfolio, excess of earnings and cash flow over dividends paid in
prior years and the current inflationary environment across the geographies in
which the investment portfolio operates. The aim of the Company is to
continue to deliver future capital growth and to target of covering the future
progressive dividend with earnings and cash flow.
Growth
The Company's portfolio increased by over £300 million during the year,
through 12 investments. The value of the Company's investment portfolio,
including portfolio company leverage, surpassed £1 billion, compared to £100
million at IPO.
Diversification
Thanks to shareholder support for two new equity issues during the year that
raised £350 million, the Investment Manager was able to achieve further scale
and diversification for SEEIT by geography, technology, industry and
counterparty, described further below.
Geographically, SEEIT added new investments to its portfolio in the United
States, which now covers nearly every State. In Europe, SEEIT gained exposure
to a new country, Portugal, through its acquisition of an operational green
CHP system from, and establishment of a strategic partnership with, Sonae
Group.
By technology, SEEIT expanded its portfolio of lighting and green CHP
projects, so further diversifying its supply chain and end markets. In
addition, it added exposure to new markets by funding the energy efficiency
measures for the first certified net zero multi-family residential building in
the United States and entered the United States biogas market, serving the
Californian low carbon transport fuels market by financing the generation of
green gas upstream, reducing the fugitive emissions from dairy farms. Post
period, SEEIT added new investments in geothermal district energy, liquid
cooling for datacentres and rare-earth free energy efficient motors.
Risk Management
The Investment Manager constantly monitors the portfolio for risks, seeking to
identify and to actively mitigate them.
Credit risk mitigation is a key priority. The Investment Manager has sought to
ensure that the majority of the portfolio's revenues are associated with
investment grade clients (approx. 60% by investment value of the investment
portfolio as at 31 March 2022) and, further, that the investments are
providing essential energy services to essential infrastructure assets or
facilities, such that they will continue to be needed even if there is a
change of ownership. New investments during the year were made with the
objective of maintaining a diversified portfolio of credit counterparties.
During the year, and indeed since IPO, the Company has not suffered from any
material losses from credit defaults in the underlying investment portfolio.
The investment portfolio companies benefit from over 300 full time employees
at portfolio level, in addition to the team of over 45 at the Investment
Manager.
Performance risk mitigation is an ongoing and active function of the
Investment Manager, aimed at minimising the chances of operational disruption
causing a loss in revenues to the Company from the underlying investments.
This involves ensuring that appropriate operation and maintenance teams and
contracts are in place for new investments, that availability of energy
services is maintained at the levels required by clients and that warranties
or guarantees as to performance from suppliers are enforced if required. The
Investment Manager has also reviewed its insurance strategy across the
portfolio to ensure suitability and value for money from the insurance
programme and continued level of coverage across the projects.
The Company's revenues from underlying investments can be affected, in some
cases, by changes in utilisation of assets by clients. This can occur where
investments have 'capacity-based' revenues, which are derived principally from
a contractual right of first despatch, whereby an off-taker agrees to pay for
a volume of output to the extent that it has demand for it. This differs from
revenues that are 'availability-based, regulated or pre-determined', which are
derived principally from making an investment's asset available for use and
that do not depend substantially on the demand for or use of the project. Most
of the Company's investments have availability-based, regulated or
pre-determined revenues (approx. 77% by investment value of the investment
portfolio as at 31 March 2022) but in some cases they have capacity-based
revenues (approx. 18% by investment value of the investment portfolio as at 31
March 2022) , such as Ironside and PCI in the Primary Energy portfolio.
During the financial year, expectations for future demand lowered at two of
the five investments in the Primary Energy portfolio. One case was at Ironside
with the announcement in February 2022 of the idling of Indiana Harbor number
4 blast furnace ("IH4"). The other case was at PCI in conjunction with a
planned transition to lower carbon solutions over time. The Investment Manager
is working closely with the Primary Energy management team and the client,
Cleveland Cliffs, to re-configure the Ironside investments to serve other
blast furnace needs at Indiana Harbor, and also to assist the client to
identify solutions at PCI, which is a joint venture with Cleveland Cliffs. At
the same time, the Investment Manager and the Primary Energy management team
will be engaging with the client on the upcoming re-contracting at Cokenergy.
The net incremental impact on the valuation as at 31 March 2022 from the
operational challenges and opportunities at Primary Energy was however limited
to less than £10 million.
The Company's revenues from underlying investments can also be affected by
development and construction risks, including delays. Most of the Company's
investments are in the operational phase but in some cases, such as Onyx's
portfolio, they involve development stage projects. During the financial year,
the impact of and expectations for delay to some project developments
increased due to supply chain and other Covid-related factors. Nonetheless,
the Onyx pipeline grew in volume and quality during the year. The Investment
Manager worked closely with the Onyx management team and with its
co-shareholder Blackstone to pro-actively grow the pipeline, as well as to
strengthen and support the management team, systems and processes to ensure
that risks can be managed so that Onyx can be in the best position to address
a large and growing market opportunity.
The Company's revenues from the underlying investment portfolio are exposed to
macro-economic factors, including foreign exchange rate fluctuations, and
volatile inflation and interest rate environments.
Financial risk mitigation during the year included an effective foreign
exchange hedging strategy which resulted in minimal impact on the Company's
NAV from fluctuations in foreign exchange rates. In addition, the Investment
Manager sought, where possible, opportunities to ensure that any exposure to
energy or commodity prices are mitigated or passed through under contracts
over the medium to long term. In certain areas of any potential residual risk
exposure, for example on EU ETS costs in Spain, the Investment Manager
implemented forward hedging to help manage the rising cost of certificates and
the short-term impact on costs and cash flow.
Given the challenges faced across Europe with rising gas prices, the
Investment Manager has also implemented a short-term gas hedging strategy
across Vartan Gas and Oliva Spanish Cogeneration to manage the short-term
impact of this on the free cash flow within these investments. The Investment
Manager has also established an internal gas procurement division at Oliva
Spanish Cogeneration, which it considers is valuable, to manage risks of
fluctuating prices and supply interruption, and to optimise return through
closer and more efficient alignment with the operations of the five natural
gas fuelled investments within Oliva Spanish Cogeneration.
In addition to physical and financial risk management, the Investment Manager
has also conducted a comprehensive review of cybersecurity across selected key
investments during the year. No critical issues were flagged in the review and
the Investment Manager has already commenced actioning recommendations that
have come out of the exercise.
Value Protection and Creation
The Investment Manager seeks to generate added value for shareholders over the
short, medium and long term.
Examples of short-term value creation include the making of investments on
attractive terms. In the case of new investments, this involves discipline on
purchase price and upside opportunities. In the case of operational assets, an
example was the incremental investment in Primary Energy in September 2021
through the exercise of an option previously agreed on attractive terms. In
the case of construction phase assets, an example was Biotown Ag, where
discount rates can be expected to reduce as the investment moves from
construction to operational phase and construction risk becomes sufficiently
mitigated.
Over the medium term, value protection and creation can involve adding
capacity to drive revenues, rationalising costs and/or otherwise improving
margins. Successful examples on operational assets have included, in the case
of Oliva Spanish Cogeneration, a combination of vertical integration by
in-sourcing fuel supply and forward purchasing of EU ETS.
As regards assets under development or construction, the Investment Manager
has actively supported platform companies such as the EV Network in
structuring and securing key contracts, for example with bp pulse and ESB. The
Investment Manager had active involvement in the negotiation of material
contracts with offtakers, helping to accelerate roll-out of the fast-charging
network and negotiating the right to convert a proportion of development
capital to equity on pre-agreed terms with EV Network, the company managing
the roll-out. The Investment Manager believes that the exercising of this
right to convert will lead to additional value for the Company.
In the case of Onyx Renewables, the Investment Manager has worked closely with
its partner and co-shareholder, Blackstone, to drive additional pipeline
generation and to seek synergies across SEEIT's portfolio by making
introductions to other SEEIT portfolio companies, with the objective of
further enhancing Onyx's valuable position as one of the top ten commercial
and industrial solar platforms in the United States.
Another example is RED, where the Investment Manager has been working to
identify and invest in accretive projects that provide additional energy
services to existing and new customers, as well as to identify new energy
efficiency initiatives.
Over the longer term, the Investment Manager is focussed on business strategy
and the opportunity for significant growth in certain investments. A good
example is Vartan Gas, Stockholm's gas grid. The Investment Manager stated, at
the point of acquisition, its environmental objective of increasing the biogas
content from 70% to 100% over time. Currently, the biogas content is on track
at approximately 80%. The Investment Manager believes that there is additional
environmental and economic opportunity in leveraging the network to offer
additional services, including electrical, as well as to service new transport
markets beyond the existing bus networks. The Investment Manager is also
exploring opportunities to expand downstream into on-site combined heat and
power generation and, over the longer term, the role that its distribution
assets might play in the distribution of hydrogen. These upsides will however
take time, and in some cases years, to realise.
Organic Origination
A key feature of SEEIT's growth and competitive advantage has become the
follow-on investment opportunities that arise from its existing portfolio,
through investment in assets or commitments to platforms, or what the
Investment Manager refers to as SEEIT's "organic" pipeline. Examples include
the series of projects that SEEIT has invested in under the rights of first
refusal or other arrangements that it has with Sparkfund in the US and the EV
Network in the UK, and the development of future investment opportunities in
onsite solar generation that the Onyx management team specialises in. These
arrangements generate substantial volumes of deal flow, often at pre-agreed
rates of return, which provides defensive characteristics in a competitive
environment.
Acquisitions in the Market
The Investment Manager has continued to be selective in its approach to
acquisitions in the market. It has continued to exercise pricing discipline
and has preferred to make investments through a private or bilateral
negotiation with a vendor, rather than through a competitive auction process
competing on price alone.
During the year the Investment Manager secured significant new investments in
Red Rochester and FES Lighting in the USA, Capshare in Portugal, and
incremental stakes in Primary Energy and Oliva Spanish Cogeneration. These
investments were all secured through private or bilateral negotiations and
added to the investment portfolio to achieve further diversification and
enhance the Company's ability to deliver on its stated objective.
The Investment Manager has seen similarly high levels of investor appetite and
therefore competition for district energy assets in Europe and North America
and has therefore preferred to adopt a strategic or buy-and-build strategy as
opposed to pursuing existing platforms at high prices.
During and shortly after the period end, the Company made its first
investments from the new allocation of up 3% of gross asset value to
developers, operators or managers of energy efficiency projects, in accordance
with the modification of the Company's Investment Policy in August 2021. These
investments offer the Company exposure to potentially 'breakthrough', although
commercially proven, technologies, together with the opportunity to invest in
a scalable pipeline of projects. One of these investments involved a US$10
million investment in Turntide, a company that manufactures energy efficient
motors that do not use rare earth minerals, together with a negotiated
opportunity to invest up to US$100 million in project opportunities. Another
of these investments involved an investment of £3 million in a company that
offers an energy efficient cooling solution for data centres, Iceotope,
together with a negotiated opportunity to invest up to another £100 million
in project opportunities. Both investments were made alongside several other
high quality institutional investors.
Active Asset Management of Investments
In addition to overseeing the portfolio and each investment, the Investment
Manager carefully considers emerging geopolitical and macroeconomic
developments that may impact the performance of the investments. In the
current market -- made increasingly volatile due to extenuating circumstances
such as the COVID-19 pandemic, supply chain disruptions, inflation, energy and
carbon price volatility and most recently the Russian invasion of Ukraine -
seeking to mitigate risks associated with external circumstances is essential.
The Investment Manager's team consists of investment professionals with
experience in portfolio management, asset and risk management, managing
construction and operation and maintenance (O&M) contracts and ESG
Management. Further information can be found in the ESG Management section.
Focussing On Performance
The Investment Manager seeks opportunities to improve margins and returns,
whether by increasing capacity, unlocking new sources of revenue, or
addressing cost inefficiencies. For example, in the case of its Oliva Spanish
Cogeneration portfolio in Spain, the Investment Manager put in place measures
to improve the cost efficiency of fuel gas by bringing in house at investment
level the gas procurement. Other examples included establishing priorities to
expand revenue streams and increase biogas content in the Värtan Gas
investment in Stockholm and actively developing pipeline opportunities with
Onyx. The Investment Manager also seeks opportunities for collaboration
between portfolio companies.
The portfolio is managed through a combination of:
· Over 45 employees at SDCL, plus over 300 full time employees at the
project level, predominantly dedicated to "on the ground" operations of the
Company's largest assets in the UK, Europe and North America; and
· Coordinated full time presence on-site, teams of professional
advisers and active day-to-day involvement by the Investment Manager's
management team, including a team of senior and experienced professionals
focused solely on driving value through asset management and improvement.
The Investment Manager typically seeks to maintain influence and control over
investments through board representation and to secure protection through
financing and contractual arrangements. The Investment Manager seeks to retain
the right to step in and replace subcontractors in the event of
underperformance.
The Investment Manager is particularly focused on maintaining health and
safety, reporting on and improving ESG factors, enhancing the value of its
services, identifying and mitigating risks, and developing the skills of
individuals involved in managing investments in the portfolio. The Investment
Manager is in the process of undertaking a periodic review of its health and
safety governance programme to ensure it is consistent across all investments
and remains fit for purpose as part of the management of the overall
investment portfolio.
Long-Term Contracted Cash Flows
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 have potential to 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.
Certain investments also assume that cash flows will continue beyond the
current contractual period - further details are in the Valuation of Portfolio
section.
Once operational, investments provide attractive levels of cash distributions
and running yield, and are designed to achieve relatively high, contracted,
and predictable cash flows. The quality of this running yield is enhanced
through investments with strong delivery partners, where the risks involved in
implementation, operation, and the associated revenues can be identified and
mitigated.
Exploring co-investment opportunities
As set out in the Company's investment policy, the Company may co-invest
alongside one or more co-investors, which could include investment companies,
other financial investors, or strategic investors in the relevant sector.
The Investment Manager will consider co-investment opportunities where it
believes such opportunities to be in the best interests of the Company, for
instance, to manage the Company's exposure to an investments or counterparty
and ensure compliance with investment policy restrictions.
Outlook
Overall, SEEIT's portfolio has grown to scale and benefits from a critical
mass to support diversified income and growth opportunities from a combination
of organic as well as new investment.
The market background and outlook provide tailwinds for energy efficiency,
given that energy efficiency is more valuable than ever as a solution to
economic, climate and energy security challenges.
SEEIT will continue to focus on operational investments and to a more limited
extent, on investments in the development or construction phase that the
Investment Manager considers can be commissioned within a short period of time
following commitment and at low risk that project commissioning will overrun
(both in terms of time and budget). The Investment Manager will seek
opportunities to improve margins to achieve capital gain from operational
projects, as well as to seek NAV growth through acquisitions at attractive
prices or through development and construction stage projects that can be
commissioned quickly to generate total return.
Against an outlook of heightened risks to energy prices, energy security and
decarbonisation, energy efficiency has a crucial role to play, with the
potential to offer large scale, proven, rapid and cost-effective solutions.
The Investment Manager believes that SEEIT is well placed to continue to
perform and grow.
ESG MANAGEMENT
Through its focus on energy efficiency solutions, SEEIT's investments provide
positive environmental outcomes by reducing overall energy-related greenhouse
gas emissions. However, in addition to environmental issues, the Company has
evolved its ESG approach to integrate a broader range of material social and
governance issues centred on key focus areas that maximise long term value
creation for both investors and society.
SEEIT's Responsible Investment Policy, outlined above, sets out four focus
areas that provide the Company an ESG lens with which to view its operations.
The Responsible Investment Policy acts as the nexus of the Company's ESG
considerations and is thus carried out in SEEIT's entire ESG management
process.
The Company's ESG Management process sets out how material ESG risks and
opportunities are identified, systematically analysed and assessed, monitored
and managed throughout the investment lifecycle of projects, from initial
screening and due diligence to acquisition and asset management.
The Investment Manager's focus on developing and investing in energy
efficiency solutions signifies the Company's involvement in decarbonising
energy production and thus facilitating net-zero. As part of that commitment,
the Investment Manager strictly monitors, with the intention of abating, the
Company's climate risks and related impacts. This includes key performance
indicators which are used to measure, monitor, and manage ESG outcomes.
ESG Management
Responsible Investment Policy
The Company's commitment to facilitating net-zero
(https://www.seeitplc.com/wp-content/uploads/2020/09/SEEIT-Responsible-Investment-Policy-280920.pdf)
is an integral aspect to its Responsible Investment Policy, the purpose of
which is to set out the Company's approach to responsible investment and
incorporate its considerations into its investment decision-making and
monitoring processes. This policy applies to all of the Company's investments
and is overseen on a day-to-day basis by the Investment Manager.
The Company's focus in looking at the material ESG issues in its investments
covers four principal areas:
1. Aiding the transition to a net-zero carbon economy by maximising
energy efficiency through its investment strategy and operations
2. Pro-actively minimising the environmental footprint of operations
through managing negative impacts, such as waste, biodiversity loss, and
emissions
3. Securing robust governance and business integrity, including
assessing resilience to physical climate risk and engaging as an active
participant on ESG with its delivery partners
4. Providing safe, diverse, and inclusive environments for all workers,
contractors and members of the community who use or encounter its projects
The Company's Responsible Investment Principles govern the ESG management
process to make sure that sustainability, and specifically the energy
transition, are incorporated into the governance of our operations.
The Investment Manager is responsible for implementing SEEIT's ESG policy
under instruction and supervision of the Board. The Investment Manager then
oversees all aspects of ESG policy and implementation, including how ESG
considerations, such as climate-related factors, are incorporated into
processes for investment appraisal and asset management.
The investment appraisal process is conducted in two main stages with early
identification of climate-related and other ESG issues during the first phase
followed by detailed due diligence to resolve any identified concerns and
confirm that climate-related targets will be met during project operation.
Climate-related performance targets for all portfolio projects are monitored
and reported quarterly. This informs any interventions and is reflected in
quarterly reporting to the Company's Board.
Mitigating our Climate Impacts
Calculating GHG Emissions
The Investment Manager is dedicated to mitigating the Company's climate
impacts through its ESG management process, which gathers climate-related
performance data quarterly. One of the most critical datasets gathered from
investments are their relevant carbon emissions. The Investment Manager
calculates carbon savings, renewable electricity and heat generated, and
energy efficiency savings each reporting period based on power usage data
recorded at the investment level. The Investment Manager also calculates Scope
1, 2 and 3 emissions based on the guidance from the Greenhouse Gas Protocol,
which is the most comprehensive and globally standardised framework to measure
and manage GHG emissions.
Due to the operational and organisational boundaries the Investment Manager
set with regards to the Greenhouse Gas Protocol, the Company considers the
Scope 1 and 2 emissions of its underlying investment portfolio to be its own
Scope 1 and 2, instead of considering them as "Investments" under Scope 3.
This allows the Investment Manager to take a critical look at the Scope 1,2
and 3 emissions of the Company's investments in order to create detailed and
strategic plans for abating them.
Net-Zero Strategy
The Investment Manager is committed to aligning the Company's portfolio with
the International Energy Agency's net-zero scenario, recognising the
importance of decarbonising power generating assets to follow the sectoral
decarbonisation pathway. The Investment Manager's ESG Team has reviewed the
Science Based Target Initiative and created an internal timeline and working
group to analyse decarbonisation scenarios for the Company's highest emitting
assets. The ESG Team continues to monitor existing and potentially
'breakthrough' technologies and other innovative solutions to reduce climate
impacts of the Company's projects.
The Investment Manager also considers the impact of future investments on
net-zero and will continue to pursue projects that facilitate the global
energy transition.
Climate Risk Management and Resilience of Strategy
SEEIT considers the resilience of its strategy in terms of the impact of
climate-related risks on its portfolio and on the prospects for new
acquisition or development opportunities in the future, on its pipeline.
In terms of the investment portfolio, the Investment Manager is considering
how different climate-related scenarios would impact investments and related
revenues and costs over time. This includes consideration of both transition
risks and physical risks which are assessed during investment appraisal and on
an on-going basis as part of asset management. The scenarios considered
reflect general assumptions about short-, medium- and long-term
climate-related impacts under a range of scenarios and are assessed in terms
of project specific impacts.
This approach enables SEEIT to identify climate-related risks relevant to each
project against which mitigation measures and plans are formulated. In line
with evolving Task Force on Climate-Related Financial Disclosure (TCFD)
guidelines, the Investment Manager's ESG team is now working to model the
long-term climate risks associated with SEEIT's investments depending on
specific IPCC scenarios and will suggest specific actions to mitigate the
Company's risk exposure.
For new acquisition and development opportunities the Company considers the
impact of climate-related scenarios in making decisions about the technologies
and markets to focus on. Whilst this involves commitments to deploy
resources to new regions and to develop new technology partnerships the
Company can adapt its business development strategy in the medium to long term
to take account of impacts suggested by climate-related scenario analysis as
they evolve.
Task Force on Climate-Related Financial Disclosures ("TCFD") Guidelines
The Investment Manager and the Company supports the importance of adhering to
TCFD to maintain consistent climate-related financial risk disclosures and
indicate the opportunities for investments related to the energy transition.
The TCFD regulations are not yet mandatory for the Company. Sustainability and
climate are integral aspects of the Company's overall operations, as reflected
in many of the disclosures outlined in this report and mapped out below for
reference.
In the year ahead the Investment Manager will continue to progress relevant
matters as the Company prepares to fully adopt TCFD.
INVESTMENT PORTFOLIO SUMMARY
Investment Update
During the financial year, SEEIT successfully increased the scale of its
portfolio, investing over £300 million in new investments and commitments.
The Investment Manager has actively sought to make investments in a wider
range of technological solutions for energy efficiency. For example, since 31
March 2021, SEEIT has made investments focused on supply and distribution and
demand reduction involving:
- Geothermal district energy
- Biomass (forest waste) fuelled combined heat and power
- Green gas (agricultural waste) combined heat and power and gas
grid injection
- Net zero carbon residential homes
- Industrial motors, controls and batteries
- Datacentre cooling
The Company started the year with approximately £126m of cash and no
revolving credit facility ("RCF") debt drawn. The available cash and RCF was
used to acquire the Red Rochester and SOGA investments for c. £140m, commit
an initial c. £10m out of a total of £22m to Biotown, pay the fourth
quarterly dividend in June 2021 and be available for general working capital
purposes. In September 2021 the Company published a new prospectus with a
twelve-month share issuance programme and completed a £250m capital raise
shortly thereafter.
The proceeds were partially used to repay approximately £70m of debt under
the RCF held by SEEIT Holdco, and £34m was used to acquire the remaining 35%
stake in the Primary Energy portfolio in September 2021. The remainder was
utilised, committed or allocated to new investments, including FES Lighting
and Sustainable Living Innovations, and follow-on investments, including EV
Network, Onyx and Spark US Energy Efficiency II.
A further £100m capital raise was concluded in March 2022 (see Financing
Update below) and the proceeds supported the Company's c.£32 million
investment in Capshare and allocations to follow-on investments and
opportunities, including Turntide, Baseload and Iceotope.
Investment activity since 31 March 2021
Project Investment/Commitment Date Type Location Commitment
During the Financial Year Ended 31 March 2022
SOGA April 2021 New Singapore & Vietnam c. £2m
RED April 2021 New USA c. £139m
Tallaght Hospital May 2021 New Ireland c. £6m 10
Biotown July 2021 New USA c. £22m 11
Lycra September 2021 New Singapore c. £3m 12
Primary Energy September 2021 Follow-on USA c. £34m
Sustainable Living Innovations October 2021 New USA c. £4m
FES Lighting November 2021 New USA c. £16m
Capshare March 2022 New Portugal c. £32m
EV Network Various in year Follow-on UK c. £8m
Onyx Various in year Follow-on USA c. £21m
Spark US Energy Efficiency II Various in year Follow-on USA c. £11m
After the Financial Year Ended 31 March 2022
Baseload May 2022 New Sweden c. £21m 13
Turntide May 2022 New USA c. £8m
Iceotope June 2022 New UK c. £3m
Biotown Various in the period Follow on USA c.£1m
Onyx Various in the period Follow on USA c.£18m
Spark US Energy Efficiency II Various in the period Follow on USA c.£3m
Tallaght Hospital Various in the period Follow in Ireland c.£2m
EV Network Various in the period Follow on UK £6m
FES Lighting Various in the period Follow on USA c.£2m
Portfolio Analysis
The below table provides a summary of the Company's total portfolio as at 31
March 2022:
Country Project Phase Customer Industry Technology Overview
Ireland Tallaght Hospital Construction Tallaght Hospital Healthcare: Hospital Combined Heat and Power (CHP), Heating, Ventilation, and Air Conditioning Energy efficient measures for one of Ireland's largest hospitals, resulting in
(HVAC), Building Management Systems (BMS) and other Energy Efficiency (EE) more efficient generation of power onsite as well as overall reduction in
solutions consumption of power on-site
Portugal Capshare Operational Sonae Arauco PT and Portuguese energy market Industrial: Manufacturing Biomass Onsite efficient generation of renewable heat and electricity
Spain Oliva Spanish Cogeneration (includes nine investments) Operational Spanish energy market and olive processing plants Industrial: Food production CHP, biomass and olive processing plants Onsite efficient generation of heat and power to support the process of
recycling waste from olive oil production for energy production as well as
secondary olive oil products
Sweden Värtan Gas (consisting of Gasnätet and Stockholm Gas) Operational 54,000+ customers Utility: Biogas and natural gas supply Biogas and natural gas pipeline Gas supply and distribution to buildings and transport across Stockholm, with
high levels of system efficiency
United States Onyx (includes five investments) Operational, construction and development pipeline 70+ off takers across 200+ assets Public and private sector Solar and energy storage Onsite solar and battery energy storage providing efficient renewable power
for public and private sector customers
Primary Energy (includes five investments) Operational Cleveland-Cliffs and US Steel Industrial: Steel production CHP, Steam turbines, and pulverized coal injection plant Recycling of waste gases from steel processing as well as other fuel sources
to produce onsite energy to the customer sites that is more efficient and
cleaner than the grid
Spark US Energy Efficiency I Operational, construction and development pipeline Various Commercial: Various Lighting and energy efficiency measures Multi technology energy efficiency measures in buildings for small and
medium-sized companies, resulting in decrease in consumption of energy onsite
Spark US Energy Efficiency II Operational, construction and development pipeline Various Commercial: Various Lighting and energy efficiency measures Multi technology energy efficiency measures in buildings for small and
medium-sized companies, resulting in decrease in consumption of energy onsite
RED Rochester Operational 100+ companies Industrial: various Multiple energy and utility services Onsite efficient power and heat generation and distribution, as well as
energy, water and waste management for industrial and commercial companies
located within a large commercial and industrial business park
Biotown Operational and expansion construction NIPSCO, a public utility Utility: Biogas and green gas supply Biogas fired energy generation Conversion of agricultural and food waste into biogas for energy generation
and green gas supply
Northeastern US CHP Operational Various (eight) Commercial: Various CHP Onsite efficient generation of power and heat for the public and private
sector customers
SLI Construction Sustainable Living Innovations Residential Direct energy efficiency systems, solar and control systems Direct energy efficiency systems, solar and control systems in the building,
which collectively support the Net Zero Energy designation of 303 Battery
Street building in Seattle
FES Lighting Operational, development pipeline Various Commercial: Various Lighting Energy efficiency though lighting retrofits for a range of mainly small and
medium sized companies, resulting in decrease in energy consumption onsite
United Kingdom Moy Park Biomass Operational Moy Park Industrial: Food Production Biomass boilers Onsite and efficient generation of renewable heat
Santander UK Lighting Operational Santander plc Commercial: Banking Lighting and energy efficiency measures Energy efficient measures for buildings including more efficient lighting,
resulting in decrease in consumption of energy across the customer's site
Huntsman Energy Centre Construction Huntsman Industrial: Polyurethane manufacture Steam raising boilers Recycling and reduction of waste gases from chemical manufacturing to produce
onsite and efficient energy to the site
Citi Riverdale CCHP Operational Citigroup Data centres: Banking Combined Cooling, Heat and Power (CCHP) Onsite and efficient combined cooling and power for a data centre
Moy Park Lighting Operational Moy Park Industrial: Food Production LED lighting Efficient lighting, resulting in decrease in consumption of energy across the
customer's estate
GET Solutions Operational Holiday Inn and Crowne Plaza hotels Travel: Hotels CHP Onsite and efficient generation of heat and power
St Barts CCHP Operational St Bartholomew's Hospital Healthcare: Hospital Combined Cooling, Heat and Power (CCHP) Onsite and efficient power, heating and cooling for England's oldest hospital
Supermarket Solar UK Operational, construction and development Tesco plc Commercial: Retail Rooftop solar Onsite solar projects providing efficient renewable power to the customer's
sites
EV Network Construction Charge point operators (e.g. BP Chargemaster, ESB Energy) EV Infrastructure Electric vehicle charging stations Rapid and ultra-fast EV charging stations, providing enhanced system
efficiency compared to petrol or diesel
Kingspan Holywell Solutions Operational Kingspan Industrial: Manufacturing Lighting and energy efficiency measures Energy efficient measures for building materials manufacturing site, resulting
in decrease in consumption of energy on the customer site
SmartEnergy Operational Various Industrial: Various CHP, HVAC, BMS and other EE solutions Energy efficient measures for small and medium-sized businesses, resulting in
a decrease in consumption of energy on customer sites
Singapore SEEIPL (includes three projects) Operational Various Industrial: Various Chillers and compressors Energy efficient chillers and compressors, resulting in decrease in
consumption of energy on customer sites
Lycra Construction The LYCRA Company Industrial: Manufacturing Chillers Energy efficient chillers, resulting in decrease in consumption of energy on
customer sites
SOGA (located in Vietnam) Operational Various Industrial: Manufacturing Rooftop solar Onsite solar projects providing efficient renewable power to the customer
sites
COMPANY KEY PERFORMANCE INDICATORS
The Company sets out below its financial, operational and climate-related key
performance indicators (KPIs) that it uses to track the performance of the
Company over time against the objectives as described in the Strategic Report.
The Board believes that the KPIs detailed below provide shareholders with
sufficient information to assess how effectively the Company is meeting its
objectives. The Board monitors these KPIs on an ongoing basis.
Financial KPIs
KPI Definition 31 March 2022 31 March 2021 Commentary
Net Asset Value ("NAV") per share (pence) NAV divided by number of shares outstanding as at 31 March 108.4p 102.5p NAV has increased compared with the prior year due to earnings per share of
10.0 pence exceeding the dividend paid of 5.6 pence - see the Financial
Review.
Share price (pence) Closing share price as at 31 March 117.5p 112.0p The share price has generally continued to grow steadily during the year
despite market volatility
Dividends per share (pence) Aggregate dividends declared per share in respect of the financial year 5.62p 5.5p The dividend increased year on year due to predictability of cash generation
from portfolio plus new investments made previously. The Company met its
stated dividend targets for the years ended 31 March 2021 and 31 March 2022.
Dividend cash cover (x) Operational cash flow divided by dividends paid to shareholders during the 1.19x 1.17x The target was for net operational cash inflow to fully dividends paid. The
year Company met its target for the years ended 31 March 2021 and 31 March 2022.
Total Return on NAV basis in the year (%) NAV growth and dividends paid per share in the year 11.2% 8.0% NAV growth in the year (described above) resulted in strong financial
performance for the year. In both years the Company exceeded its target of
7-8% p.a. (based on IPO price).
Ongoing charges ratio (%) Annualised ongoing charges (i.e. excluding investment costs and other 1.00% 1.13% Reduced year on year by benefitting from the growth in NAV and therefore
irregular costs) divided by the average published undiluted NAV in the period, spreading costs across a larger base. See the Financial Review.
calculated in accordance with AIC guidelines
Operational KPI
KPI Definition 31 March 2022 31 March 2021 Commentary
Weighted average investment life (years) Weighted average number of years to be remaining in investment contracts 14.8 13.4 Increased due to new investments made during the year
Largest five investments as a % of NAV (%) Total value of five largest investments divided by the sum of all investments 49% 44% Target is to maintain good portfolio diversification, achieved in both
held in the portfolio together with any cash, calculated at year end financial years.
Climate-Related KPIs
Climate-related reporting
The Company seeks to measure, monitor and report climate-related KPIs that are
consistent with all relevant international standards, both statutory and
voluntary, for assessing the sustainability of the Company's activities. As
well as TCFD, these include the Streamlined Energy and Carbon Reporting
("SECR") and the requirements under SFDR and EU Taxonomy Regulations.
The Company' aim is that its investments should contribute to substantial
climate change mitigation and that its performance against the measured KPIs
should be used to demonstrate if this aim has been achieved.
KPI Definition 31 March 2022 31 March 2021 Commentary
Total Carbon Emissions (Scope 1, 2 and 3) SEEIT follows the Greenhouse Gas Protocol definition of Scopes: 1,026,004 tCO2 541,161 tCO2 Increase driven by addition of new investments in the year
- Scope 1 emissions are direct emissions from owned or controlled (Of which 21,994 tCO2 was in the UK) (Of which 18,477 tCO2 was in the UK)
sources.
- Scope 2 emissions are indirect emissions from the generation of
purchased energy.
- Scope 3 emissions are all indirect emissions (not included in
scope 2) that occur in the value chain of the reporting company, including
both upstream and downstream emissions.
Total Carbon Emissions (Scope 1 and 2) Total Scope 1 and 2 Carbon Emissions 745,041 tCO2 368,041 tCO2 Increase driven by addition of new investments in the year
(Of which 6,162 tCO2 was in the UK) (Of which 2,257 tCO2 was in the UK)
Energy consumption used to calculate above emissions (MWh) Underlying global energy use in MWh 3,748,007 (of which 131,722 was in the UK) 2,291,542 (of which 100,102 was in the UK) Increase driven by addition of new investments in the year
Carbon Footprint Total Scope 1 and 2 Carbon Emissions / Total portfolio value (tCO2e/£M) 817 685 The increase is mainly due to the addition of RED to the portfolio, which is a
large user of natural gas
Exposure to Carbon-Related Assets Percentage of portfolio assets by asset value tied to the energy and utilities 74% 83% Decrease in exposure to carbon related assets reflects an overall move towards
sector (excluding renewable) lower-carbon assets over the last year.
The calculation approach in each case follows several key principles, to
maintain a consistent approach. The principles are:
1. Where possible to capture fundamental data regarding project
performance. Examples of this data include energy generated (kWh) and fuel
consumed (kWh);
2. Use publicly available emissions factors from government sources
specific to the project location;
3. Where a project was commissioned, or purchased, by SEEIT mid-way
through the reporting period, only the portion of the period after
commissioning or purchase date should be recognised; and
4. Where SEEIT owns less than 100% of a project, the total project
savings should be reduced pro-rata with the ownership percentage.
Strategic Report: Portfolio Review
FINANCIAL REVIEW
Financial information
In accordance with IFRS 10 the Company carries its investment in SEEIT Holdco
at fair value as it meets the conditions of being an Investment Entity (see
Note 2 for details). The fair value of SEEIT Holdco includes the fair value of
the underlying investments which is described in further detail in the
Valuation of the Portfolio section.
In order to provide shareholders with more transparency into the Company's
capacity for investment, ability to make distributions, operating costs and
gearing levels, results have been reported in the pro forma tables below on a
non-statutory "Portfolio Basis" to include the impact if SEEIT Holdco were to
be consolidated on a line-by-line basis. The Directors consider the
non-statutory Portfolio Basis to be a helpful basis for users of the financial
statements to understand the performance and position of the Company. This is
because key balances such as cash and debt balances carried in SEEIT Holdco
and all expenses incurred in SEEIT Holdco, including debt financing costs, are
shown in full rather than being netted off. The "Portfolio Basis" is presented
as an alternative performance measure.
The pro forma tables that follow show the Company's result for the year ended
31 March 2022 compared to the pro forma balance sheet at 31 March 2021 and the
pro forma Income statement and Cash Flow for the year to 31 March 2022.
The impact of including SEEIT 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 constitute a reallocation between
line items rather than affecting NAV and Earnings. In the Cash Flow statement
the Holdco column simply represents the net difference between the Portfolio
Basis and IFRS for movements that may occur only in SEEIT Holdco or only the
Company.
NAV per share and Earnings per share are the same under the Portfolio Basis
and the IFRS basis.
Summary Financial Statements
Portfolio Basis Summary Income Statement
Year to 31 March 2021
Year to 31 March 2022
£ millions Portfolio Basis Holdco reallocation IFRS (Company) Portfolio Basis Holdco reallocation IFRS (Company)
Total income 92.5 (3.8) 88.8 41.1 (3.3) 37.8
Expenses and Finance Costs (12.7) 3.8 (9.0) (8.7) 3.3 (5.4)
Profit before Tax 79.8 - 79.8 32.4 - 32.4
Earnings 79.8 - 79.8 32.4 - 32.4
Earnings per share (pence) 10.0 - 10.0 7.0 - 7.0
On the Portfolio Basis, Total Income of £92.5 million (2021: £41.1 million)
represents the return from the portfolio recognised as income comprising
dividends, interest and valuation movements. Further detail on the valuation
movements is given in the Valuation of the Portfolio section.
On an IFRS basis, Total income of £88.8 million (2021: £37.8 million)
comprises income received by the Company and valuation movements in its
investment (see Note 5). Both Total Income and Expenses and Finance Costs are
lower than on the Portfolio Basis, as costs incurred by the Holdco are
included by netting off within Total Income under IFRS, not under Expenses and
Finance Costs. The costs incurred by the Holdco not included on an IFRS basis
include transaction abort costs, foreign exchange movements related to hedging
and financing expenses related to the RCF.
The increase in Total income compared to the prior year is mainly as a result
of the increase in the size of the portfolio and thereby generating a higher
amount of revenue from interest and dividends, in addition to the movements in
fair value as described in the Valuation of the Portfolio section. The
increase in Expenses and Finance costs is also mainly due to the growth of the
size of the portfolio with total fees accruing to the Investment Manager of
£7.2 million for the year (2021: £4.0 million).
Neither the Investment Manager nor any of its affiliates receives other fees
from the Company's portfolio of investments.
Profit before tax of £79.8 million (2021: £32.4 million) included net
foreign exchange losses of £7.3 million (2021: £4.6 million loss) incurred
by Holdco comprising a £22.0 million gain on revaluing of non-GBP investments
for the year ended 31 March 2022 offset by loss on hedging of £29.3 million.
The foreign exchange gains and losses are reflected in the investment value of
Holdco.
In the year, the Company and Holdco incurred £0.3 million (2021: £1.1
million) of abort costs on unsuccessful bids and bids that were in progress
(mainly legal, technical and tax due diligence) at the end of the financial
year.
On both the Portfolio Basis and IFRS basis, Earnings were £79.8 million
(2021: £32.4 million) and Earnings per share were 10.0p (2021: 7.0p).
Portfolio Basis Balance Sheet
As at 31 March 2021
As at 31 March 2022
£ millions Portfolio Basis Holdco reallocation IFRS (Company) Portfolio Basis Holdco reallocation IFRS (Company)
Investments at fair value 912.7 15.5 928.2 552.7 19.9 572.6
Working capital (10.6) 9.4 (1.2) 14.9 (15.8) (0.8)
Debt - - - - - -
Cash 170.9 (24.9) 146.1 126.2 (4.1) 122.1
Net assets attributable to Ordinary Shares 1,073.1 - 1,073.1 693.8 - 693.8
NAV per share 108.4 - 108.4 102.5 - 102.5
On a Portfolio Basis, Investments at fair value are £912.7 million (2021:
£552.7 million), representing the Portfolio Valuation. The increase of
£360.1 million is predominantly due to new investments during the year
(£304.9) although further detail on the movement in Investments at fair value
is given in the Valuation of the Portfolio section.
On a Portfolio Basis, cash at 31 March 2022 was £170.9 (2021: £126.2
million); mainly reflecting cash from equity capital raised and cash received
from investments, net of cash used for investments. The Company is expecting
to utilise the cash balance in paying the fourth quarterly interim dividend on
30 June 2022, and approximately £37m million was utilised since the year end
to complete further investments (please refer to the Investment Portfolio
Summary). On an IFRS basis, cash at 31 March 2022 was £146.1 million (March
2021: £122.1 million) which reconciles to the Portfolio Basis through the
cash held by Holdco at this date.
An analysis of net cash movement is shown in the cash flow analysis below.
On an IFRS basis, Investments at fair value were £928.2 million (2021:
£572.6 million), reflecting the Portfolio Valuation adjusted for cash,
working capital and debt held by Holdco. A reconciliation between the
Portfolio Valuation at 31 March 2022 and Investment at fair value shown in the
financial statements is given in Note 11 to the financial statements, the
principal differences are as per the table below.
March 2022 March 2021
£ millions £ millions
Portfolio Valuation 912.7 552.7
Holdco cash 24.9 4.1
Holdco debt - -
Holdco net working capital (9.4) 15.8
Investment at fair value (see Note 11) 928.2 572.6
NAV per share at 31 March 2022 was 108.4p (2021: 102.5p). NAV per share has
increased by 5.9p since last year, reflecting the earnings in the year of
10.0p, interim dividends paid during the year of 5.6p and accretive share
issues in the year of 1.5p.
Analysis of growth in NAV
NAV per share (pence)
NAV per share at 1 April 2021 102.5
Change in discount rate 3.3
Change in macroeconomic assumptions 1.3
Foreign exchange loss (0.7)
Portfolio performance 6.1
Earnings per share to 31 March 2022 10.0
Interim dividends paid 1 (5.6)
106.9
NAV accretive share issues 2 1.5
NAV per share at 31 March 2022 108.4
1 Consisting of a fourth interim dividend of 1.375p per share paid in June
2021 for the year ending 31 March 2021 and three interim dividends of 1.405p
per share each paid for the year ended 31 March 2022
2 Arising from issuing of shares in the Company in September 2021 and March
2022 at a price higher than the prevailing NAV per share.
Portfolio Basis Cash Flow Statement
For the year ended 31 March 2021
For the year ended 31 March 2022
£ millions Portfolio Basis Holdco IFRS (Company) Portfolio Basis Holdco IFRS (Company)
Cash from investments 64.7 (11.7) 53.0 42.1 (6.1) 36.0
Operating and finance costs outflow (11.8) 2.9 (8.9) (6.4) 1.7 (4.7)
Net cash inflow before capital movements 52.9 (8.8) 44.1 35.7 (4.4) 31.3
Cost of new investments including investment costs (304.9) (14.9) (319.8) (255.2) (61.4) (316.6)
Share capital raised net of costs 343.9 - 343.9 368.0 - 368.0
Movement in borrowings (1.7) 1.7 - (64.7) 64.7 -
Movement in capitalised debt costs and FX hedging (1.3) 1.3 - 2.1 (0.4) 1.6
Dividend paid (44.2) - (44.2) (30.4) - (30.4)
Movement in the year 44.7 (20.7) 24.0 55.4 (1.6) 53.9
Cash at start of the year 126.2 (4.1) 122.1 70.8 (2.4) 68.1
Cash at end of the year 170.9 (24.9) 146.1 126.2 (4.1) 122.1
Cash inflows from the portfolio on a Portfolio Basis were £64.7 million
(2021: £42.1 million), in line with expectations. The increase in cash
received compared with the previous period reflects the increase in the size
of the portfolio.
The cost of new investments by the SEEIT group on a Portfolio Basis of £304.9
million (2021: £255.2 million) includes investment acquisition costs as
described in the Valuation Movements below.
On an IFRS basis, costs of new investments of £319.8 million (2021: £316.7
million) reflects funding extended by the Company to Holdco in the year to
make portfolio investments and for repayment of the RCF that Holdco utilised
to make new investments.
Net cash flow before capital movements in the year on a Portfolio Basis was
£52.8 million (2021: £35.7 million) and covers dividends paid of £44.2
million in the year (2021: £30.4 million) by 1.2 times.
Share capital raised (net of costs) totalled £343.9 million (2021: £368.0
million) reflecting the net proceeds of shares issued during the year through
three separate capital raisings under the share issuance programme.
Hedging for the group is undertaken by Holdco and therefore the Company should
have no cash flows for this on an IFRS basis. Holdco enters into forward sales
to hedge foreign exchange rate exposure in line with the Company's hedging
policy set out below (see 'Foreign Exchange Hedging'). On a Portfolio Basis,
there was a net cash inflow of £5.4 million on foreign exchange hedging in
the year.
Ongoing charges
Ongoing charges, in accordance with AIC guidance, are defined as annualised
ongoing charges (i.e. excluding investment costs and other non-recurring
items) divided by the average published undiluted NAV in the year. On this
basis the Ongoing charges ratio is 1.00% (2021: 1.13%) for the full year. The
Ongoing charges percentage has been calculated on the Portfolio Basis to take
into consideration the expenses of the Company and Holdco.
As expected, the Ongoing Charges ratio has reduced year on year, benefitting
from the growth in the net assets, meaning the known ongoing costs of the
Company are spread across a larger base, and benefitting from the reduction in
management fees percentage above £750 million.
Group Drawings and Gearing Levels
The Investment Manager periodically considers refinancing options aligned to
the pipeline of potential transactions and in the interest of efficient
capital management and foreign exchange hedging. This enables the Company to
make new investments via SEEIT Holdco. During the year, SEEIT Holdco increased
the RCF to £145 million and ING, HSBC and Intesa Sanpaolo joined Investec as
lenders. The facility includes an uncommitted accordion of £55 million and
has also been extended to June 2024. As at 31 March 2022 the RCF was undrawn.
Foreign Exchange Hedging
The Company applies foreign exchange hedging through currency hedges entered
into by Holdco. The objective of the Company's hedging strategy is to protect
the NAV from material movements in foreign exchange rates, and to provide
stability and predictability of near to medium term Sterling cash flows.
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, this 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 rate exposure.
As part of the Company's hedging strategy the Investment Manager will
regularly review non-Sterling exposure in the portfolio and adjust the levels
of hedging accordingly and in doing so will also take into account the cost
benefit of hedging activity. The hedging strategy also dictates that at times
the Company needs to retain additional cash to meet the liquidity requirements
imposed by hedging counterparties during periods of volatility affecting the
Company adversely.
Net foreign exchange losses in the year ended 31 March 2022 was £7.3 million,
representing c. 0.7% of NAV.
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. Further details of the processes carried by the Company in
determining that the going concern basis continues to be appropriate can be
found in the Report of the Directors.
VALUATION OF THE PORTFOLIO
Introduction
The Investment Manager is responsible for carrying out the fair market
valuation of the SEEIT group's portfolio of investments (the "Portfolio
Valuation") which is presented to the Directors for their consideration and
approval. A valuation is carried out on a six-monthly basis, as at 31 March
and 30 September each year. The Portfolio Valuation is the key component in
determining the Company's NAV.
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 SEEIT Holdco and adjusted for any
other assets and liabilities. The valuation methodology applied by SEEIT
Holdco to determine the fair value of its investments is described below.
For non-market traded investments (being all the investments in the current
portfolio), the valuation is predominantly based on a discounted cash flow
methodology and adjusted in accordance with the IPEV (International Private
Equity and Venture Capital) valuation guidelines where appropriate to comply
with IFRS 13 and IFRS 9, given the special nature of infrastructure
investments. Certain investments may be held at cost if in the early part of a
construction phase, however this will still be supported by a discounted cash
flow analysis or similar method to determine fair value. For the 31 March 2022
valuation, this is the case for investments in Tallaght Hospital, EV Network
and Lycra. For the investment in the development pipeline of Onyx, fair value
is derived from assuming a price that can be achieved per MW. Where an
investment is traded in an open market, a market quote would be used although
currently this is not applicable to the investment portfolio.
The Investment Manager exercises its judgment in assessing the expected future
cash flows from each investment based on the project's expected life and the
financial models produced for each project company and adjusts the cash flows
where necessary to take into account key external macro-economic assumptions
and specific operating assumptions.
The fair value for each investment is then derived from the application of an
appropriate market discount rate (on an unlevered basis) to reflect the
perceived risk to the investment's future cash flows and the relevant year-end
foreign currency exchange rate to give the present value of those cash flows.
Where relevant, project level debt balances are then netted off to arrive at
the valuation for each asset. The discount rate takes into account risks
associated with the financing of an investment such as investment risks (e.g.
liquidity, currency risks, market appetite), any risks to the investment's
earnings (e.g. predictability and covenant of the income) and a thorough
assessment of counterparty credit risk, all of which may be differentiated by
the phase of the investment.
The Investment Manager uses its judgement in arriving at the appropriate
discount rate. This is based on its knowledge of the market, taking into
account intelligence gained from its bidding activities, discussions with
financial advisers in the appropriate market, and publicly available
information on relevant transactions.
All the operational investments included in the valuation have an underlying
contract for energy services. The valuation is based on the future expected
cash flows derived from these contracts. For the March 2022 valuation the
assumed future cash flows match the maturity of the underlying contract or
regulatory life of the asset except in the case of four of the assets in
Primary Energy and the assets in Oliva Spanish Cogeneration where it is
assumed that future contract extensions are achieved and hence the expected
cash flows are currently projected to extend beyond the maturity date of the
existing contract with the counterparty.
For the valuation as at 31 March 2022, 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 1% of the Portfolio
Valuation) in order to further benchmark the valuation prepared by the
Investment Manager.
The valuation methodology is materially unchanged from the Company's IPO and
has been applied consistently in each subsequent valuation.
Portfolio Valuation
The Portfolio Valuation as at 31 March 2022 was £912.7m, an increase of
£360.0 compared to the Portfolio Valuation of £552.7m as at 31 March 2021
and an increase of £127.7m compared to the Portfolio Valuation of £785.0m at
30 September 2021 - the increase is mainly a result of the new investments
during the year, with additional movements described below.
Valuation Movements
A breakdown of the movement in the Portfolio Valuation in the period is set
out in the table below.
Valuation Movements During the Year To 31 March 2022 (£'m)
Portfolio Valuation - 31 March 2021 552.7
New Investments 300.5
Cash from Investments (64.7)
235.9
Rebased Portfolio Valuation 788.6 % on Rebased
Changes in Macroeconomic Assumptions 12.7 1.6%
Changes in Foreign Exchange 22.0 2.8%
Changes in Discount Rates 33.1 4.2%
Balance of Portfolio Return 56.5 7.2%
126.2
Portfolio Valuation - 31 March 2022 912.7
The Portfolio Valuation at 31 March 2022 was £912.7 million, an increase of
65% from the Portfolio Valuation £552.7 million at 31 March 2021. Allowing
for investments of £300.5 million as outlined in the Investment Portfolio
Summary and cash receipts from investments of £64.7 million, the rebased
Portfolio Valuation is £788.6 million. An overall increase of £124.2 million
was achieved above the rebased valuation - after adjusting for changes in
macro-economic assumptions, foreign exchange movements and changes in discount
rates, this resulted in a portfolio return in the year of £56.5 million,
equating to a 7.2% return in the year.
Return from the Portfolio
Each movement between the rebased valuation of £788.6 million and the 31
March 2022 valuation of £912.7 million is considered in turn below:
(i) Changes in macroeconomic assumptions of £12.7
million:
Inflation assumptions: Previously certain jurisdictions had both near-term and
long-term inflation assumptions and the remaining jurisdictions had only
long-term assumptions. To achieve consistency and reflect the impact of the
current high inflation macro environment more accurately, the approach in all
jurisdictions is to apply a 3-year near-term bridge to the relevant long-term
inflation assumption. This has resulted in an uplift in the valuation due to
high near-term inflation compared to the assumptions applied for the March
2021 valuation or at the time of investments during the year.
Tax rate assumptions: There were no changes to corporation tax rate
assumptions during the year.
Further details on the macroeconomic assumptions applied to the 31 March 2022
valuation and comparison to previous periods can be found in Note 4.
(ii) Changes in foreign exchange rates of £22.0 million:
The gain of £22.0 million on the investment portfolio in the year reflects
the movements of GBP against US Dollar, Euro and Swedish Krona in the year or
since new investments were made. This however only reflects the movement in
underlying investment values and is shown before the offsetting effect of
foreign exchange hedging that is applied at the level of SEEIT Holdco outside
of the Portfolio Valuation which resulted in a loss of £29.3 million.
Therefore overall foreign exchange movements did not have a significant impact
on NAV in the period with a net loss from foreign exchange hedging and
movement in the assets of £7.3 million.
(iii) Changes in valuation discount rates of £33.1 million:
The discount rate used for valuing each investment represents an assessment of
the rate of return at which infrastructure investments with similar risk
profiles would trade on the open market.
During the year there were selected reductions of discount rates that in
aggregate resulted in an increase in the valuation of £33.1 million.
The Investment Manager observed downwards pressure on discount rates generally
in the market for energy efficiency investments, notably in the second half of
the financial year. This has resulted in a reduction applied to discount rates
for several investments in the portfolio in several countries and across
several technologies, and is the main reason for the reduction of the weighted
average discount rate since September 2021. Over the course of the financial
year these reductions broadly offset new investments that were acquired at
discount rates above the prevailing weighted average.
In addition, investments moving from construction phase to operational phase
has contributed marginally to the overall reduction in weighted average
discount rate.
The weighted average discount rate for the portfolio as at 31 March 2022 was
7.0% on an unlevered basis (March 2021: 7.0% and September 2021: 7.2%) and c.
8.0% on a levered basis.
The Directors noted that the discount rates used by the Investment Manager
were within the ranges advised by the third-party valuation expert.
(iv) Balance of portfolio return of £56.5 million:
This refers to the balance of valuation movements in the year (excluding (i)
to (iii) above) and which provided an uplift of £56.5 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 7.2% in the financial year.
The portfolio valuation, and by implication the return achieved, includes
several key estimates and judgements in addition to key changes assumed in the
portfolio valuation. These are described below and while some had a positive
impact on the portfolio valuation, others may have an adverse impact on the
portfolio valuation - overall these estimates and judgements have had a net
positive impact on the valuation:
· The adverse impact of the idling of Blast Furnace 4 at Primary Energy
which affects the Ironside investment, and lower than expected energy demand
at PCI, although partially offset by an uplift in valuation from increased
revenues assumed to be derived from recontracting of key contracts in Primary
Energy and the use of an interim agreement, resulting in an overall broadly
offsetting impact
· The remaining 35% stake in the Primary Energy portfolio of five
assets was acquired in September 2021 at a price that was pre-determined in
December 2020 when SEEIT increased its stake from 50% to 65%. The carrying
value of the existing stake was higher than the consideration paid in
September 2021 and therefore the Portfolio Valuation benefited from an uplift
of more than £10 million to bring the newly acquired 35% stake in line with
the valuation of the 65% stake.
· Uplift in valuation of c. £13 million for Oliva Spanish
Cogeneration, mostly from the reversal of previous provisions for EU ETS cost
assumptions by assuming prudent compensation using proposed legislative
changes
· Adverse impact from a delay in the construction portfolio within Onyx
and the following development pipeline, although broadly offset in part from
an increase in the assumed megawatts to be delivered in the development
portfolio
· Uplift in the valuation of c. £10 million due to a net increase in
forecast customer load assumptions at Red Rochester resulting in additional
revenues from those previously assumed.
Additional information on critical estimates and judgements are in Note 3.
As in the previous year, the Investment Manager has reviewed the impact of the
COVID-19 pandemic on the portfolio during the year, and the overall impact on
the financial performance and cash flow projections has again not had a
material impact on the Portfolio Valuation and NAV.
The pandemic caused some operational and financial disruption to certain
assets, of which the two key impacts are listed below:
· It has caused slower than anticipated decision making from potential
counterparties in the US, resulting in slower than previously assumed
deployment of onsite solar generation projects in the Onyx investment
· Lower than expected revenue from delivering gas to restaurant
customers in Stockholm in the Vartan Gas investment, which has also been
assumed to continue in the near term and therefore continue to adversely
affect near-term cash flows and valuation.
Key sensitivities
For each of the sensitivities, it is assumed that potential changes occur
independently of each other with no effect on any other base case assumption,
and that the number of investments in the portfolio remains static throughout
the modelled life. For the purpose of the sensitivities described below, the
potential changes are applied as at 31 March 2022 and remain constant
thereafter apart from inflation which is applied with compounding effect.
Please refer to Note 4 in the Notes to the Financial Statements for further
detail on the key sensitivities in this section and Note 3 for further detail
on critical estimates and judgements and their sensitivities.
Discount Rate Sensitivity
The weighted average discount rate that is applied to each portfolio company's
forecast cash flow, is the single most important judgement and variable for
the purposes of valuing the portfolio.
A 0.5% increase in the discount rates would result in a NAV per share decrease
of 4.1p based on the Portfolio Valuation as at 31 March 2022. A 0.5% decrease
in the discount rates would result in a NAV per share increase of 4.5p based
on the Portfolio Valuation as at 31 March 2022.
Corporation Tax Rate Sensitivity
This sensitivity considers a 5% p.a. movement in corporation tax rates in each
country where an investment is held - for the valuation as at 31 March 2022
this included UK, Spain, Sweden, Singapore and USA. The profits of each
portfolio company are subject to corporation tax in the country where the
project is located.
A 5% p.a. increase in corporation tax rates would result in a NAV per share
reduction of 3.3p based on the Portfolio Valuation as at 31 March 2022. A 5%
p.a. decrease in corporation tax rates would result in a NAV per share
increase of 3.2p based on the Portfolio Valuation as at 31 March 2022.
The sensitivity is shown on the basis that corporation tax rates remain as the
sensitised level for the remainder of any period in which cash flow is assumed
for that project and that no mitigations that may be available are applied.
Key mitigants available include portfolio structuring changes including
gearing, and the option available to the Company to use interest streaming of
dividends to shareholders in the future, whereby a portion of the dividend
distribution is designated as interest, allowing net taxable interest income
to be reduced.
The sensitivity mainly shows the unmitigated impact of changes in US, Swedish
and Spanish tax rates. The exposure to UK corporation tax at project level has
negligible sensitivity to the sensitised movements in UK corporation tax
rates, including the impact of the expected future tax rises announced by the
UK government, because of UK entities within the group being able to offset
aggregate profits and losses.
Inflation rate sensitivity
This sensitivity considers a 0.5% p.a. movement in near-term and long-term
inflation in the underlying investment cash flows which is considered a
reasonable range on the long-term inflation assumptions as well as the range
of assumptions introduced for the initial three years prior to reverting to
the long-term assumption.
A 0.5% p.a. increase in inflation rates would result in a NAV per share
increase of 1.2p based on the Portfolio Valuation as at 31 March 2022. A 0.5%
p.a. decrease in inflation rates would result in a NAV per share reduction of
1.1p based on the Portfolio Valuation as at 31 March 2022.
The Company's exposure to inflation via its investment portfolio is currently
largely to the USA and Europe with c.55% and c. 22% of NAV respectively
although the level of exposure to inflation in underlying investments in each
geography varies. The investment portfolio as at 31 March 2022 has a positive
correlation to inflation with approximately half of the current portfolio by
value having revenues that are partly or wholly inflation linked.
The Company's portfolio includes investments that benefit from fixed or
escalating revenues that are not directly linked to inflation. This includes
the assets in Primary Energy where periodic recontracting is assumed in the
valuation. It is assumed that the renewed revenue contracts entered into in
future years reset the revenues at such a level that it materially offsets
increases to project level costs such as O&M that is materially
inflation-linked. Within the portfolio of Oliva Spanish Cogeneration assets
there is some natural offsetting or protection between revenues and costs for
inflation increases and decreases. The assumption in the Vartan Gas investment
is that the regular renewals of customer contracts (typically annually)
include inflationary increases to the tariffs charged, however it is also
assumed that this would not result in the charges being above the regulatory
cap and therefore the full inflationary increase is not passed on to the
customer each time. In the current portfolio there are several investments
with no or negligible exposure to inflation, notably the investments in the UK
and the senior debt loan investments in Spark US Energy Efficiency I and II,
FES Lighting and Biotown.
The Investment Manager aims to construct and maintain a portfolio that
generates year-on-year revenue growth on a progressive basis. The Investment
Manager does not aim to construct and maintain a portfolio of investments
purely with direct inflation-linked returns, however it targets any potential
portfolio downside inflation impact to be broadly offset through revenue
growth over the medium to long-term.
Foreign Exchange Rate Sensitivity
This sensitivity considers a 10% movement in relevant non-GBP currencies,
which in the case of the Portfolio Valuation at 31 March 2022 is US Dollar,
Singapore Dollar, Swedish Krona and Euro, from the foreign exchange rates used
at 31 March 2022 - the sensitivity is shown below pre and post mitigation from
hedging.
This sensitivity is presented after considering the effect of hedging
implemented by the Company. Using historical levels of hedging and the
Company's hedging strategy as described in the Financial Review as a guide, at
an assumed level of 90% hedging, a 10% increase (strengthening of GBP) in
foreign exchange rates would result in a NAV per share reduction of 0.8p and
10% decrease (weakening of GBP) in foreign exchange rates would result in a
NAV per share increase of 0.8p.
Without any hedging, a 10% increase (strengthening of GBP) in foreign exchange
rates would result in a NAV per share reduction of 7.7p based on the Portfolio
Valuation as at 31 March 2022. A 10% decrease (weakening of GBP) in foreign
exchange rates would result in a NAV per share increase of 8.4p based on the
Portfolio Valuation as at 31 March 2022.
Directors' Responsibility Statement
The 2022 Annual Report which will be published in July 2021 contains a
responsibility statement in compliance with DTR 4.1.12. This states that on 30
June 2022, 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.
-STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2022
Note For the For the
year ended year ended
31 March 2022 31 March 2021
£'000 £'000
Investment income 5 88,763 37,834
Total operating income 88,763 37,834
Fund expenses 6 (9,005) (5,429)
Profit for the year before tax 79,758 32,405
Tax on profit on ordinary activities 7 - -
Profit for the year 79,758 32,405
Total comprehensive income for the year 79,758 32,405
Attributable to:
Equity holders of the Company 79,758 32,405
Earnings Per Ordinary Share (pence) 8 10.0 7.0
The accompanying Notes are an integral part of these financial statements.
All items in the above Statement derive from continuing operations.
STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2022
Note 31 March 2022 31 March 2021
£'000 £'000
Non-current assets
Investment at fair value through profit or loss 11 928,229 572,574
928,229 572,574
Current assets
Trade and other receivables 363 401
Cash and cash equivalents 146,064 122,059
146,427 122,460
Current liabilities
Trade and other payables (1,538) (1,229)
Net current assets 144,889 121,231
Net assets 1,073,118 693,805
Capital and reserves
Share capital 12 9,903 6,771
Share premium 12 925,067 584,437
Other distributable reserves 12 39,342 58,165
Retained earnings 98,806 44,432
Total equity 1,073,118 693,805
Net assets per share (pence) 10 108.4 102.5
The accompanying Notes are an integral part of these financial statements.
The financial statements for the year ended 31 March 2022 of SDCL Energy
Efficiency Income Trust plc, were approved and authorised for issue by the
Board of Directors on 30 June 2022.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 MARCH
2022
Note Share Capital Other distributable reserves Retained earnings Total Equity
£'000 Share Premium £'000 £'000 £'000
£'000
Balance at 1 April 2021 6,771 584,437 58,165 44,432 693,805
Shares issued 12 3,132 346,868 - - 350,000
Share issue costs 12 - (6,238) - - (6,238)
Dividends paid 9 - - (18,823) (25,384) (44,207)
Profit and total comprehensive income for the year - - - 79,758 79,758
Balance at 31 March 2022 9,903 925,067 39,342 98,806 1,073,118
Note Share Capital Other distributable reserves Retained earnings Total Equity
£'000 Share Premium £'000 £'000 £'000
£'000
Balance at 1 April 2020 3,204 219,721 88,578 12,027 323,530
Shares issued 3,567 371,433 - - 375,000
Share issue costs - (6,717) - - (6,717)
Dividends paid 9 - - (30,413) - (30,413)
Profit and total comprehensive income for the year - - - 32,405 32,405
Balance at 31 March 2021 6,771 584,437 58,165 44,432 693,805
The accompanying Notes are an integral part of these financial statements.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2022
Note For the For the
year ended year ended
31 March 2022 31 March 2021
£'000 £'000
Cash flows from operating activities
Operating profit for the year 79,758 32,405
Adjustments for:
Gain on investment at fair value through profit or loss (47,792) (15,021)
Loan interest income 5 (7,299) (2,684)
Operating cash flows before movements in working 24,667 14,700
capital
Changes in working capital
Decrease in trade and other receivables 37 1,440
Increase in trade and other payables 309 645
Net cash generated from operating activities 25,013 16,785
Cash flows from investing activities
Additional investment in Holdco 11 (319,863) (316,479)
Loan principal repayment received 12,000 13,021
Loan interest income received 7,300 2,684
Net cash used in investing activities (300,563) (300,774)
Cash flows from financing activities
Proceeds from the issue of shares 12 350,000 375,000
Payment of share issue costs (6,238) (6,718)
Dividends paid 9 (44,207) (30,413)
Net cash generated from financing activities 299,555 337,869
Net movement in cash and cash equivalents during the 24,005 53,880
year
Cash and cash equivalents at the beginning of the 2 122,059 68,179
Year
Cash and cash equivalents at the end of the year 2 146,064 122,059
The accompanying Notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2022
1. General Information
The Company is incorporated in the United Kingdom under number 11620959
pursuant to the Companies Act 2006 and is domiciled in the England, United
Kingdom. The Company's registered office and principal place of business is
6(th) Floor, 125 London Wall, London, EC2Y 5AS. The Company was incorporated
on 12 October 2018 and is a Public Company limited by shares and the ultimate
controlling party of the group.
The Company's ordinary shares were first admitted to the premium segment of
the UK Listing Authority's Official List and to trading on the Main Market of
the London Stock Exchange under the ticker SEIT on 11 December 2018.
The Company's objective is to generate an attractive total return for
investors comprising stable dividend income and capital preservation, with the
opportunity for capital growth through the acquiring and realising of a
diverse portfolio of energy efficiency infrastructure projects.
The Company currently makes its investments through its principal holding
company and single subsidiary, SEEIT Holdco Limited ("Holdco"), and
intermediate holding companies which are directly owned by the Holdco. The
Company controls the investment policy of each of the Holdco and its
intermediate holding companies in order to ensure that each will act in a
manner consistent with the investment policy of the Company.
The Company has appointed Sustainable Development Capital LLP as its
Investment Manager (the "Investment Manager") pursuant to the Investment
Management Agreement dated 22 November 2018. The Investment Manager is
registered in England and Wales under number OC330266 pursuant to the
Companies Act 2006. The Investment Manager is regulated by the FCA, number
471124.
The financial statements are presented in Pounds Sterling because that is the
currency of the primary economic environment in which the Company operates.
2. Significant Accounting Policies
a) Basis of accounting
On 31 December 2020, IFRS as adopted by the European Union at that date
brought into UK law and became UK-adopted International Accounting Standards,
with future changes being subject to endorsement by the UK Endorsement Board.
The Company transitioned to UK-adopted International Accounting Standards in
its Company financial statements on 1 April 2021. This change constitutes a
change in accounting framework. However, there is no impact on recognition,
measurement or disclosure in the year reported as a result of the change in
framework.
The financial information set out above does not constitute the Company's
statutory financial statements for the years ended 31 March 2022 or 2021 but
is derived from those financial statements. Statutory financial statements for
2021 have been delivered to the registrar of companies, and those for 2022
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.
Fair value is the price that would be received on sale of an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date, regardless of whether that price is directly observable
or estimated using another valuation technique. In estimating the fair value
of an asset or liability, the Company takes into account the characteristics
of the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at the
measurement date. Fair value for measurement and/or disclosure purposes in
these financial statements is determined on such a basis.
The principal accounting policies adopted are set out below and consistently
applied, subject to changes in accordance with any amendments in IFRS.
(i) New Accounting Standards, amendments to existing Accounting
Standards and/or interpretations of existing Accounting Standards (separately
or together, "New Accounting Requirement") adopted during the current year
There are no standards, amendments to standards or interpretations that are
effective for annual periods beginning on 1 April 2021 that have a material
effect on the financial statements of the Company nor the value of
investments. This includes the following standards which the Company adopted
during the year:
· Amendments to IFRS 16 Leases: Covid-19 - Related rent concessions
beyond 30 June 2021
· Amendments to IFRS 7, IFRS 4 and IFRS 16 Interest rate benchmark
reform-- phase 2
a) IFRS 10 - basis of consolidation and Investment
entities exemption
The Company applies IFRS 10 Consolidated Financial Statements. As in the
previous year, the Directors have concluded that in accordance with IFRS 10,
the Company continues to meet the definition of an investment entity having
re-evaluated the criteria (see below) that need to be met. The financial
statements therefore comprise the results of the Company only and no
subsidiaries are consolidated on a line by line basis.
The Company invests its investable cash into SEEIT Holdco Limited (the
"Holdco") when a targeted investment has been approved by the Investment
Manager's Investment Committee. The sole objective of the Holdco is to enter
into several energy efficiency projects, via individual corporate entities.
The Holdco issues equity and loans to finance the projects. Holdco also incurs
overheads and borrowings on behalf of the group. As a result, the Directors
have provided an alternative presentation of the Company's results in the
Strategic Report which includes a consolidation of Holdco.
Under IFRS 10 investment entities are required to hold subsidiaries at fair
value through the Statement of Comprehensive Income rather than consolidate
them. There are three key conditions to be met by the Company for it to meet
the definition of an investment entity. For each reporting period, the
Directors assess whether the Company continues to meet these conditions:
(ii) The Company has obtained funds for the purpose of
providing investors with investment management services;
(iii) The business purpose of the Company, which was
communicated directly to investors, is investing solely for risk-adjusted
returns (including having an exit strategy for investments); and The
performance of substantially all investments is measured and evaluated on a
fair value basis.
The Company is an investment company, providing investors exposure to a
diversified portfolio of energy efficiency infrastructure projects that are
managed for investment purposes.
During the year ended 31 March 2022, the Company, via Holdco, made significant
new investments, notably in the USA, and as a result the size of the Company
significantly increased. These investments are described in Note 11. These
investments were made in line with the stated objective of the Company to
generate returns from capital appreciation and investment income in accordance
with the strategy that has been set by the Directors. The Directors assessed
each new investment carefully in order to determine whether the Company as a
whole still meets the definition of an investment entity.
As part of the assessments the Directors had regard for the nature of the
underlying business and operations and the exit strategy of each new
investment and how that compared to the already existing portfolio. The
Company's exit of investments may be at the time each investment reaches its
current assumed end of economic life. At this point it could be possible for
the Company to remain invested subject to contractual negotiations, economic
viability and investment policy of the Company at the time. The Company is
investing in a sector for which there is an active secondary market and
therefore the Company may also exit investments at an earlier stage for profit
or for portfolio rationalisation purposes.
The assessments concluded that the new investments shared similar
characteristics to the existing investments, are in line with the business
purpose of the Company and that each has an appropriate exit strategy. In
particular, the Directors noted that:
· the underlying businesses and the structure of the new investments
are in keeping with the existing portfolio through the provision of energy
efficiency services to clients, or host counterparties, predominantly through
long-term contracted agreements
· The underlying businesses are set up as Special Purpose Vehicles
(SPV's) and although each SPV can have an indefinite life, the equipment
associated with providing such services have finite lives, are capable of
being upgraded or sold and the contracts can be renewed
· As part of the exit strategy for each new investment, the structure
of that investment is such that it could be readily made available for sale
(further information on exit strategy for new investments can be found in the
Investment Manager's Report)
· Each new investment is measured at fair value.
After assessing whether the Company meets the definition of an investment
entity set out in IFRS 10 the Directors concluded that as a whole:
(iv) the Company has multiple investors with shares issued
publicly on London Stock Exchange and obtains funds from a diverse group of
shareholders who would otherwise not have access individually to investing in
energy efficiency projects;
(ii) the Company's purpose is to invest funds for both investment income and
capital appreciation. The Holdco and its SPVs have indefinite lives however
the underlying assets have minimal residual value because they do not have
unlimited lives, are not to be held indefinitely and have appropriate exit
strategies in place; and
(v) the Company measures and evaluates the performance of
all of its investments on a fair value basis which is the most relevant for
investors in the Company. The Directors use fair value information as a
primary measurement to evaluate the performance of all of the investments and
in decision making.
The Directors are of the opinion that the Company meets all the typical
characteristics of an investment entity and therefore meets the definition set
out in IFRS 10. The Directors believe the treatment outlined above provides
the most relevant information to investors.
b) Going concern
COVID-19
During the year to 31 March 2022 and up to the date of this report, the
outbreak of the COVID-19 pandemic has slowed down somewhat compared to a year
ago. However, the pandemic still has a negative impact on the global economy
and therefore the uncertainties and additional risks for the Company raised in
prior periods remain under review. The Directors of the Company and the
Investment Manager continue to follow government guidelines in relation to the
COVID-19 pandemic in all the jurisdictions where its investments operate to
ensure best practices are followed. There has not been a material impact to
the Company, to its investment in Holdco and to its indirect subsidiaries to
carry out its operations and receive the expected return from its investments,
therefore the Directors are confident that there should not be a material
financial impact on the performance of the Company in the future if subsequent
lockdowns or similar restrictions are introduced. The Directors do not believe
there is a significant risk to the Company from COVID-19 pandemic but, along
with the Investment Manager, continue to monitor the portfolio for material
impact from the COVID-19 pandemic
Investment diversification and cash
The Company, through its investment in Holdco, benefits from a portfolio of
investments that have a range of long-term contracts with a diversified set of
counterparties across multiple sectors and jurisdictions. A key risk facing
the Company is that counterparties to the investments may not be able to make
their contractual payments. The Company has prepared, and the Directors have
reviewed a cash flow forecast covering the minimum period of twelve months
from the date of approval of this report, taking into consideration potential
changes in investment and trading performance and applying a 10% reduction in
revenues to test the resilience of cash flows in the near term. The forecast
demonstrates an expectation to continue to generate positive cash flows for
the foreseeable future that as a minimum will meet liabilities as they fall
due. The Directors reviewed a severe downside scenario where the Company would
not receive any further income from its investment for the next 12 months from
signing of the financial statements and taking into account all committed
payments for running the Company, the Company would have sufficient cash
reserves to continue as a going concern. As at 31 March 2022, the Company's
net current assets were £144.9m, including cash balances of £146.1 million.
Further amounts of cash are held by the Company's direct and indirect
subsidiaries, which are sufficient to meet current obligations as they fall
due. The major cash outflows of the Company are the payment of dividends and
payments relating to the acquisition of new assets, both of which are
discretionary.
Credit Facility
The Company's single subsidiary, Holdco, has a RCF that has adequate headroom
in its covenants that have been tested for historic and forward interest cover
and group loan to value limits. As at 31 March 2022, the facility was undrawn
and £145m is available to meet future working capital and pipeline
requirements. The Company is a guarantor to the RCF (see Note 17) but has no
other guarantees or commitments.
Ukraine conflict
In light of the events in Ukraine in the first quarter of 2022, the Board and
the Investment Manager have been monitoring its continual development and
performed an assessment of the current exposure to Ukraine, Russia and Belarus
(the "Region") and the potential impact to the Company's and the portfolio
companies' operations.
The Company is a UK registered public company. Currently neither the Company
nor the Investment Manager conducts business and operations in the Region;
therefore the Company is not subject to any direct impact by this event.
With regards to the Company's investments, none of the portfolio companies
have business operations or client / supplier relationships in the Region.
Through this assessment, the Board and the Investment Manager duly considered
any restriction imposed by the relevant sanctions, and its impact on the
portfolio companies. The effects on the global economy are still emerging and
the full impact on the portfolio remains uncertain at this point and continues
to be closely monitored by the Board and Investment Manager. The Board and
Investment Manager continues to actively monitor the Partnership's investment
and operating activities.
Inflation
The global impact of the Russian invasion of Ukraine on the oil and gas prices
is a significant contributor to rises globally in at present. The Company has
carried out assessment of the impact of the global rise in inflation on its
portfolio and have concluded that overall there is a positive correlation to
inflation and there is no adverse impact.
The Directors are satisfied that the Company has sufficient resources to
continue in operation for the foreseeable future, a period of not less than 12
months from the date of approval of the financial statements. The Directors
have reviewed the Company's financial projections and cash flow forecasts,
including the potential impact from COVID-19 and believe, based upon those
projections and forecasts and various risk mitigation measures in place, that
it is appropriate to prepare the financial statements on a going concern
basis.
c) Segmental reporting
The Chief Operating Decision Maker ("CODM") being the Board of Directors, is
of the opinion that the Company is engaged in a single segment of business,
being investment in energy efficiency projects to generate investment returns
whilst preserving capital. The financial information used by the CODM to
manage the Company presents the business as a single segment.
d) Foreign Currency Translation
Foreign currency and presentation currency
Items included in the financial statements of the Company are measured using
the currency of the primary economic environment in which the entity operates,
the Company's functional currency. The financial statements are presented in
Pounds Sterling which is the Company's functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into Pounds Sterling using the
exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement of
Comprehensive Income.
e) Income
Dividend income and investment income from financial assets at fair value
through profit or loss is recognised in the Statement of Comprehensive Income
within investment income when the Company's right to receive payments is
established.
Fair value gains on financial assets at fair value through profit or loss are
recognised in the Statement of Comprehensive Income at each valuation point.
Finance income comprises interest earned on cash held on deposit. Finance
income is recognised on an accruals basis. Loan interest income is accounted
for on an accruals basis using the effective interest method.
f) Dividends payable
Dividends to the Company's shareholders are recognised when they become
legally payable. In the case of interim dividends, this is when they are paid.
In the case of final dividends, this is when they are approved by the
shareholders at the AGM.
g) Fund expenses
All expenses including investment management fees, transaction costs,
non-executive directors' fees are accounted for on an accruals basis. Share
issue expenses of the Company directly attributable to the issue and listing
of shares are charged to the share premium account.
h) Acquisition costs
Acquisition costs are expensed to the Income Statement as they are incurred.
i) Taxation
The Company is liable to UK corporation tax on its income. Current tax is the
expected tax payable on the taxable income for the period, using tax rates
that have been enacted or substantively enacted at the date of the Statement
of Financial Position. Fair value movements and dividends received by the
Company are exempt from UK corporation tax.
j) Cash and cash equivalents
Cash and cash equivalents include deposits held at call with banks and other
short-term deposits with original maturities of three months or less. The
majority of cash is held at the Money market fund managed by JP Morgan. It is
highly liquid investment and readily convertible to a known amount of cash.
There is no expected credit loss as the bank institutions have credit ratings
of at least BBB+ and all cash is held at call from the banks.
k) Financial instruments
Financial assets and financial liabilities are recognised in the Company's
Statement of Financial Position 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 IFRS 9 Financial instruments.
Investments are recognised when the Company has control of the asset. Control
is assessed considering the purpose and design of the investments including
any options to acquire the investments where these options are substantive.
The options are assessed for factors including the exercise price and the
incentives for exercise.
The Company classifies its financial assets in the following measurement
categories:
• those to be measured subsequently at fair value through profit or loss;
and
• those to be measured at amortised cost.
At initial recognition, the Company measures investments in energy efficiency
projects at its transaction price net of transaction costs that are directly
attributable to the acquisition of the financial asset. The Company
subsequently measures all investments at fair value and changes in the fair
value are recognised as gains/(losses) on investments at fair value through
profit or loss within investment income.
l) Trade and other receivables
Trade and other receivables are non-derivative financial assets with fixed or
determinable payments that not quoted in an active market. Those includes
Prepayments, VAT Receivable and other receivables which are intercompany
balances due from subsidiary. Receivables are initially recognised at fair
value. They are subsequently measured at amortised cost, less any expected
credit loss.
The Company has assessed IFRS 9's expected credit loss model and does not
consider any impact on these financial statements.
m) Trade and other payables
Trade and other payables include accruals and other payables and initially are
recognised at fair value, and subsequently re-measured at amortised cost using
the effective interest method.
n) Share Capital and share premium
The Company's ordinary shares are not redeemable and are classified as equity.
Incremental costs directly attributable to the issue of ordinary shares and
share options are recognised as a deduction in equity and are charged from the
share premium account. The costs incurred in relation to the IPO and
subsequent fundraisings of the Company were charged from the share premium
account.
3. Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires the
Directors to make judgements, estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of income and expense during the year. Actual results could differ
from those estimates. The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision only affects that
period or in the period and future periods if the revision affects both
current and future periods.
Judgements
Investment entity
As disclosed in Note 2, the Directors have concluded that the Company
continues to meet the definition of an investment entity as defined in IFRS
10. This conclusion involved a degree of judgement and assessment as to
whether the Company met the criteria outlined in the accounting standards.
Estimates
Investment valuations
The key area where estimates may be significant to the financial statements is
the valuation of the Company's single subsidiary, SEEIT Holdco, which in turns
holds investments in a portfolio of investments that are held at fair value
(the "Portfolio Valuation").
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 of Directors has appointed the Investment Manager to produce the
Portfolio Valuation at 31 March 2022, which includes estimates of future cash
flows that have the potential to have a material effect on the measurement of
fair value.
The key estimates made include:
Discount rate
The weighted average unlevered discount rate (post tax) applied in the 31
March 2022 valuation was 7.0% (2021: 7.0%). The discount rate is considered
one of the most unobservable inputs through which an increase or decrease
would have a material impact on the fair value of investment at fair value
through profit or loss. An appropriate discount rate is applied to each
underlying asset. The range of discount rates applied and its sensitivity to
movements in discount rates is shown in note 4.
Macroeconomic assumptions
Further estimates have been made on the key macroeconomic assumptions that are
likely to have a material effect on the measurement of fair value being
inflation, corporation tax and foreign exchange which are further described in
Note 4.
Investment specific cash flow assumptions
For the investments in Primary Energy, estimates have been made to determine
the demand for generation by the offtakers and the cash flows that can be
generated through renewal of contract terms with the counterparty after the
expiry of the existing contract terms. The most material estimate is in
relation to Cokenergy. If the actual increase in contractual terms assumed for
the Cokenergy investment is 50% less than estimated, the Portfolio Valuation
at 31 March 2022 could be reduced by approx. £14 million, assuming no other
mitigants are available.
Although the investment in Onyx has been adversely affected by delays in the
development and construction of new assets, an increased estimate has been
made for the amount of Megawatts that can be deployed from the development
pipeline which are valued on an EV multiple per MW. If only 50% of the
increased estimate is achieved, the Portfolio Valuation at 31 March 2022 would
be reduced by approx. £8 million.
At the start of 2021 the Investment Manager worked with the management team of
Oliva Spanish Cogeneration to establish an inhouse gas procurement company to
target savings against the spot price for procuring natural gas for the five
investments in Oliva Spanish Cogeneration that use natural gas as a fuel
supply. Key estimates are made in the future cash flows of the savings that
can be achieved, however, if the margin of estimated savings is 5% less, then
the Portfolio Valuation at 31 March 2022 would be reduced by approx. £13.8
million.
In the investment in Vartan Gas, the future cashflows includes an assumption
that the management team will target a decline in customer numbers at a year
on year rate that is lower than the historic average decline. If the rate from
the last 12 months is assumed for the following two years, the adverse impact
on the Portfolio Valuation at 31 March 2022 would be £1.7m.
4. Financial Instruments
Valuation methodology
As detailed in Note 1 and Note 11, the Company has a single investment
directly wholly owned holding company (Holdco). It recognises this investment
at fair value. To derive the fair value of Holdco, the Company determines the
fair value of investment held directly or indirectly by Holdco and adjusts for
any other assets and liabilities. See Note 11 for a reconciliation of this
fair value. The valuation methodology applied by Holdco to determine the fair
value of its investments is described below.
The Directors have satisfied themselves as to the methodology used and the
discount rates and key assumptions applied in producing the valuations. All
investments are at fair value through profit or loss.
For non-market traded investments (being all the investments in the current
portfolio), the valuation is based on a discounted cash flow methodology and
adjusted in accordance with the IPEV (International Private Equity and Venture
Capital) valuation guidelines where appropriate to comply with IFRS 13 and
IFRS 9, given the special nature of infrastructure investments. Where an
investment is traded in an open market, a market quote is used.
The Investment Manager exercises its judgement in assessing the expected
future cash flows from each investment based on the project's expected life
and the financial models produced for each project company and adjusts the
cash flows where necessary to take into account key external macroeconomic
assumptions and specific operating assumptions.
The fair value for each investment is then derived from the application of an
appropriate market discount rate for that investment to reflect the perceived
risk to the investment's future cash flows and the relevant period end foreign
currency exchange rate to give the present value of those cash flows. The
discount rate takes into account risks associated with the financing of an
investment such as investment risks (e.g. liquidity, currency risks, market
appetite), any risks to the investment's earnings (e.g. predictability and
covenant of the income) and a thorough assessment of counterparty credit risk,
all of which may be differentiated by the phase of the investment. Specific
risks related to each asset that can be attributed to climate change and to
the COVID-19 pandemic are assessed and where required, adjustments are made to
expected future cash flows or reflected in the asset specific discount rate
that is applied.
Fair value measurement by level
IFRS 13 requires disclosure of fair value measurement by level. Fair value
measurements are categorised into Level 1, 2 or 3 based on the degree to which
inputs to the fair value measurements are observable and the significance of
the inputs to the fair value measurement in its entirety which are described
as follows:
• Level 1 inputs are quoted prices in active markets for identical
assets or liabilities that the Company can access at the measurement date;
• Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability, either
directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
The following summarises the significant methods and assumptions used in
estimating the fair values of financial instruments.
Investment at fair value through profit or loss Level 1 Level 2 Level 3
£'000 £'000 £'000
31 March 2022 - - 928,229
31 March 2021 - - 572,574
The Company's indirect investments have been classified as level 3 as the
investments are not traded and contain unobservable inputs. As the fair value
of the Company's equity and loan investments in the Holdco is ultimately
determined by the underlying fair values of the SPV investments or debt
schedules, the Company's sensitivity analysis of reasonably possible
alternative input assumptions is the same across all its investments. The
reconciliation of Level 3 fair value is disclosed in Note 11.
Valuation Assumptions
31 March 2022 30 September 2021 31 March 2021
Inflation rates UK (RPI) 7.9% declining to 3.5% by 2024, 2.75% p.a. long-term 2.75% p.a. 2.75% p.a.
UK (CPI) 6.0% declining to 2.3% by 2024, 2.00% p.a. long-term 2.00% p.a. 2.00% p.a.
Spain (CPI) 5.8% declining to 1.7% by 2024, 2.00% p.a. long-term 1.3% to 1.4% until 2023, 2.00% p.a. long-term 1.0% to 1.4% until 2023, 2.0% long-term
Sweden (CPI) 3.4% declining to 2.0% by 2024, 2.00% p.a. long-term 1.7% to 1.8% until 2023, 2.00% p.a. long-term 1.4% to 1.7% until 2023, 2.0% long-term
Singapore (CPI) 3.2% declining to 2.0% by 2024, 2.00% p.a. long-term 2.00% p.a. 2.00% p.a.
Ireland (CPI) 4.8% declining to 2.0% by 2024, 2.00% p.a. long-term n/a n/a
USA (CPI) 6.3% declining to 2.0% by 2024, 2.00% p.a. long-term 2.00% p.a. 2.00% p.a.
Tax rates UK 19% to 2023, 25% thereafter 19% to 2023, 25% thereafter 19% to 2023, 25% thereafter
Spain 25% 25% 25%
Sweden 21.4% 20.6% 21.4%
Singapore 17% 17% 17%
Ireland 17% 17% n/a
USA 21% Federal & 3-9% State rates 21% Federal & 3-9% State rates 21% Federal & 3-9% State rates
Foreign exchange rates EUR/GBP 0.84 0.86 0.85
SEK/GBP 0.08 0.08 0.08
SGD/GBP 0.56 0.55 0.54
USD/GBP 0.76 0.74 0.73
Discount rates
The discount rates used for valuing each investment are described in the
Valuation Methodology section above.
The discount rates used for valuing the investments in the portfolio are as
follows:
31 March 2022 31 March 2021
Weighted Average discount rate (on unlevered basis) 7.0% 7.0%
Discount rates 4.0% to 10.0% 4.5% to 10.0%
Sensitivities
The sensitivities below show the effect on Net asset value of assuming a
different range for each key input assumption, in each case applying a range
that is considered to be a reasonable and plausible outcome for the market in
which the Company has invested.
Discount rates
A change to the weighted average discount rate by plus or minus 0.5% has the
following effect on the NAV.
Discount rate NAV/share impact -0.5% Net asset value +0.5% change NAV/share impact
change
31 March 2022 4.5p £44,079k £1,073,118k (£40,648k) (4.1p)
31 March 2021 4.4p £29,854k £693,805k (£27,553k) (4.1p)
Inflation rates
The Portfolio Valuation assumes long-term inflation as indicated above in the
UK, USA and Spain. A change in the inflation rate by plus or minus 0.5% has
the following effect on the NAV, with all other variables held constant.
Inflation rate NAV/share impact -0.5% Net asset value +0.5% change NAV/share impact
change
31 March 2022 (1.1p) (£10,540k) £1,073,118k £11,936k 1.2p
31 March 2021 (0.7p) (£5,069k) £693,805k £5,560k 0.8p
Corporation tax rates
The Portfolio Valuation assumes tax rates based on the relevant jurisdiction.
A change in the corporation tax rate by plus or minus 5% has the following
effect on the NAV, with all other variables held constant.
Corporation tax rate NAV/share impact -5% Net asset value +5% change NAV/share impact
change
31 March 2022 3.2p £31,706k £1,073,118k (£33,005k) (3.3p)
31 March 2021 3.0p £20,025k £693,805k (£20,003k) (3.0p)
Foreign exchange rates
The Portfolio Valuation assumes foreign exchange rates based on the relevant
foreign exchange rates against GBP at the reporting date. A change in the
foreign exchange rate by plus or minus 10% (GBP against Euro, Swedish Krona,
Singapore Dollar and US Dollar) has the following effect on the NAV, with all
other variables held constant. The effect is shown after the effect of current
level of hedging which reduces the impact of foreign exchange movements on the
Company's NAV.
Foreign exchange rate NAV/share impact -10% Net asset value +10% change NAV/share impact
Change
31 March 2022 0.8p £8,329k £1,073,118k (£7,649k) (0.8p)
31 March 2021 0.8p £5,342k £693,805k (£4,621k) (0.7p)
5. Investment Income
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Dividend income 33,656 20,100
Gain on investment at fair value through profit or loss (Note 11) 47,792 15,021
Interest income 7,315 2,713
Investment income 88,763 37,834
Interest income is mainly in respect of coupon bearing loan notes issued to
the Company by Holdco (Note 15) but includes bank interest of £16k for the
year ended 31 March 2022 (2021: £29k). The loan notes accrue interest at 6%,
are unsecured and repayable in full on 18 April 2039. Loan Interest income is
recognised on the Statement of Comprehensive Income on an accruals basis. The
gain on investment is unrealised.
6. Fund Expenses
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Investment management fees (Note 15) 7,211 4,042
Non-executive directors' fees (Note 16) 275 156
Other expenses 1,076 913
Fees to the Company's independent auditors:
- for the audit of the statutory financial statements 398 263
- for audit-related assurance services 45 55
Fund Expenses 9,005 5,429
As at 31 March 2022, the Company had no employees (31 March 2021: nil) apart
from Directors in office. The Company confirms that it has no key management
personnel, apart from the Directors of the Company. There is no other
compensation apart from those disclosed. Other expenses include professional
fees, administration fees, irrecoverable VAT and other fees in relation to the
running of the Company.
7. Tax
The tax for the year shown in the Statement of
Comprehensive Income is as follows.
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Profit for the year before taxation 79,758 32,405
Profit for the year multiplied by the standard rate of corporation tax of 19% 15,154 6,157
(2021: 19%)
Fair value movements (not subject to taxation) (9,080) (2,854)
Dividends received (not subject to taxation) (6,395) (3,819)
Surrendering of tax losses to unconsolidated subsidiaries 321 516
Total tax charge - -
The corporation tax rate will increase from 19% to 25% with effect from 1
April 2023. No deferred tax were recognised in the periods.
8. Earnings per Ordinary Share
Year ended Year ended
31 March 2022 31 March 2021
Profit and comprehensive income for the year (£'000) 79,758 32,405
Weighted average number of ordinary shares ('000) 795,954 463,389
Earnings per ordinary share (pence) 10.0 7.0
There is no dilutive element during the
financial year and subsequent to the financial year.
9. Dividends
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Amounts recognised as distributions to equity holders during the year:
Second Interim dividend for the year ended 31 March 2020 of 2.5p per share - 8,010
First quarterly interim dividend for the year ended 31 March 2021 of 1.375p - 5,859
per share
Second quarterly interim dividend for the year ended 31 March 2021 of 1.375p - 7,234
per share
Third quarterly interim dividend for the year ended 31 March 2021 of 1.375p - 9,310
per share
Fourth quarterly interim dividend for the year ended 31 March 2021 of 1.375p 9,310 -
per share
First quarterly interim dividend for the year ended 31 March 2022 of 1.405p 9,513 -
per share
Second quarterly interim dividend for the year ended 31 March 2022 of 1.405p 12,692 -
per share
Third quarterly interim dividend for the year ended 31 March 2022 of 1.405p 12,692 -
per share
All dividends have been paid out of distributable reserves. Further
information on distributable reserves can be found in Note 12.
On 16 June 2022, the Company declared a fourth interim dividend for the year
ended 31 March 2022 of 1.405p per share which is expected to result in a cash
payment of approximately £13.9 million on 30 June 2022.
10. Net assets per share
31 March 2022 31 March 2021
Shareholders' equity (£'000) 1,073,118 693,805
Number of ordinary shares ('000) 990,288 677,087
Net assets per ordinary share (pence) 108.4 102.5
11. Investment at fair value through profit or loss
The Company recognises the investment in Holdco, its single directly owned
holding company, at fair value. Holdco's fair value includes the fair value
of each of the individual project companies and holding companies in which the
Holdco holds a direct or an indirect investment, along with the working
capital of Holdco.
Year ended Year ended
31 March 2022 31 March 2021
£'000 £'000
Brought forward investment at fair value through profit or loss 572,574 254,095
Loan investments in year 96,801 42,000
Equity investments in year 223,062 274,479
Loan Principal repaid in year (12,000) (13,021)
Movement in fair value 47,792 15,021
Closing investment at fair value through profit or loss 928,229 572,574
Movement in fair value is recognised through Investment Income in the
Statement of Comprehensive Income (see Note 5).
Of the closing investment at fair value through profit and loss balance,
£149,980k (March 2021: £65,179k) relates to loan investment (also see Note
5) and £778,249k (March 2021: £507,395k) relates to equity investment.
A reconciliation between the Portfolio Valuation (as described in Valuation of
the Portfolio section), being the valuation of the Investment Portfolio held
by Holdco, and the Investment at fair value through profit or loss per the
Statement of Financial Position is provided below. The principal differences
are the balances in Holdco for cash and working capital.
31 March 2022 31 March 2021
£'000 £'000
Portfolio Valuation (see the Financial Review for details) 912,714 552,672
Holdco cash 24,880 4,141
Holdco debt - -
Holdco net working capital (9,365) 15,761
Investment at fair value per Statement of Financial Position 928,229 572,574
Investments by the Company
During the year ended 31 March 2022, the Company invested £319.9 million into
Holdco for new portfolio investments and repayment of debt. Holdco used £67.8
million of this funding to repay its Revolving Credit Facility ("RCF") in
September 2021 and £30.6 million in March 2022.
Portfolio Investments, via Holdco
During the year ended 31 March 2022, Holdco invested c. £300.2 million in new
portfolio investments.
The Company announced the following investment activity in the year:
· In April 2021, the Company acquired a 100% equity interest in a
commercial district energy system, RED-Rochester, LLC for a cash consideration
of c. £139 million.
· In April 2021, the Company invested in a 4.5MWp portfolio of
operational commercial and industrial rooftop solar systems and a 20 MWp
pipeline of late development stage and ready to build assets at multiple sites
in Vietnam (via a Singapore developer) for a cash consideration of c. £2.4
million.
· Following on from the initial investment in Onyx in the year ended 31
March 2021, the Company invested additional amounts of c. £6 million in April
2021, c. £2 million in September 2021, c. £13 million in November 2021 and
c. £2 million in March 2022 to fund further construction.
· Following on from the initial investment in Spark US Energy
Efficiency II in the year ended 31 March 2021, the Company invested via Holdco
an additional c. £4.5 million July 2021, c. £6 million in November 2021 and
c. £2 million in March 2022.
· Following on from the initial investment in Oliva in the year ended
31 March 2021, the Company invested additional amounts of c. £10 million in
December 2021 and c. £3 million in March 2022 to fund further construction.
· In July 2021, the Company announced it had agreed to invest
approximately c. £22 million in a large-scale green gas-to-grid project in
Indiana, US. The initial investment was c. £11 million with incremental
amounts expected to be deployed over time to fund expansion activity. The
Company invested a further c. £2 million in November 2021 and c. £0.3
million in March 2022.
· In August 2021, the Company invested c. £1 million into Holdco to
facilitate the retrofit project of energy efficient measures in Tallaght
Hospital, one of Ireland's largest hospitals.
· In September 2021, the Company invested £34 million to acquire the
remaining 35% equity interest in Primary Energy.
· In September 2021, the Company announced it had agreed to invest c.
£3 million to develop, implement, finance and own the replacement of a
chiller system at Lycra Singapore's facility.
· In September 2021, the Company invested £8 million to facilitate the
drawdown of capital to EV Network for the purchase of the first tranche of
rapid and ultra-fast EV charging stations.
· In October 2021, the Company invested c. £4 million to provide
funding for the new-build, highly energy efficient multi-family residential
buildings designed and constructed by Sustainable Living Innovations ("SLI")
in the United States.
· In November 2021, the Company invested c. £16 million in Future
Energy Solutions Holdings LLP, a portfolio of 1,800+ LED lighting projects
across 1,700+ sites and 1,000+ counterparties in the USA.
· In March 2022, the Company invested c. £31 million to acquire an 80%
interest in Sociedade de Iniciativa e Aproveitamentos Florestais - Energia,
S.A. ("SIAF"), a high-efficiency and operational biomass plant. The Company
funded the intermediatory company on 31 March 2022 with the deal completing in
April 2022.
The Company made further portfolio investments after 31 March 2022 of c. £43
million - see Note 18 for details:
12. Share capital and share premium
Ordinary Shares of £0.01 Year ended Year ended
31 March 2022 31 March 2021
'000 '000
Authorised and issued at the beginning of the year 677,087 320,374
Shares Issued - during the year 313,201 356,713
Authorised and issued at the end of year 990,288 677,087
Share capital Share Premium
£'000 '000
Total as at 1 April 2021 6,771 584,436
Issue of Ordinary shares 3,132 346,868
Costs of issue of Ordinary shares - (6,238)
Total as at 31 March 2022 9,903 925,067
In September 2021, the Company issued 226,244,343 new ordinary shares at a
price of 110.5p per share raising gross proceeds of £250m.
In March 2022, the Company issued 86,956,522 new ordinary shares at a price of
115p per share raising gross proceeds of £100m.
The Company currently has one class of ordinary share in issue. All the
holders of the £0.01 ordinary shares, which total 990,288k (2021: 677,087k)
and are fully paid (2021: fully paid), are entitled to receive dividends as
declared from time to time and are entitled to one vote per share at general
meetings of the Company.
Other distributable reserves were created through the cancellation of the
Share Premium account on 12 March 2019. This amount is capable of being
applied in any manner in which the Company's profits available for
distribution, as determined in accordance with the Companies Act 2006, are
able to be applied.
Other distributable reserves and Retained Earnings are detailed in the
Statement of Changes in Shareholders' Equity.
13. Financial risk management
Financial risk management objectives
The objective of the Company's financial risk is to manage and control risk
exposure of the underlying investment portfolio held by Holdco. The Board is
responsible for overseeing the management of financial risks, however the
review and management of financial risks is delegated to the Investment
Manager. The Investment Manager monitors and manages the financial risks
relating to the operations of the Company through internal procedures and
policies designed to identify, monitor and manage the financial risks to which
the Company is exposed.
These risks include market risk (including price risk, currency risk and
interest rate risk), credit risk and liquidity risk.
Price risk
The value of the investments directly and indirectly held by the Company is
affected by the discount rate applied to the expected future cash flows and as
such may vary with movements in interest rates, inflation, power prices,
market prices host demand for energy services and competition for these
assets.
Currency risk
Currency risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in foreign exchange
rates. The Company receives loan interest, loan principal and dividends from
its single investment, Holdco, in sterling. However, the Company is indirectly
exposed to currency risk through its Holdco as its investments include
non-sterling investments are held in Euro, US Dollar, Singapore Dollar and
Swedish Krona.
The Company monitors its foreign exchange rate 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.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
The Company, via Holdco, invests indirectly in loans in project companies,
usually with fixed interest rate coupons. Where floating rate debt is owned,
the primary risk is that the portfolio's cash flow will be subject to
variation depending on changes to base interest rates. The portfolio's cash
flows are continually monitored and re-forecasted to analyse the cash flow
returns from investments.
The Company's policy is to ensure that interest rates are sufficiently hedged,
when entering into material medium/long-term borrowings, to protect the
Company and portfolio companies' net interest margins from significant
fluctuations in interest rates. This may include engaging in interest rate
swaps or other rate derivative contracts at the subsidiary level under
direction of the Company.
The Company's financial assets and financial liabilities are at a
pre-determined interest rate, as a result the Company is subject to limited
exposure to risk due to fluctuations in the prevailing levels of market
interest rates.
The Investment Manager has carried out an assessment on the accounting
implications of the IBOR reform directly affecting the Company. There is no
direct impact from the reform as the Company and its UK subsidiaries do not
have exposure to LIBOR. There is currently no exposure at project level in all
locations other than the US where analysis is ongoing. However the reform is
not expected to have a material impact on these projects or SEEIT as a whole.
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in a financial loss to the Company through a
reduction in future expected cash receipts.
The key counterparties are the project companies in which the Company makes
indirect investments via Holdco. The projects companies' near-term cash flows
forecasts are used to monitor the timing of cash receipts from project
counterparties and are reviewed regularly to demonstrate the projects' ability
to pay interest and dividends when they fall due.
The Company does not have any significant credit risk exposure to any single
counterparty in relation to trade and other receivables. On-going credit
evaluation is performed on the financial condition of accounts receivable.
As at 31 March 2022, there were no receivables considered impaired. At an
investment level, the credit risk relating to significant counterparties is
reviewed on a regular basis and potential adjustments to the discount rate are
considered to recognise changes to these risks where applicable.
The Company maintains its cash and cash equivalents across various banks to
diversify credit risk. These are subject to the Company's credit monitoring
policies including the monitoring of the credit ratings issued by recognized
credit rating agencies. The Company's cash and deposits are held with
counterparties that meet strict investment rating criteria per the Company's
treasury policy.
The Company is at risk of credit loss on its loans, receivables, cash and
deposits. Underlying investments are held by Holdco at fair value using
discounted cash flows. Receivables are primarily intercompany and taxation.
While cash and cash equivalents are subject to the impairment requirements of
IFRS 9, there was no identified credit loss.
The Company's maximum exposure to credit risk over financial assets is the
carrying value of those assets in the Statement of Financial Position.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Board of Directors has established
an appropriate liquidity risk management framework for the management of the
Company's short-, medium- and long-term funding and liquidity management
requirements. The Company manages liquidity risk by maintaining adequate
reserves by monitoring forecast and actual cash flows and by matching the
maturity profiles of assets and liabilities.
The Company also ensures that Holdco has sufficient banking facilities by
continuously monitoring forecast and actual cash flows and matching the
maturity profiles of financial assets and liabilities.
Unconsolidated project companies are subject to contractual agreements that
may impose temporary restrictions on their ability to distribute cash. Such
restrictions are not deemed significant in the context of the overall
liquidity.
The table below shows the maturity of the Company's non-derivative financial
assets and liabilities. The amounts disclosed are contractual, undiscounted
cash flows and may differ from the actual cash flows received or paid in the
future as a result of early repayments. Balances due within 12 months equal
their carrying balances as the impact of discounting is not significant.
Up to Between 3 and 12 months Between 1 and 5 years Total
3 months £'000 £'000 £'000
As at 31 March 2022 £'000
Assets
Cash and cash equivalents 146,064 - - 146,064
Trade and other receivables - - - -
Liabilities
Trade and other payables (1,538) - - (1,538)
Total 144,526 - - 144,526
Up to Between 3 and 12 months Between 1 and 5 years Total
3 months £'000 £'000 £'000
As at 31 March 2021 £'000
Assets
Cash and cash equivalents 122,059 - - 122,059
Trade and other receivables 1 - - 1
Liabilities
Trade and other payables (1,229) - - (1,229)
Total 120,831 - - 120,831
Capital management
The Company manages its capital to ensure that it will be able to continue as
a going concern while maximizing the return to shareholders. In accordance
with the Company's investment policy, the Company's principal use of cash
(including the proceeds of the IPO) has been to fund investments via Holdco as
well as ongoing operational expenses.
The Board, with the assistance of the Investment Manager, monitors and reviews
the broad structure of the Company's capital on an ongoing basis. The capital
structure of the Company consists entirely of equity (comprising issued
capital, distributable reserves and retained earnings).
The Company is not subject to any externally imposed capital requirements.
14. Related undertakings
The following table shows the Company's single direct subsidiary (SEEIT Holdco
Limited) and indirect subsidiaries and related undertakings of the Company. As
the Company applies IFRS 10 and Investment Entities (Amendments to IFRS 10)
(see Note 2), these entities have not been consolidated in the preparation of
these financial statements.
Investment Country of incorporation & Place of Business Shareholding at
31 March 2022
SEEIT Holdco Limited United Kingdom 100%
EECo Kingscourt Limited United Kingdom 100%
SEEIT Europe Limited United Kingdom 100%
EECo Data Centres No. 1 Limited United Kingdom 100%
SEEIT US Limited United Kingdom 100%
EECo Biomass No 1 Limited United Kingdom 60%
EECo Evergreen Limited United Kingdom 100%
EECo Wilton No. 1 Limited United Kingdom 100%
SmartEnergy Finance Two Limited United Kingdom 49%
Combined Heat and Power Investments Limited United Kingdom 100%
Energy Efficient Global UK Project Limited United Kingdom 100%
EECo Smithfield Limited United Kingdom 100%
SDCL Solar Edge Limited United Kingdom 100%
SEEIT UK 1 Limited United Kingdom 100%
SEEIT Asia Limited United Kingdom 100%
SEEIT Europe 2 Limited United Kingdom 100%
SEEIT US Two Limited United Kingdom 100%
Zood Infrastructure Limited United Kingdom 100%
Walworth Invest S.L. Spain 100%
EE CO Ireland Hospitals TUH Ltd Ireland 100%
SDCL TG Cogen LLC USA 71%
SEEIT BTB LLC USA 100%
SEEIT Net Zero LLC USA 100%
SEEIT PE 1 LLC USA 100%
SEEIT PE 2 LLC USA 100%
PERC Midco LLC USA 100%
SEEIT Capital LLC USA 100%
SEEIT Capital II LLC USA 100%
SEEIT Hemisphere Holdco, LLC USA 100%
SEEIT Red Holdco, LLC USA 100%
SEEIT US Lighting Holdings LLC USA 100%
FE Energy Efficiency INV PTE. Limited Singapore 100%
SEEIPL 1 PTE. Limited Singapore 100%
SEEIPL 3 PTE. Limited Singapore 100%
SEEIPL 4 PTE. Limited Singapore 100%
Shire Oak Green Asia Portfolio 2 Pte Singapore 100%
SEEIT EUROPE 2 SWEDEN HOLDING AB Sweden 100%
All subsidiaries that have a place of business in the United Kingdom are
registered in the United Kingdom and their principal place of business and
registered office is 5(th) Floor, 1 Vine Street, London, W1J 0AH.
SDCL TG Cogen LLC, SEEIT Capital LLC, SEEIT Capital II LLC, PERC Midco LLC,
SEEIT Hemisphere I LLC, SEEIT Red Holdco LLC, SEEIT US Lighting Holdings LLC,
SEEIT BTB LLC and SEEIT Net Zero LLC are registered in Delaware, USA and their
registered office is 1209 Orange Street, Wilmington, Delaware, USA with their
principal place of business is 1120 Avenue of the Americas, New York, New York
10036, USA.
Walworth Invest S.L. is registered in Spain and its principal place of
business and registered office is Calle Príncipe de Vergara 112, Planta
Cuarta, 28002 Madrid, Spain.
EE CO Ireland Hospitals TUH Ltd is registered in Ireland and its principal
place of business and registered office is 55 Merrion Square South, Dublin,
DO2 YD65.
FE Energy Efficiency PTE. Limited, SEEIPL 1 PTE. Limited, SEEIPL 3 PTE.
Limited, SEEIPL 4 PTE. Limited and Shire Oak Green Asia Portfolio 2 PTE Ltd is
registered in Singapore and their principal place of business and registered
office is 6 Eu Tong Sen Street #11-09, The Central, Singapore 059817.
SEEIT EUROPE 2 SWEDEN HOLDING AB is registered in Sweden and its principal
place of business and registered office is RÅSUNDAVÄGEN 12, 16967 Solna,
Stockholm County, Sweden.
15. Related parties
The Company and Sustainable Development Capital LLP (the "Investment Manager")
have entered into the Investment Management Agreement pursuant to which the
Investment Manager has been given responsibility, subject to the overall
supervision of the Board, for active discretionary investment management of
the Company's portfolio in accordance with the Company's investment objective
and policy.
As the entity appointed to be responsible for risk management and portfolio
management, the Investment Manager is the Company's AIFM. The Investment
Manager has full discretion under the Investment Management Agreement to make
investments in accordance with the Company's investment policy from time to
time. This discretion is, however, subject to: (i) the Board's ability to give
instructions to the Investment Manager from time to time; and (ii) the
requirement of the Board to approve certain investments where the Investment
Manager has a conflict of interest in accordance with the terms of the
Investment Management Agreement. The Investment Manager also has
responsibility for financial administration and investor relations, advising
the Company and its group in relation to the strategic management of the
portfolio, advising the Company in relation to any significant acquisitions or
investments and monitoring the Company's funding requirements.
Under the terms of the Investment Management Agreement, the Investment Manager
will be entitled to a fee calculated at the rate of:
· 0.9%, per annum of the adjusted NAV in respect of the Net Asset Value
of up to, and including, £750 million; and
· 0.8%, per annum of the adjusted NAV in respect of the Net Asset Value
in excess of £750 million.
The management fee is calculated using an adjusted NAV which is the latest
published NAV at the relevant time, less uncommitted cash and adjusted on a
daily basis for new acquisitions, new cash committed to investments, disposals
and changes in amounts of debt drawn.
The management fee accrues monthly and is invoiced monthly in arrears. During
the year ended 31 March 2022, management fees of £7,211k (2021: £4,042k)
were incurred of which £708k (2021: £919k) was payable at the year-end.
During the year ended 31 March 2022, £319.9m (2021: £316.5m) of funding was
provided by the Company to the Holdco for investment acquisitions and the
repayment of the RCF utilised by Holdco.
During the year ended 31 March 2022, coupon bearing loan notes of £96.8
million (2021: £42.0 million) were issued which accrue interest at 6%. During
the year ended 31 March 2022, Holdco had repaid coupon bearing loan notes of
£12.0 million (2021: £13.0 million). In the year to 31 March 2022,
£7,299k interest had accrued on the loan notes (2021: £2,684k) of which
nothing is outstanding at the year-end (2021: £1,300k).
All of the above transactions were undertaken on an arm's length basis and
there have been no changes in material related party transactions since the
last annual report.
16. Key management personnel transactions
The Directors of the Company, who are considered to be key management,
received fees for their services. Their fees were £275k (disclosed as
Non-executive directors' fees in Note 6) in the year (2021: £156k) which
included £254k for Director salaries (2021: £148k), £18k for national
insurance contributions (2021: £8k) and £3k for the reimbursement of
expenses (2021: £nil).
17. Guarantees and other commitments
The Company is the guarantor of the RCF between Holdco and Investec Bank plc.
Across two phases in June 2021 and August 2021, the Company renewed and
increased the RCF that it holds through its wholly owned subsidiary, SEEIT
Holdco, from £40 million to £145 million. The RCF, which is SONIA linked and
has a margin of 2.65%, expires in June 2024 with options to extend for a
further two years and includes an accordion function for a further £55
million increase on an uncommitted basis.
18. Events after the reporting period
The Directors have evaluated subsequent events from the date of the financial
statements through to the date the financial statements were available to be
issued.
Between April and June 2022, the Company made the following investments, via
SEEIT Holdco:
· A further c. £3 million in Spark US Energy Efficiency II.
· A further c. £1 million in Biotown.
· A further c. £18 million in Onyx.
· A further c. £2 million in Tallaght Hospital.
· A financing round of c. £8m in Turntide Technologies, Inc. a
provider of smart motor systems across several jurisdictions, headquartered in
the US with operations in Canada, Europe and India.
· A c.£21 million debt investment commitment to Baseload Capital, a
portfolio of small scale geothermal projects which utilise existing heat
sources which has not yet been drawn.
· A further c. £6 million in EV Network.
· A further c. £2 million in FES Lighting.
· A c. £3 million in Iceotope, a company that provides energy
efficient cooling systems for data centres.
GLOSSARY OF FINANCIAL ALTERNATIVE PERFORMANCE MEASURES ("APM")
The Company uses APM's to provide shareholders and stakeholders with
information it deems relevant to understand and assess the Company's historic
performance and its ability to deliver on the stated investment objective.
Measure Calculation Why the Company uses the APM
Net Asset Value ("NAV") Net assets attributable to Ordinary Shares by deducting gross liabilities from It provides a metric that allows for useful comparison to similar companies
gross assets. and that allows for useful year on year comparisons of the Company. See the
Financial Review.
NAV per share NAV divided by total number of shares in issue at the balance sheet date This provides shareholders with a metric that allows for tracking the
Company's performance year on year. See the Financial Review.
Total NAV Return on per share basis Interim dividends paid in pence per share and movement in NAV per share over This provides shareholders with a metric that allows for tracking the
the course of the relevant period (e.g. in financial year or since IPO). Company's performance year on year
Dividends are not assumed to be re-invested.
Total Return on share price basis Interim dividends paid and share price uplift per share over the course of the This provides shareholders with a metric that allows for tracking the
relevant period Company's performance year on year
Portfolio Basis Portfolio Basis includes the impact if Holdco (the Company's only direct See the Investment Policy and Approach for detailed description and
subsidiary) were to be consolidated on a line-by-line basis reconciliation
Ongoing Charges Ratio In accordance with AIC guidance, defined as annualised ongoing charges (i.e. Used as a metric in the investment company industry to compare
excluding investment costs and other non-recurring items) divided by the cost-effectiveness. See the Financial Review.
average published undiluted NAV in the year
Portfolio Valuation The fair value of all investments in aggregate that are held directly or It provides relevant information of the value of the underlying investments
indirectly by Holdco held indirectly by the Company from which it is ultimately expected to derive
its future revenues. See the Valuation of the Portfolio section.
Cash on Portfolio Basis Cash at bank of the Company and Holdco To provide relevant information to shareholders of the Company's ability for
new investments, working capital and payment of dividends. See the Financial
Review.
1 In this annual results announcement, there are a number of references to
financial Alternative Performance Measures. For further details on these,
please see the Glossary of financial Alternative Performance Measures ("APM")
2 The target dividend stated above by the Company is based on a projection
by the Investment Manager and should not be treated as a profit forecast for
the Company
3 Per SEEIT's ESG Report, November 2021
4 Source : IEA ;
https://www.iea.org/reports/energy-efficiency-2021/executive-summary
(https://www.iea.org/reports/energy-efficiency-2021/executive-summary)
5 In this Annual Report, there are a number of references to financial
Alternative Performance Measures. For further details on these, please see the
Glossary of financial Alternative Performance Measures ("APM")
6 In this Annual Report, there are a number of references to financial
Alternative Performance Measures. For further details on these, please see the
Glossary of financial Alternative Performance Measures ("APM")
7 In this Annual Report, there are a number of references to financial
Alternative Performance Measures. For further details on these, please see the
Glossary of financial Alternative Performance Measures ("APM")
8 Source: IEA ;
https://www.iea.org/news/how-europe-can-cut-natural-gas-imports-from-russia-significantly-within-a-year
(https://www.iea.org/news/how-europe-can-cut-natural-gas-imports-from-russia-significantly-within-a-year)
9 Source: EESI ; https://www.eesi.org/topics/fossil-fuels/description
(https://www.eesi.org/topics/fossil-fuels/description)
10 A total commitment of £6 million of which £1.4 million had been
deployed by 31 March 2022
11 A total commitment of £22 million of which £14 million had been
deployed by 31 March 2022
12 A total commitment of £3m which £0.3m had been deployed by 31 March
2022
13 A total commitment of £21m not yet drawn
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