REG - SDCL Energy Effcncy. - Interim Report and Accounts
04/12/2023 07:00
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RNS Number : 4800V SDCL Energy Efficiency Income Tst 04 December 2023
04 December 2023
SDCL Energy Efficiency Income Trust plc
("SEEIT" or the "Company")
Announcement of Interim Results for the six-month period ended 30 September
2023
SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or the "Company")
today announces its financial results for the six-month period ended 30
September 2023. The full report can be found at
https://www.seeitplc.com/investors/ (https://www.seeitplc.com/investors/) .
Highlights
· Net Asset Value ("NAV") per share((APM)) of 90.6p as at 30
September 2023 (September 2022: 106.1p), which includes a reduction of 10.9p
largely driven by a 100bps increase in the weighted average unlevered discount
rate to 8.7%.
· Investment cash inflow from the portfolio((APM)) of £47
million, an increase of c. 9% from the comparative period (September 2022:
£43 million).
· Aggregate dividends((APM)) of 3.12p per share declared for the
six month period to 30 September 2023 (September 2022: 3.0p), in line with FY
24 target
· Dividend cash cover((APM)) of 1.1x for the six-month period to
30 September 2023 (September 2022: 1.2x)
· Target dividend of 6.24p per share for the year to March 2024 is
on track, a 4% year-on-year increase
· Loss before tax of £89 million for the six-month period to 30
September 2023 (30 September 2022: loss of £1.5 million), reflecting the
unrealised loss of £129 million from increased discount rates
· Portfolio valuation((APM)) of £1,066 million for the six-month
period to 30 September 2023 (March 2023: £1,100 million)
· Investment of c.£93 million in organic investments and existing
commitments during the six-month period to 30 September 2023
Tony Roper, Chair of SEEIT, said:
"The Board and Investment Manager are listening carefully to shareholders and
are planning and taking action aimed at improving the returns from SEEIT's
investment portfolio and narrowing the share price discount. Central to these
actions are keeping the Company's gearing low and scaling back investment,
with appetite focussed on the organic pipeline where the value impact is
greatest. The Company completed a £20 million share buyback during the period
and the Investment Manager is progressing disposals to create liquidity for
the Company and its shareholders. Meanwhile the Investment Manager continues
to meet with existing and new investors to promote and support the
marketability and liquidity of the Company's shares."
Jonathan Maxwell, CEO of SDCL, the Investment Manager said:
"The 'higher for longer' interest rate and inflation environment, and its
impact on discount rates, created headwinds for the Company's asset values and
interim results for the period to 30 September 2023, while wider market
conditions made it a time for caution in general. However, SEEIT's large,
unique, and diversified portfolio of over £1 billion of energy efficiency
projects continues to deliver good levels of cash flow to cover its dividend
and to offer a combination of income and capital growth. The opportunity for
upside from today's market price is compelling, given that SEEIT's shares
currently trade at a substantial discount to NAV. The Board and Investment
Manager are committed to taking action aimed at reducing or closing the
discount.
Meanwhile, as the International Energy Agency points out, only energy
efficiency can deliver 50% of global decarbonisation targets by 2030. SEEIT is
the only way to access a large-scale portfolio of energy efficiency projects
via a London Stock Exchange listed investment company."
For Further Information
Sustainable Development Capital LLP T: +44 (0) 20 7287 7700
Jonathan Maxwell
Purvi Sapre
Eugene Kinghorn
Tom Hovanessian
Jefferies International Limited T: +44 (0) 20 7029 8000
Tom Yeadon
Gaudi le Roux
TB Cardew T: +44 (0) 20 7930 0777
Ed Orlebar M: +44 (0) 7738 724 630
Henry Crane E: SEEIT@tbcardew.com (mailto:SEEIT@tbcardew.com)
About SEEIT
SDCL Energy Efficiency Income Trust plc is a constituent of the FTSE 250
index. It was the first UK listed company of its kind to invest exclusively in
the energy efficiency sector. Its projects are primarily located in North
America, the UK and Europe and include, inter alia, a portfolio of
cogeneration assets in Spain, a portfolio of commercial and industrial solar
and storage projects in the United States, a regulated gas distribution
network in Sweden and a district energy system providing essential and
efficient utility services on one of the largest business parks in the United
States.
The Company aims to deliver shareholders value through its investment in a
diversified portfolio of energy efficiency projects which are driven by the
opportunity to deliver lower cost, cleaner and more reliable energy solutions
to end users of energy.
The Company is targeting an attractive total return for shareholders of 7-8
per cent. per annum (net of fees and expenses and by reference to the initial
issue price of £1.00 per Ordinary Share), with a stable dividend income,
capital preservation and the opportunity for capital growth. The Company is
targeting a dividend of 6.24p per share in respect of the financial year to 31
March 2024. SEEIT's last published NAV per share was 90.6p as at 30 September
2023.
Past performance cannot be relied on as a guide to future performance.
Further information can be found on the Company's website
at www.seeitplc.com (http://www.seeitplc.com/) .
Investment Manager
SEEIT's investment manager is Sustainable Development Capital LLP ("SDCL"), an
investment firm established in 2007, with a proven track record of investment
in energy efficiency and decentralised generation projects in the UK,
Continental Europe, North America and Asia.
SDCL is headquartered in London and also operates worldwide from offices in
New York, Dublin, Madrid, Hong Kong and Singapore. SDCL is authorised and
regulated in the UK by the Financial Conduct Authority.
Further information can be found on at www.sdclgroup.com
(http://www.sdclgroup.com/) .
Chair's Interim Statement
On behalf of the Board, I present the interim report and financial statements
(the "Interim Report") for SDCL Energy Efficiency Income Trust plc ("SEEIT" or
"the Company") for the six months ended 30 September 2023 (the "period").
The economic and political climate has been particularly challenging over the
last 18 months. The war in Ukraine, volatile energy prices, high inflation
and sharp rises in interest rates and, more recently, conflict in the Middle
East have all increased levels of uncertainty in financial markets and the
cost of capital. This has resulted in a risk to the health of the economies in
which many of the SEEIT's investments' end-customers have exposure.
While the defensive characteristics within SEEIT's portfolio, such as
contractual structures and the credit quality of counterparties, provide some
mitigation, slowing economic growth has increased the risk to demand for
energy and other services from some of these customers. There is also downside
risk to cash flows from increased interest costs, although this is materially
contained by the prudent levels of gearing((APM)) throughout the portfolio and
the proportion of fixed interest rates on the portfolio-level debt which is
high in the near term. Higher risk-free rates have contributed to a reduction
in valuation of our operational assets during the period.
In addition to the valuation implications of the above, rising fixed income
yields and lacklustre performance by volatile equity markets have led to a
reassessment and rebalancing of portfolios by many investors who have sought
to de-risk, including in the income focused investment trust market in the UK.
Consequently, investment trust share prices are generally trading at
substantial discounts to net asset values.
Nonetheless, the outlook for elevated energy costs and continued energy
security concerns reinforces the economic benefits of energy efficiency
solutions provided by SEEIT to its customers, delivering them lower cost,
cleaner and more reliable energy solutions.
Addressing the share price discount to net asset value((APM))
The Board was grateful for the high level of support shown by shareholders
voting to approve the continuation vote of the Company at September's AGM and
we are committed to ensuring that we deliver the best outcome for
shareholders. We are acutely aware of the impact that the share price has on
its shareholders' returns and were disappointed to see the share price fall to
a 34% discount to NAV((APM)) at the end of the Period, and subsequently fall
further. In our opinion, the share price has not entirely reflected the
portfolio's value or potential and is partly a function of wider market
dynamics. Regardless of market sentiment, protecting shareholders' interests
remains the priority and defines the Board's decision-making. Both the Board
and the Investment Manager are listening carefully to shareholders and
analysts and planning actions accordingly.
The Investment Manager continues to manage the portfolio to keep borrowings at
relatively moderate levels. It is also actively pursuing options to realise
liquidity for the Company through selective asset disposals.
The Company's Capital Allocation Policy has been updated to reflect the
current share price and market, and the Board is now actively involved in
agreeing any uses of capital with the Investment Manager (which retains the
delegated authority for all investment decisions). These discussions recognise
the scarcity of capital and that any new investment and the associated returns
must be judged and justified against returning capital to shareholders.
As well as continued focus on driving operational performance of the existing
assets, other steps include enhanced disclosure and communication, and
supporting the marketability and liquidity of the shares through active
engagement with existing and new potential shareholders.
During the Period the Company bought back £20 million worth of its own
shares, supporting liquidity and demonstrating the Board's willingness to take
action. The Company will buy back further shares in due course if it is deemed
to be in the best interests of shareholders.
Portfolio and financial performance
The Company's NAV((APM)) has declined by 10.9 pence per share during the
period. The most significant factor was the use of higher discount rates to
value the portfolio of investments, reflecting both the higher interest rate
environment and increases to the asset specific risk premium applied to
certain US assets. The combined impact was a 1.0% increase in the weighted
average unlevered discount rate to 8.7% (9.4% levered), contributing a £129
million reduction to the reported net asset value.
Investment related valuation adjustments included uplifts made in Oliva and
Värtan Gas (as a result of favourable regulatory outcomes), but also downward
revisions to forecasts at RED-Rochester and delays in projects brought into
operations in Onyx. After removing the impact of investment into the portfolio
and cash inflows from the portfolio, and incorporating portfolio performance
which includes the £129 million reduction due to discount rates, the
Portfolio Valuation ((APM)) reduced by £80 million.
During the period, the aggregate cash flow from investments was in line with
our expectations. For the year ending March 2024, the Company is on track to
deliver an aggregate dividend of 6.24 pence per share covered by net
operational cash received from investments.
The Investment Manager takes an active approach to managing issues that may
arise from operational activities or construction phases and there were no
material events to report during the period. Since setting out value growth
opportunities in our March 2023 annual results, the Company has made
measurable progress advancing opportunities which create an uplift in
NAV((APM)), pointing to the potential in the portfolio beyond that implied by
the weighted average valuation discount rate.
The Investment Manager's Report expands further on these matters.
Balance sheet
The Company continues to pursue a prudent approach to debt with a medium term
target total gearing((APM)) ratio at project level of 35% of the Company's
NAV((APM)). During the period, portfolio-level debt balances reduced in
aggregate and the SEEIT Holdco's revolving credit facility was drawn by £100
million for investments, most of which were in support of existing projects,
which resulted in a total gearing((APM)) ratio of 44%, of which 34% was at
project level. It is the intention that the total gearing((APM)) ratio be
brought back into line with target through a combination of scheduled
amortisation of project level facilities from free cash flow, application of
surplus portfolio cash flows to repay the revolving credit facility, and
proceeds from asset disposals.
As I have already noted, making further investments at the current time will
be limited to those that meet the agreed Capital Allocation Policy and where
both the Board and the Investment Manager agree that the forecast returns meet
or exceed other options for that capital. This means only 'organic'
investments are likely to be considered. Examples of 'organic' investments
include platforms, such as EVN and Onyx, where the management platforms
benefit from scale and could present the opportunity to realise gains in the
medium term. Accordingly, as a result of scaling back of investment plans, the
drawn revolving credit facility is not expected to exceed £140 million at 31
March 2024.
Outlook
Since listing 5 years ago, the Company has assembled the only listed energy
efficiency portfolio of scale, offering diversification and solid dividend
yield having increased its expected dividend by 25% from the initial dividend
yield target for its first full financial year.
Looking ahead, energy efficiency is expected to play an even greater role in
mitigating the climate impact of energy consumption and aligning with
decarbonisation goals. The Company's investments are forecast to deliver
growing cash flow cover of dividends, are positively correlated to inflation
and are expected to continue to offer opportunity for incremental upside.
The Board and Investment Manager are committed to doing what we can to deliver
an improved outcome for the Company's shareholders and will explore every
option in our efforts to improve both the returns from the investment
portfolio and to narrow the share price discount currently prevailing.
Tony Roper
Chair
4 December 2023
Investment Manager's Report
Macro-economic factors and impact on the Company
During the period, global market expectations of a 'higher for longer'
interest rate environment set in more firmly and while many measures of
inflation have fallen from their peaks, energy, food and labour prices
resulted in higher inflation than historical levels. In addition, following
the disruptions associated with the Russia-Ukraine war, and while demand has
been rebounding in the period after the Covid-19 pandemic, increases in the
cost of materials for construction and supply chain constraints have been
apparent in both the United States and Europe.
The main impact of this for SEEIT's portfolio so far has been on the
valuation. The unlevered weighted average discount rate applied to portfolio
company cash flows has increased by approximately 100bps, driven in large part
by the higher interest rate environment. In combination with some adverse
factors (on a net basis) related to certain forward-looking cashflow
assumptions in the portfolio, this has resulted in a significant reduction in
the valuation of SEEIT's portfolio investments dominating the financial result
for the period. Detail on the valuation movements is set out in the Financial
Review and Valuation Update section.
Elevated interest rates are less impactful on cash flow than they are on
valuation owing to prudent gearing((APM)) levels and fixed interest rates
associated with the portfolio level gearing((APM)). In addition, the Company
will continue to benefit from the portfolio's positive correlation with
inflation. The Company's portfolio is also defensively positioned with respect
to a potential slowdown in the economy, with the majority of the portfolio's
value having revenues that are contracted with managed exposure to demand
risk, mitigating the impact on the portfolio of unexpected reductions to
RED-Rochester volumes during the period. Over 60% of revenues are associated
with investment-grade or equivalent counterparties.
However, rising interest rates have had a material bearing on reducing demand
for income-based investment vehicles, as equity income strategies have become
less competitive in the face of the high yield available on sovereign and
corporate debt. The consequence of this being that a general rebalancing of
investment portfolios is underway, causing a substantial loss of demand across
the income trust sector. However, the Company's shares have recently been
trading at a discount larger than the average of the renewables and
infrastructure sectors. The Investment Manager does not believe the current
share price to be representative of the true value in the portfolio and is
committed to taking action to address the situation including:
· progressing selective disposals to bolster the balance sheet;
· maintaining a prudent capital structure;
· improving the frequency and detail of communication with existing and
prospective shareholders, supporting the marketability and liquidity of the
shares;
· focusing on delivering accretive projects and other upsides to drive
growth in Net Asset Value((APM));
· considering buying further shares if it is in the interests of
shareholders, following the £20 million of shares bought in the Period (at
market value); and
· subject to sufficient available capital, selective accretive
investment from the Company's organic pipeline, where returns meet the
requirements set out in the Capital Allocation Policy.
The Investment Manager is committed to maintaining regular, open and
meaningful channels of communication and engagement with shareholders. Since
the release of the March 2023 annual results in June, between the Board and
the Investment Manager meetings were held with investors representing over 60%
of the shareholder register. The March 2023 Annual Report gave greater
disclosure on the portfolio investments including detailed presentation of the
six largest investments, enabling a better view of the dynamics and risk
mitigation associated with its portfolio.
Portfolio Update for the Period
Portfolio activity
This section provides an update on the performance of the Company's six
largest investments within its Portfolio((APM)), or group of investments,
making up c. 75% of the Company's portfolio valuation((APM)) as at 30
September 2023. These investments report on a calendar year basis and the
narrative reflects budgets and actuals accordingly. Excluding Onyx where
EBITDA is not a reported KPI, the aggregate EBITDA of these large investments,
is expected to exceed the aggregate budget. Excluding Värtan Gas, where
volumes are not a reported KPI, the aggregate volumes delivered/produced from
these large assets expected to be below the aggregate budget. Financial Review
and Valuation Update also provides further details on material movements
affecting the valuation in these investments during the Period.
RED-Rochester ("RED") - Project Equity Value: £180 million (March 2023: £254
million)
RED-Rochester is the exclusive provider of select utility services to
customers within the Eastman Business Park ("EBP") in the US, for which it has
contractual and regulated utility-status franchise rights. New leadership in
the RED-Rochester team brings continuing focus on reliable utility services
operations as well as growth initiatives supporting more than 110 customers.
Customer loads in the first half of 2023 were below budget due to the
unusually mild weather conditions and revisions to business plans of a few EBP
tenants. The full-year EBITDA impact of the lower loads will be partially
mitigated through operational costs savings. The expected loads and EBITDA for
the full year are expected to be below budget, despite expected year on year
growth of EBITDA.
The management team continues its proactive approach to attract new customers
to EBP to secure future revenue, working closely with landowners and regional
business development entities, and has more than doubled the number of
potential new customers in this pipeline over the period, notwithstanding also
removing certain customers from the pipeline which adversely affected the
valuation during this period.
Previously approved efficiency improvement projects are moving forward on time
and within budget, including the c. £70 million investment in a cogeneration
power plant which is estimated to potentially add £5 - £10 million to
NAV(APM) (additional to the c. £70 million) if delivered in accordance with
plan. During the period, c. £16 million was invested in these projects, with
a further £10 million invested since 30 September 2023 and approximately £5
million future equity investment is required to complete the projects. The
balance will be funded from RED Rochester's internal resources, including
project-level debt secured with the existing lenders in October.
Since the period end, Li-Cycle which is one of the larger customers in the
business park, has announced a pause to construction of its own facilities
pending conclusion of a strategic review, adding uncertainty to the timing and
quantum of Li-Cycle's projected demand for energy services. The current
expectation is that Li-Cycle will continue the construction work however the
uncertainty has been reflected in the valuation through an increase to the
asset specific discount rate applied to future cash flows. Note 2 to the
Condensed Interim Financial Statements sets out the impacts of further
downsides related to the Li-Cycle project.
During the period, the Investment Manager and the RED management team
conducted an additional in-depth review of actual results and how certain
long-term assumptions were applied in the project financial model. Several
revenue and cost estimates have since been revised, up and down, with a
material net adverse impact on the overall valuation. The assumptions made for
the March 2023 valuation that allowed for an extension of life were however
not amended.
Project KPIs outlook for the full year
MMBTUs delivered to customers Customer demand for the full year is expected to be below target
EBITDA Estimated EBITDA for the full year 2023 is below budget
Primary Energy - Aggregate Projects Equity Value: £178 million (March 2023:
£195 million)
Primary Energy is a 298MW portfolio comprising three energy recycling
projects, one natural gas-fired CHP project and a 50% interest in an
industrial process efficiency project. Aggregate production and EBITDA across
the whole portfolio remain in line with the full year budget.
Management has focused on negotiating renewal of the Cokenergy services
contract with site host, the offtaker at four of the five assets at Primary
Energy. The terms which have been agreed in principle, align with expectations
in the March 2023 valuation as well as de-risking certain elements of the
contract by passing through costs. The new terms introduce improved
correlation of revenues with inflation. The revised agreement is expected to
be signed in the coming weeks and the new terms increase the attractiveness of
potential add-on opportunities to further improve plant reliability and
efficiency which the Investment Manager is reviewing.
The renewal of the Cokenergy services contract will provide the Investment
Manager with an opportunity to launch a process to refinance Primary Energy's
project-level debt, which is expected to benefit from better terms and
contribute positively to increasing cash inflows to SEEIT.
Adjusting for FX, minor movements in operating costs, re-contracting updates
and increases in discount rates, the valuation remained broadly flat.
Project KPIs outlook for year end
Average Net Production Net production for the full year is expected to be in line with budget
EBITDA The project remains on track to deliver the full year budgeted EBITDA
Onyx Renewables Partners ("Onyx") - Project Equity Value: £161 million (March
2023: £161 million)
Onyx Renewable Partners is a large and established C&I solar and storage
platform, with over 200 commercial and industrial customers across its
operational, construction and development stage assets.
New leaders in Onyx's development and operations teams, together with the
focus on pipeline development, have positioned the business to achieve
significant growth in 2024 and beyond. Onyx achieved a five-year high of 48MW
in signed power purchase agreements (PPAs) from January to September 2023 and
is on track to deliver a total of 75MW of signed PPAs in 2023, meeting budget
and securing a substantial part of the 2024 pipeline. In addition to
investment by SEEIT, the capital to build out the pipeline is expected to come
from third party debt, tax equity financing and disposals.
In the short term, bottlenecks related to permitting that were reported in the
March 2023 Annual Report have persisted, resulted in delays between mechanical
completion and project commissioning, and continue to adversely affect the
number of projects becoming operational in the short term. As a result, the MW
capacity of projects expected to reach commercial operations date (COD) in the
year is expected to be 22 MW, less than the 32MW assumption used for the March
2023 valuation, with delayed projects being pushed to next year. Permitting
issues are being experienced across the industry and do not impact the
pipeline development, however the slowdown delays the point at which SEEIT can
generate revenues and recognise value from newly constructed sites.
Onyx's operational projects have performed slightly below expectations as a
result of one-off factors and performance ratio, and MWh production outturn
result is accordingly below budget.
Increases in discount rate and asset specific risk premium related to future
pipeline have resulted in the overall value remaining broadly constant when
netted off against investment into Onyx during the period. The increase to
asset specific risk premium has adopted the view that permitting delays
currently being experienced endure throughout 2024. Note 2 to the Condensed
Interim Financial Statements sets out the impacts of downsides to the pipeline
delivery assumption.
The Investment Manager is working with leadership at Onyx Renewable Partners
to grow the development pipeline, resolve permitting related delays in fully
constructed projects becoming operational and focus on accelerating project
progression between contract signing and construction. The opportunity to
cross sell Onyx services into other SEEIT investments such as Primary Energy,
RED-Rochester and FES is being examined.
Project KPIs outlook for the full year
New projects reaching COD/PTO More than half of MWs budgeted to reach commercial operations in the current
year are expected to be delayed until 2024.
Performance ratio The performance ratio is forecast slightly below budget for the full year.
MWh produced (operational projects only) Production is forecast to be below budget for the full year.
Oliva Spanish Cogeneration ("Oliva") - Aggregate Projects Equity Value: £128
million (March 2023: £114 million)
Oliva Spanish Cogeneration, located in southern Spain, comprises nine
operating projects, of which five are efficient, natural gas cogeneration
(CHP) plants with a combined capacity of 100MW, two are olive waste biomass
plants with a combined capacity of 25MW, and two are olive pomace processing
plants.
In the prior year, operations had been deliberately paused to protect
profitability threatened by the combination of gas price volatility and delays
in the Spanish Government's provision of Ro/Ri guidance (an incentive scheme
to provide a return on operations and investments). The pauses were temporary
pending implementation of updates to the Ro/Ri scheme, which were published in
the period as expected. These updates provided a favourable outlook compared
to the year's budget and further improved short-term visibility over cash
flows, resulting in much-improved project forecasts compared to 2022. The
management team continues to engage with the Spanish energy industry and
government stakeholders to push for greater predictability from the regulation
to mitigate the risk of the experience in 2022 repeating itself.
During the period, the only notable performance issue was the Cepuente site
going offline for several months due to damage to the export cable caused by
the offtaker. This has now been rectified and recovery of losses from the
insurer and the offtaker are being negotiated. The incident reduced the total
energy production across the sites, but the forecast for the full year remains
in line with budgets.
In addition to the above, Oliva's gas procurement team performed ahead of
budget during the period, despite adverse commodity pricing impacts.
The combination of these factors has resulted in expectations for strong
outperformance in terms of EBITDA and cash flow for the full year.
During the period end, the management team has made good progress in agreeing
an expected extension of the thermal offtake contracts at the Celvi site.
The valuation increase in the period was mainly driven by the Ro/Ri updates,
updating a cautious position taken in the March 2023 valuation. The referenced
outperformance to budget EBITDA expected for the full year also positively
contributed to valuation, with reducing electricity price forecasts partially
working against these gains.
Project KPIs outlook for the full year
EBITDA Oliva is on track to exceed its full year budget
MWh produced Forecast aggregate production of the portfolio's 9 sites is in line with
budgets for the full year despite the outage at Cepuente
UU Solar - Project Equity Value: £86 million (March 2023: £96 million)
UU Solar's portfolio provides renewable energy generated on-site directly to
the end user, United Utilities Water Limited ("UUW"). UUW is the regulated
water and wastewater business of United Utilities Group PLC, the largest
listed water and wastewater company in the UK.
Although technical performance, and hence electrical production, has been
lower than expected owing to a variety of technical issues and delays in the
related supply chain, favourable market rates for the sales of electricity not
used by UUW have mitigated the impact on revenues. The Investment Manager has
worked with Green Nation (the asset manager) to resolve these issues through
initiatives such as installation of monitoring software across the portfolio
and repowering of equipment to increase availability. This has resulted in
performance that is generally improving through the period, but the forecast
outturn production and EBITDA for the full year is expected to be below
budget.
The Investment Manager and the customer, UUW, are continuing to assess an
opportunity to provide battery energy storage systems on existing UU Solar
sites. The concept could provide valuable resilience services to UUW which
SEEIT is uniquely positioned to offer, presenting an interesting option to
bring additional revenue streams into the portfolio.
The reduction in the valuation has predominantly resulted from distributions
paid out in the period and discount rate increases.
Project KPIs outlook for the full year
Availability Availability for the full year is expected to be below budget
Average Net Production Net production for the full year is expected to be below budget
EBITDA On track to meet full year budget
Värtan Gas - Project Equity Value: £69 million (March 2023: £65 million)
Värtan Gas owns and operates the regulated gas grid in Stockholm, Sweden. The
investment was fully operational from the point of acquisition, with strong
long-term yield metrics and inflation correlation.
The periodic regulatory update in late 2022 relevant to Värtan Gas changed
both the WACC and Regulated Asset Base ("RAB") used in calculating the value
of the regulated investment, causing an adverse impact on the March 2023
valuation. Värtan Gas's subsequent appeal against the Energy Markets
Inspectorate's regulatory determination has been successful with respect to
the calculation of the RAB, with the resulting reversal of the adverse impacts
reflected in the March 2023 valuation as set out in Financial Review and
Valuation Update.
Värtan Gas has outperformed targets in relation to the biogas content of the
grid, and customer churn has been better than budgeted. During the period,
c.90% of the gas distributed in the grid was locally produced renewable
biogas, sourced primarily from the city's wastewater facilities. To offset
some of this positive performance, management has observed some changes in
customer behaviours, for example restaurants being more diligent with gas
consumption to lower their operating costs, which has been reflected in the
valuation.
However, overall forecast EBITDA remains in line with budget for the full
year. After a new CEO was appointed at the start of the year, the long-term
strategy of Värtan Gas has been reviewed and further developed with plans for
the creation of new income streams.
In addition to the successful regulatory appeal, significant contributions to
the movements in valuation over the period relates to discount rate increases.
Project KPIs outlook for the full year
EBITDA Värtan Gas is on track to meet its full year budget
% of Green Gas Värtan Gas is expected to outperform its targeted share of biogas delivered
for the full year.
Outside of the six largest investments (consolidated where there are multiple
underlying projects), the portfolio operated in aggregate materially in line
with budget. In September 2023, The EV Network hosted an opening ceremony
attended by the UK's Chancellor of the Exchequer for the UK's largest Electric
Vehicle ("EV") charging hub on the NEC Campus in Birmingham, capable of
charging 180 EVs simultaneously. During the period the Huntsman Project also
successfully completed commissioning and became operational.
Investment activity
The March 2023 Annual Report identified the following areas of investments
focus:
· Efficiency improvement projects at RED-Rochester, which contribute
directly to increasing the project company's profit margin;
· Further scaling of EVN as it continues to establish itself as one of
the UK's largest EV charging developers; and
· Continued rollout of solar and storage projects through the Onyx
platform, whose remaining 50% was acquired from Blackstone in June 2023.
Of a total £93 million investment in the 6 months to 30 September 2023, c.
£55 million was invested in these and other follow on investments. Portfolio
investment activity also included c. £35 million of contracted operational
investments from the pipeline. £25 million was invested in a portfolio of
loan facilities secured against an operational portfolio of LED lighting
projects in the USA held by Future Energy Solutions Lighting Holdings ("FES").
The investment, which was made directly from SEEIT and held independently from
FES not only offered double-digit returns and attractive cash yields on a
standalone basis, but also brought the potential to realise further upside
from operating and financial efficiencies across the FES portfolio. Note 10 to
the Condensed Interim Financial Statements sets out an analysis of investments
by project made in the period.
Since 31 March 2023, the investment focus became increasingly selective with
the Investment Manager declining more investments into its organic pipeline as
higher returns were targeted. Looking forward the Board and the Investment
Manager have updated the Capital Allocations Policy with higher investment
hurdle rates to reflect current market conditions. This has led to a scaling
back of potential new investments and carefully focuses resources where
returns are most compelling. This includes completion of construction of
efficiency projects already committed to in RED-Rochester and the organic
platform investments, such as EVN and Onyx, where the management platforms
benefit from scale and could present the opportunity to realise gains in the
medium term.
Since 30 September 2023, the Company has invested a £33 million, and, subject
to working capital and Capital Allocations Policy considerations, could invest
up to a further £7 million.
Financial Management Overview
Inflation
Inflation correlation is derived from a combination of explicit linkage to
revenues, through contract or regulatory mechanisms, and de facto linkage
applied on re-contracting events or through discretionary annual tariff
increases. Inflation correlation is a relevant metric when evaluating new
investment opportunities and when re-contracting existing projects within the
portfolio. The Company's projects are in a number of different geographic
regions, which diversifies and mitigates the impact of inflation volatility
for the portfolio.
Positive inflation correlation on investment returns has increased since 31
March 2023 as a result of increased contractual inflation linkage related to
new contracts and renewals.
Financing
The Investment Manager seeks to maintain a conservative level of total
gearing((APM)) consistent with its tolerance for financial risk. Total
gearing((APM)) is measured on a look-through basis by including debt at
Company level through to investment portfolio level. The Company's investment
policy provides for a target medium-term gearing((APM)) of 35% of NAV((APM))
("structural gearing((APM))") and a consolidated borrowing limit of 65% which
includes the structural gearing((APM)) and acquisition financing facilities
used to finance the Company's investments, both calculated at the time of
borrowing.
Refinancing risk at the portfolio level is managed through low gearing((APM)),
staggered debt tenors and maintaining low absolute levels of refinancing
requirements over the medium term.
Analysis of consolidated debt exposure at 30 September 2023
Total gearing((APM)) (% of NAV ((APM))) Fund level gearing((APM)) (% of NAV(APM)) Portfolio level gearing((APM)) (% of NAV(APM))
44% 10% via RCF 34%
March 2023: 32% March 2023: 0% March 2023: 32%
Investments geared Weighted average interest rate of portfolio debt Interest rate exposure of portfolio debt
13 (out of 57 investments) 5.7% 85% is fixed
March 2023: 5.8% March 2023: 80%
March 2023: 14 (out of 55)
Portfolio level debt by geography Weighted average life remaining on debt Portfolio debt repaid in six month period
80% in USA 4.0 years £12 million
19% in Europe
<1% in UK March 2023: 4.0 years September 2022:
March 2023: £18 million
79% in USA
20% in Europe
<1% in UK
The structural gearing((APM)) target is measured across the portfolio,
enabling the Company to optimise for efficiency and risk, utilise debt where
it can be most efficiently sourced and enable a significant part of the
portfolio (44 out of 57 investments) to operate on an unlevered basis. A large
portion of the structural gearing((APM)) amortises from free cash flow
generated by the relevant investment and although the absolute exposure to
portfolio level gearing((APM)) (in GBP terms) has reduced, as a percentage it
has increased due to the reduction in the Company's NAV((APM)).
Changes to debt facilities at RED-Rochester have been agreed, providing a new
capex facility and extending the term such that there is no refinancing
requirement at investment level until at least 2025. However the Investment
Manager may look to optimise through opportunistic project level refinancing;
for example, the Cokenergy re-contracting substantially improves the finance
capacity and risk from the perspective of a lender, from which the Investment
Manager anticipates improvement of terms whilst retaining benefit from the
long term interest rate swaps currently in place.
The Company (via Holdco) also has a £180 million revolving credit facility
("RCF") in place until June 2025, having recently extended the expiry date by
12 months. The Company intends this to be temporary finance, repayable through
surplus distributions from the portfolio, refinancing proceeds at investment
level and investment disposals which the Investment Manager is currently
pursuing.
Since the start of the period, the Holdco RCF has been drawn by £100 million
to fund investments, and based on investment outlook could be £135 million -
£ 140 million drawn at 31 March 2024, absent proceeds from a disposal in the
period.
Hedging Update
The Company's hedging strategy is executed at the level of Holdco, so the
Company itself is only indirectly exposed to foreign exchange movements. The
objective of the Company's hedging strategy is to protect the value of both
near-term income and capital elements of the portfolio from a material impact
on NAV((APM)) arising from movements in foreign exchange rates, and the
approach to achieving this objective remains unchanged from previous periods.
In line with the disclosure in the March 2023 Annual Report, the Investment
Manager is targeting hedging levels of around 75% to 90% of its non-GBP
investments, down from 90%-100% previously, to balance the management of
liquidity risk with impact of foreign exchange volatility on NAV((APM)). In
the period, the Investment Manager has gradually reduced hedging levels to
around 85%.
Ongoing Charges((APM))
The Portfolio's ongoing charges ratio((APM)) increased to 1.07% (September
2022: 0.93%), with the increase stemming predominantly from the impact of
increased discount rates and the associated adverse impact on NAV(APM) as
described elsewhere in this section, whilst costs have remained in line with
expectation.
Ongoing charges, in accordance with AIC guidance, are defined as annualised
ongoing charges (i.e. excluding acquisition costs and other non-recurring
items) divided by the average published undiluted net asset value in the
period/year). The ongoing charges percentage has been calculated on a
portfolio basis((APM)) to take into consideration the expenses of the Company
and Holdco.
Dividend distributions
In June 2023, the Company paid a fourth quarterly interim dividend of 1.5
pence per share in respect of the year ended 31 March 2023. This brought the
aggregate dividends paid to 6.00 pence per share for the year ended 31 March
2023, meeting the target guidance issued by the Company for that financial
year.
A first quarterly interim dividend of 1.56 pence per share in respect of the
year ending 31 March 2024 was paid in September 2023 and in November 2023 the
Company declared a second quarterly interim dividend of 1.56 pence per share.
Cash cover((APM)) for dividends paid
The financial period saw cash inflow from investments (on a portfolio
basis((APM))) of £47.4 million, an increase of c. 9% from the comparative
period (September 2022: £43.3 million). After allowing for fund level costs
of £10.4 million (September 2022: £7.4 million), this enabled the Company to
cover its cash dividends paid in the six-month period of £33.3 million by
1.1x. The Company remains on track to deliver a fully cash covered target
aggregate dividend of 6.24 pence per share for the year ending March 2024 and
the Investment Manager is targeting to grow the near to medium-term cash cover
levels to above the historic average of around 1.2x.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Company (and its underlying
investment via Holdco) are largely unchanged from those described in the March
2023 Annual Report, although the likelihood of certain risks crystalising has
moved since the Annual Report. The Investment Manager continues to employ
suitable mitigants to manage the principal risks and remains alert to the
uncertainties created by current markets, geopolitical events and other
macroeconomic issues.
The Board and the Investment Manager consider risks on a regular basis and
conduct reviews to evaluate the risks and mitigants available to the Company,
including assessment of potential impacts through targeted stress testing.
Although some risks may be faced directly by the Company, most of the risks
are faced indirectly through the project investments in the portfolio. The
Investment Manager's risk assessments therefore review the impact at the
underlying investment level and assess how they may influence the stated
objective of the Company. These assessments are both quantitative and
qualitative and may, for example, include financial performance risk,
reputational risk, climate risk and market risk. The key risk faced by the
Company during the period is the continuing discount to NAV((APM)) of its
share price. The Investment Manager has set out it mitigating strategies in
the Investment Manager's Report
The key changes in portfolio risks since publishing the March 2023 Annual
Report are summarised below.
Counterparty Credit Risk
The key credit risks arising within the portfolio relate to respective offtake
counterparties. Generally, the Investment Manager seeks to ensure that the
majority of revenues from projects that the Company invests in (via Holdco)
are associated with investment-grade or equivalent counterparties. The
proportion of revenues that are such counterparties has remained at around 60%
(March 2023: 60%). The slowdown in economic growth and increases in financing
costs have been negative for counterparty risk generally. However there are no
material credit events or impairments to highlight in this respect for the
period and there have been no significant credit events or impairments since
the Company's IPO in December 2018. The Investment Manager notes that, should
a prolonged recession be experienced in Europe and/or North America, this
could result in a deterioration of credit quality of some counterparties and
increase risk of a credit event.
Market Regulatory Risk
Market regulatory risks remain as described in the March 2023 annual report,
however the regulatory outlooks relevant to Värtan Gas and Oliva have
stabilised with a consequent reduction in risk to their near-term performance
and valuation.
Investment Risks
Re-contracting: Agreement has been reached on renewal terms at Cokenergy
which, once signed, is expected to remove the largest re-contracting risk
which had been facing the portfolio. Macro-economic factors could work in
either direction for future renewals, either deferring new investment by
extending the life of an asset or reducing the economic case for continued use
of the asset altogether.
Construction: Construction risk incorporates cost overruns and delays which
could result in financial under performance. As reported in the Portfolio
Activity section, Onyx has experienced delays to permitting outside of its
control which affect the start of operations date. There is a risk these
delays persist with consequences for the rate of delivery of future pipeline.
To reflect the increased risk, the value of the pipeline has been reduced and
the Investment Manager is supporting the management team in planning for the
range of outcomes.
Demand risk: The risk to volumes has increased as a result of a slowing
economy and weakening of balance sheets, as illustrated by the experience at
RED-Rochester in the period where a downturn in demand for a customer's
product resulted in a reduction in demand for energy supplied by SEEIT.
Efforts continue to grow and diversify the demand base of RED-Rochester's site
and the valuation has been adjusted downwards in reflection of the increased
risk.
Macroeconomic Risks
Macroeconomic instability has had an impact on the Company's portfolio during
the period through interest rates and inflation across the jurisdictions in
which SEEIT operates as well as factors affecting demand and counterparty
credit discussed above.
Interest rate: Market indicators show the risk of interest rates rising or
remaining at elevated levels for longer with consequent impact on valuations
through discount rate and financing costs. Sensitivities to discount rates
have been reported in Note 3 to the financial statements. Investment focus on
the organic pipeline has been tightened and return hurdles have been
increased. The Company will continue to manage its facilities at the
investment level on a longer-term basis and its revolving acquisition facility
as interim funding, as set out under Financing within this section.
Inflation: The risk of inflation remaining elevated for longer has increased.
The portfolio has a positive correlation with inflation, as illustrated in the
sensitivity analysis (see Note 3 to the financial statements).
ESG
SEEIT's commitment to investing in low-carbon, energy efficient energy
solutions has ensured that the Company's focus on Environmental, Social and
Governance ("ESG'') factors is integrated into its operations. SEEIT's ESG
Focus Areas organise its ESG considerations into four categories, each of
which are then expanded upon in its Responsible Investment Policy ("RIP") and
ESG Principles. Both documents are located on SEEIT's website.
The Company's RIP and ESG Principles together lay out the ESG considerations
that are integrated into the Investment Manager's investment due diligence and
asset management processes. These policies apply to all of SEEIT's investments
and are overseen on a day-to-day basis by the Investment Manager.
As the Company is an Article 9 Fund under the EU's Sustainable Finance
Disclosure Regulation ("SFDR") and a voluntary supporter of the guidelines set
out by the Task Force on Climate-related Financial Disclosures ("TCFD"), the
Investment Manager has been reviewing SEEIT's policies and processes relating
to these mandatory and voluntary standards during the period. The Investment
Manager has undertaken several workstreams to update and refine the Company's
ESG-related disclosures, policies and procedures to ensure it has best
practice ESG management.
The Investment Manager has also worked to ensure that it fulfils its own
commitments to voluntary organisations such as the Glasgow Financial Alliance
for Net Zero ("GFANZ") and the United Nations Principles for Responsible
Investment ("UNPRI"), and that those commitments are properly reflected in the
operations of the Company. This work has further supported the Company to
attain its sustainable objective of climate change mitigation through
reduction of greenhouse gas emissions as well as strengthened its social and
governance policies and standards.
Looking ahead, SEEIT remains dedicated to further enhancing its ESG practices
in alignment with emerging standards, regulations and best practices.
Financial Review and Valuation Update
Key information as at 30 September 2023
Investment cash inflow from portfolio ((APM)) Portfolio Valuation ((APM))
£47 million £1,066 million
Up 9% on a portfolio basis((APM)) (2022: £43 million) Down from £1,100 million at March 2023
£89 million NAV per share((APM))
Loss before tax
90.6p
Reflects the unrealised loss of £129 million from increased discount rates
(September 2022: £1.5 million loss).
Down from 101.5p at March 2023
Analysis of Movement in NAV(APM)
As of 30 September 2023, the NAV per share((APM)) is 90.6p, a decrease of
10.9p from 101.5p at 31 March 2023. This decrease reflects the impact of:
· increase in portfolio discount rates (negative 11.9p);
· changes to macroeconomic assumptions relating to inflation of 0.2p;
· FX movements (net of portfolio and hedging movements) of 0.3p; and
· portfolio performance of 3.3p.
Each of these movements is described in more detail further below.
Portfolio Valuation(()(APM))
Approach
The Investment Manager is responsible for carrying out the fair market
valuation of SEEIT's portfolio of investments (the "Portfolio
Valuation"((APM))) which is presented to the Directors for their consideration
and approval. A valuation is carried out on a six-monthly basis, as at 31
March and 30 September each year. The Portfolio Valuation((APM)) 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 Holdco (the Portfolio
Valuation((APM))) and adjusted for any other assets and liabilities. The
valuation methodology applied by Holdco to determine the fair value of its
investments is materially unchanged from the Company's IPO and has been
applied consistently in each subsequent valuation. See Note 3 of the Company's
March 2023 Annual Report for further details on the valuation methodology and
approach. A reconciliation between the Portfolio Valuation((APM)) at 30
September 2023 and investment at fair value shown in the financial statements
is given in Note 10.
Movements in Portfolio Valuation
The Portfolio Valuation((APM)) as at 30 September 2023 was £1,066 million, a
decrease of 3% compared with £1,100 million as at 31 March 2023.
After allowing for investments of £93 million and cash receipts from
investments of £47 million, the Rebased Portfolio Valuation((APM)) is £1,146
million. Adjusting for changes in macroeconomic assumptions, foreign exchange
movements (excluding the effect of hedging) and changes in discount rates,
this resulted in a portfolio return of £42 million, equating to a 3.7% return
in the period. The return takes into account a number of project specific
valuation movements described under Balance of Portfolio Return below.
The weighted average remaining life of investments as at 30 September 2023 is
16.2 years (March 2023: 15.9 years), when calculated purely on when current
contracts end. When based on the September 2023 Portfolio Valuation((APM)),
which includes assumptions for re-contracting and contract life extensions,
the weighted average remaining life is 26.4 years (March 2023: 28.0 years).
Further information on key investments and potential future valuation
movements can be found in Note 2.
Valuation Movements
A breakdown of the movement in the Portfolio Valuation((APM)) in the year is
illustrated in the table below.
Valuation movements during the period to 30 September 2023 (£'m)
Portfolio Valuation - 31 March 2023 1,100
New investments 93
Cash from investments (47)
46
Rebased Portfolio Valuation((APM)) 1,146 % on Rebased
Changes in macroeconomic assumptions 2 0.2%
Changes in foreign exchange 5 0.4%
Changes in discount rates (129) (11.3%)
Balance of portfolio return 42 3.7%
(80)
Portfolio Valuation((APM)) - 30 September 2023 1,066
Return from the Portfolio off the Rebased Portfolio Valuation((APM))
Each movement between the Rebased Portfolio Valuation((APM)) of £1,146
million and the 30 September 2023 valuation of £1,066 million is considered
in turn below:
i) Changes in Macroeconomic Assumptions of £2
million:
• Inflation assumptions: consistent with March 2023, the approach in
all jurisdictions is to apply a three-year near-term bridge to the relevant
long-term inflation assumption. Given the persistently high global inflation
since March 2023, this has resulted in an uplift in the valuation due to
higher than previously assumed near-term inflation, compared with the
assumptions applied for the March 2023 valuation.
• Tax rate assumptions: there were no changes to corporation tax
rate assumptions during the period.
ii) Changes in Foreign Exchange Rates of £5 million
(before hedging):
• The investment portfolio gained £5 million during the period from
movements in foreign exchange rates, driven by the movement of GBP against the
US dollar, Euro, Singapore dollar and Swedish krona since 31 March 2023 or
since new investments were made in the period.
• However, it is important to note that this only reflects the
movement in underlying investment values, and it does not take into account
the offsetting effect of foreign exchange hedging that SEEIT Holdco applies
outside of the Portfolio Valuation((APM)).
• SEEIT Holdco experienced an aggregate loss of £2 million due to
foreign exchange hedging.
• Therefore, the overall foreign exchange movements did not have a
significant impact on NAV during the period, resulting in a net gain of £3
million from foreign exchange movement.
iii) Changes in Valuation Discount Rates of £(129) million:
• The discount rate used for valuing each investment represents an
assessment of the rate of return at which infrastructure investments, with
similar cash flow assumptions and risk profiles, would trade on the open
market.
• During the period, there were further significant increases in
interest rates globally including in key geographical areas of SEEIT's
portfolio, thus continuing a trend from the last 12 to 18 months. This has
stemmed from geopolitical uncertainties and a high inflationary environment
due, in part, to high energy costs.
• The Investment Manager considered it necessary to apply a
significant increase to discount rates and, having assessed geographical areas
as a whole and each project individually, has applied discount rate increases
that increased the weighted average discount rate by approximately 100bps to
8.7% on an unlevered basis (March 2023: 7.7%). On a levered basis, which
assumes existing portfolio-level debt is refinanced at current market rates,
incorporating existing interest rate swaps into the interest cost assumption,
the weighted average discount rate has increased to 9.4% (March 2023: 8.5%).
• This has led to an increase in discount rates across the whole
investment portfolio in this period that in aggregate resulted in a decrease
in the Portfolio Valuation((APM)) of c. £129 million.
• Of this adverse movement in discount rates, c. £29 million
relates to adjustments made to asset specific risk premiums. This includes:
o an adjustment of c. £11 million to reflect the uncertainty over
Li-Cycle's future energy demand in light of their construction delays factored
into the valuation of RED-Rochester
o an adjustment of c. £12 million to reflect the risks associated with
achieving the targeted pipeline in Onyx, and
o an adjustment of c. £5 million to reflect a risk of the value for which
Renewable Energy Certificates ("REC's") can be sold for in the USA after
2026.
· Since March 2023, there has been very little market activity to help
set benchmarks for appropriate discount rates for the investments in the
Portfolio Valuation Valuation((APM)).
The Investment Manager reviews movements in discount rates for each individual
asset at each valuation date. The key approach to the overall discount rate
can be summarised as:
· Risk free rate of each individual asset is assessed against relevant
government bonds, taking into account length of cash flows and geography; and
· Risk Premium takes into account asset specific premiums, considering
inter alia country risk, market risk, construction risk, counterparty risk and
credit risk
o Credit risk is determined by deducting the risk-free rate applied to each
asset from the most relevant corporate bond yield curve, accounting for the
credit rating and maturity of each asset. Where counterparty is not rated, it
may require some judgement to determine the appropriate credit rating.
iv) Balance of Portfolio Return of £42 million:
· This refers to the balance of valuation movements in the period
(excluding (i) to (iii) above), which provided an uplift of £42 million. The
balance of portfolio return reflects the net present value of the cashflows
unwinding over the period at the average prevailing portfolio discount rate,
and various additional valuation adjustments described below. The portfolio
delivered a return of 3.7% in the period, lower than expected with details on
key movements described below.
The Portfolio Valuation((APM)) as at 30 September 2023, and by implication the
return achieved over the period, includes a number of key estimates and
judgements of future cash flows expected from different investments. In
addition, specific adjustments to future cash flows were required for events
during the period that affected the actual outcome from certain investments.
The key factors that have had a material impact on the September 2023
Portfolio Valuation((APM)) listed out below, have had a value impact of 1% or
higher on the Company's NAV:
• RED-Rochester
o During the period, the Investment Manager and the RED management team
conducted an additional in-depth review of actual results and how certain
long-term assumptions were applied in the project financial model. Several
revenue and cost estimates have since been revised, up and down, with a
material net adverse impact on the overall valuation of c. £26 million.
o A combination of updates to projected loads, business development
assumptions, operating costs, labour costs and timing of new efficiency
projects, caused a reduction in the overall valuation of c. £17 million
• Oliva Spanish Cogeneration
o The Spanish Government published regulatory updates to the RoRi (an
incentive scheme to provide a return on operations and investments) in the
period that allows for a substantial reduction in uncertainty and therefore
greater ability to plan financial optimisation of the plants in the near to
medium term. The overall positive impact on the September 2023 valuation was
c. £30 million, which takes into account outperformance of actuals in the
first half of the year, upwardly revised expectations for the second half of
the year and a higher than previously forecasted medium term outlook based on
the latest regulatory updates, netted off by a reduction of value from
standard updates to commodity pricing that form part of the regulatory
updates.
• Värtan Gas
o The periodic regulatory update in late 2022 relevant to Värtan Gas
changed both the WACC and RAB used in calculating the value of the regulated
investment, causing an adverse impact on the March 2023 valuation. Värtan Gas
has since successfully appealed against the update, resulting in a c. £14
million positive impact on the September 2023 valuation and thus substantially
reversing the adverse impact on the previous valuation.
Additional information and sensitivities are disclosed in the critical
estimates and judgements section of Note 2 in the full Interim Report.
Summary Financial Statements
As described in detail in Note 2 of the March 2023 Annual Report, the Company
meets the conditions of being an Investment Entity in accordance with IFRS 10.
This report is prepared on a consistent basis to previous reports, whereby the
IFRS 10 Investment Entity exemption is applied to the financial statements.
To provide shareholders with more transparency into the Company's capacity for
investment, ability to make distributions, operating costs and gearing((APM))
levels, results have been reported in the pro forma tables below on a
non-statutory "portfolio basis"((APM)), as has been done in previous years, to
include the impact if SEEIT Holdco were to be consolidated by the Company on a
line-by-line basis.
The Directors consider the non-statutory portfolio basis((APM)) to be a more
helpful basis for users of the accounts to understand the performance and
position of the Company. This is because key balances carried in Holdco, such
as cash and debt balances and all expenses incurred in Holdco including debt
financing costs, are shown in full rather than being netted off.
The impact of including Holdco is shown in the Holdco reallocation column in
the Income Statement and Balance Sheet, which reconciles the statutory
financial statements prepared under UK adopted IFRS ("IFRS") as disclosed in
note 1, and constitutes a reallocation between line items rather than
affecting NAV and Earnings. In the Cashflow statement, the Holdco reallocation
column simply represents the net difference between the portfolio basis((APM))
and IFRS for movements that may occur only in Holdco or only in the Company.
NAV per share((APM)) and Earnings per share are the same under the portfolio
basis((APM)) and the IFRS basis.
Portfolio Basis Summary Income Statement
6 Month period to 30 September 2022
6 Month period to 30 September 2023
£'million Portfolio Basis Holdco reallocation IFRS (Company) Portfolio Basis Holdco reallocation IFRS (Company)
Total income/(loss) (79.5) (3.5) (83.0) 6.0 (1.9) 4.1
Expenses & Finance Costs (9.6) 3.5 (6.1) (7.5) 1.9 (5.7)
(Loss) before Tax (89.1) - (89.1) (1.5) (1.5)
Loss) (89.1) - (89.1) (1.5) - (1.5)
Loss per share (pence) (8.1) - (8.1) (0.2) - (0.2)
Portfolio Basis Balance Sheet
31 March 2023
30 September 2023
£'million Portfolio Basis Holdco reallocation IFRS (Company) Portfolio Basis Holdco reallocation IFRS (Company)
Investments at fair value 1,065.5 (89.6) 975.9 1,099.6 28.3 1,127.8
Working capital (3.3) 2.4 (0.9) (39.9) 37.2 (2.7)
Debt (100.0) 100.0 - - - -
Net cash 20.7 (12.8) 7.9 65.7 (65.4) 0.3
Net assets attributable to Ordinary Shares 982.9 - 982.9 1,125.4 - 1,125.4
NAV per share((APM)) (pence) 90.6 - 90.6 101.5 - 101.5
· Total income: Income at the Company level is the income it receives
from Holdco, which contrasts to Portfolio Basis((APM)) where the income is
received from the portfolio assets.
· Expenses & finance costs: Investment transaction costs are
incurred at Holdco only and therefore included in the Company Income Statement
as a movement in investment fair value.
· Investment at fair value: Company valuation excludes Holdco's other
net assets (see note 10 for detailed reconciliation).
Portfolio Basis Cashflow Statement
30 September 2022
30 September 2023
£'million Portfolio Basis Holdco reallocation IFRS (Company) Portfolio Basis Holdco reallocation IFRS (Company)
Cash from investments 47.4 54.3 101.7 43.3 (7.8) 35.5
Operating and finance costs outflow (10.3) 2.3 (8.1) (7.4) 1.8 (5.6)
Net cash inflow before capital movements 37.0 56.6 93.7 35.9 (6.0) 29.9
Cost of new investments including acquisition costs (93.6) 61.0 (32.6) (172.3) (54.7) (227.3)
Share capital raised net of costs - - - 132.9 - 132.9
Share buybacks and costs (20.1) - (20.1)
Movement in borrowings and working capital 65.2 (65.2) - 2.0 (2.0) -
Movement in capitalised debt costs and FX hedging (0.1) 0.1 - (81.1) 81.1 -
Dividends paid (33.3) - (33.3) (28.8) - (28.8)
Movement in the period (44.9) 52.5 7.5 (111.7) 18.7 (93.0)
Net cash at start of the period 65.6 (65.3) 0.3 170.9 (24.8) 146.1
Net cash at end of the period 20.7 (12.8) 7.9 59.3 (6.1) 53.1
· Investment cash inflows from the portfolio((APM)) on a Portfolio
Basis were £47.4 million (2022: £43.3 million), includes £47.2 million cash
from portfolio investments plus other interest income.
· The total cost of investments by the SEEIT group on a portfolio
basis((APM)) was £93.6 million (2022: £172.3 million), including a further
£90 million invested as follow-on in existing investments and transaction
costs (transaction costs are included at Holdco and not included in the
Company Income Statement).
· £101.7m Cash received from investments is made up of: £50m dividend
received, £47.5m loan principal, £4.0m interest received on loan principal
plus £0.2m other interest.
· £8.1m Operating and finance costs is made up of £6.1m fund expenses
plus movement in debtors/creditors
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. END IR DZMGZGZNGFZZRecent news on SDCL Energy Efficiency Income Trust
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