TIDMBSIF
RNS Number : 0722R
Bluefield Solar Income Fund Limited
26 February 2019
26 February 2019
Bluefield Solar Income Fund Limited
('Bluefield Solar' or the 'Company')
Unaudited Condensed Interim Financial Statements for the Six
Months Ended 31 December 2018
Bluefield Solar (LON:BSIF), a sterling income fund that invests
in UK-based solar assets, is pleased to announce its Interim
Results for the Six Months Ended 31 December 2018.
Operational Highlights
-- The Company enjoyed an excellent start to its 2018/19
financial year and delivered underlying earnings(1) of GBP18.0m in
the period (31 December 2017: GBP13.0m), equating to earnings per
share of 4.90 pence (31 December 2017: 3.53 pence).
-- NAV has increased to 114.41pps (30 June 2018: 113.28pps).
-- The Company, through its subsidiary BSIFIL, successfully
increased its RCF from GBP30m to GBP50m and extended the facility
tenure from September 2019 to September 2021.
-- The Company's levered equity discount rate has marginally
fallen to 7.20% (7.26% as at 30 June 2018) due to progressive
leverage reduction due to debt amortisation, whilst the Weighted
Average Cost of Capital, "WACC", discount rate remains unchanged at
5.65% (5.65% as at 30 June 2018).
-- The Company completed one acquisition during the period, in
October 2018, amounting to 5MWp. This took the Company's total
capacity to 465.3MWp as at 31 December 2018.
-- As at 31 December 2018, the Company had a total of 46 large
solar assets, 39 micro solar assets and 2 roof top assets, all of
which were operational.
-- Portfolio outperformed operational expectations by 0.5%,
delivering an aggregate PR of 80.2% versus forecast of 79.8%.
-- Consistent with spreading dividend payments evenly across the
financial year, in the six months to 31 December 2018 the Company
paid dividends of 3.83pps (being the 3rd and 4th interim dividends
for the period ending 30 June 2018).
-- Following the period end, in February 2019 the Company paid
its 1st interim dividend for the year ending 30 June 2019, of
1.90pps.
-- The Company, through its subsidiary BSIFIL, has made
principal debt repayments of GBP7.7m in the period (31 December
2017: GBP7.3m).
-- As at 31 December 2018 the Company's subsidiary and SPVs had
outstanding third party debt of GBP216.8m (GBP217.4m as at 30 June
2018) comprised of GBP30.2m of RCF and GBP186.6m of fully
amortising long term finance.
1. Underlying earnings is an alternative performance measure
employed by the Company to provide insight to the Shareholders by
definitively linking the underlying financial performance of the
operational projects to the dividends declared and paid by the
Company. The above figures exclude ROC recycle revenues which are
determined after period end and amounted to GBP1.6m in the period
ending 31 December 2017. Further detail is provided below.
Financial Highlights
Six months ended
31 December 2018
-------------------------------------------------------------------- -----------------
Total operating income GBP19,028,586
Total comprehensive income before tax GBP18,363,103
Underlying earnings GBP17,964,338
Earnings per share 4.96p
Underlying EPS available for distribution(2) 2.77p
Underlying EPS brought forward 0.30p
Total underlying EPS available for distribution 3.07p
1st interim dividend for the year ended 30 June 2019(3) 1.90p
NAV per share 114.41p
Share Price as at 31 December 2018 123.18p
Total Return(4) 4.38%
Total Return to shareholders(5) 4.53%
Total Return to shareholders since inception(6) 56.36%
Dividends per share paid since inception 33.18p
-------------------------------------------------------------------- -----------------
2. Underlying EPS available for distribution is calculated using
underlying earnings available for distribution (e.g. post debt
repayments) divided by the number of shares in issue at the end of
the period.
3. Dividends declared in January 2019 relating to the period 31
December 2018.
4. Total Return is based on NAV per share movement and dividends
paid in the period.
5. Total Return to shareholders is based on share price movement
and dividends paid in the period.
6. Total Return to shareholders since inception is based on
share price movement and dividends paid since the IPO.
Chairman John Rennocks said:
"Over the first six months of the financial year, the Company
has laid the foundations for another strong year. Higher than
average irradiation and higher power prices have been matched by a
high performing portfolio, producing above expected generation.
The Company continues along the pathway of patience and
discipline I described in my Statement in September 2018. We have
sought to maximise revenues in the existing portfolio, have
continued to amortise our long term financing and have continued to
elect not to expand our asset base due to high valuations and/or
poor quality portfolios.
We expect that this patience and discipline will soon be
rewarded with the potential arrival of an economic UK market for
solar assets without subsidy, for which the Company is well
prepared to apply its highly effective investment model for primary
market assets by funding through construction. This is the strategy
that has allowed the Company to create a high quality and well
priced portfolio, delivering in excess of 50% total return to our
shareholders since IPO in July 2013."
A copy of the Interim Report and Unaudited Condensed Interim
Financial Statements has been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM. The Interim Report and Unaudited
Condensed Interim Financial Statements will also shortly be
available on the Company's website at www.bluefieldsif.com where
further information on the Company can also be found.
Analyst presentation
A meeting for analysts will be held at 09:30am today at the
offices of Buchanan, 107 Cheapside, London EC2V 6DN. A conference
call facility will be available on the morning and an audio webcast
will be available on the Company's website later that day.
Conference call: UK Toll: +44 3333000804
UK Toll Free: 08003589473
Participant PIN code: 74778406#
URL for international dial in numbers:
http://events.arkadin.com/ev/docs/FEL_Events_International_Access_List.pdf
For additional details and registration for the analyst
briefing, please contact Buchanan on 020 7466 5000 /
BSIF@buchanan.uk.com.
For further information:
Bluefield LLP (Company Investment Adviser) Tel: +44 (0) 20 7078 0020
James Armstrong / Mike Rand / Giovanni www.bluefieldllp.com
Terranova
Numis Securities Limited (Company Broker) Tel: +44 (0) 20 7260 1000
Tod Davis / David Benda www.numis.com
Estera International Fund Managers (Guernsey) Tel: +44 (0) 1481 742 742
Limited www.estera.com
(Company Secretary & Administrator)
Kevin Smith
Media enquiries: Tel: +44 (0) 20 7466 5000
Buchanan (PR Adviser) www.buchanan.uk.com
Henry Harrison-Topham / Henry Wilson BSIF@buchanan.uk.com
/ Victoria Hayns
Notes to Editors
About Bluefield Solar
Bluefield Solar is a sterling income fund focused on acquiring
and managing UK-based solar projects to generate stable renewable
energy for periods of typically 25 years or longer. The Company's
primary objective is to deliver its Shareholders stable, long term
sterling income via quarterly dividends, which are linked to RPI.
The majority of the Group's revenue streams are regulated and
non-correlated to traditional markets. Bluefield Solar owns and
operates one of the UK's largest, diversified portfolios of solar
assets with a combined installed power capacity in excess of
465MWp.
Further information can be viewed at www.bluefieldsif.com.
About Bluefield Partners LLP ('Bluefield')
Bluefield was established in 2009 and is an investment adviser
to companies and funds investing in solar energy infrastructure. It
has a proven record in the selection, acquisition and supervision
of large scale energy and infrastructure assets in the UK and
Europe. The team has been involved in over GBP1.7 billion of solar
PV funds and/or transactions in both the UK and Europe since 2008,
including over GBP800 million in the UK since December 2011.
Bluefield has led the acquisitions of, and currently advises on
over 85 UK based solar PV assets that are agriculturally,
commercially or industrially situated. Based in its London office,
Bluefield's partners are supported by a dedicated and highly
experienced team of investment, legal and portfolio executives.
Bluefield was appointed Investment Adviser to the Company in June
2013.
Corporate Summary
Investment objective
The investment objective of the Company is to provide
shareholders with an attractive return, principally in the form of
regular income distributions, by investing in a portfolio of UK
based solar energy infrastructure assets.
Structure
The Company is a non-cellular company limited by shares,
incorporated in Guernsey under the Law on 29 May 2013. The
Company's registration number is 56708, and it is regulated by the
GFSC as a registered closed-ended collective investment scheme. The
Company's Ordinary Shares were admitted to the Premium Segment of
the Official List and to trading on the Main Market of the LSE
following its IPO on 12 July 2013. The issued share capital during
the period comprises the Company's Ordinary Shares denominated in
Sterling.
The Company has the ability to use long term and short term debt
at the holding company level as well as having long term,
non-recourse debt at the SPV level.
Investment Adviser
The Investment Adviser to the Company during the period was
Bluefield Partners LLP, which is authorised and regulated by the UK
FCA under the number 507508. In May 2015 BSL, a company with the
same ownership as the Investment Adviser commenced providing asset
management services to the investment SPVs held by BSIFIL. In
August 2017 BOL, a company with the same ownership as the
Investment Adviser, commenced providing O&M services to the
Company and now provides services to 20 of the investment SPVs held
by BSIFIL.
Chairman's Statement
Introduction
The Company has had an excellent start to the year. Higher than
average irradiation has been matched by a high performing
portfolio, producing above expected generation. Power prices have
risen; the data is strong: irradiation was 10% up, generation 11%
up and total revenues 17% up. It has laid the foundations for
another strong year.
Underlying earnings have been ahead of target at 4.90pps and we
are on target to deliver a full year dividend of 7.68pps, covered
by earnings and net of debt amortisation.
The Company's NAV was 114.41pps; NAV Total Return for the period
was 4.38% and Shareholder Total Return was 4.53%.
Key Events
The Company continues along the pathway I described in my
Statement in September 2018. We have sought to maximise revenues in
the existing portfolio and have delivered an above expected
performance. We have continued to amortise our Aviva Investors long
term financing. We have continued to elect not to expand our asset
base due to high valuations and/or poor quality portfolios coming
onto the market, barring one 5MWp acquisition, funded by our short
term credit facility (RCF). Indeed, our Investment Adviser,
presented only 2% of the assets they evaluated to the Board, a
telling statistic.
The result of this continued discipline is a very strong six
month performance for our shareholders.
Underlying Earnings and Dividend Income
The Company is a sterling income fund and, as such, we continue
to focus on earnings and dividends. The underlying earnings for the
period were GBP18.0m or 4.90pps, ahead of target and supporting the
Company's sector leading dividend for the full year of 7.68pps.
Valuation and Equity IRR
Valuation methodology remains consistent with previous reporting
periods, with the Board receiving a valuation recommendation from
the Investment Adviser, the product of a comprehensive DCF model.
This valuation is then benchmarked against comparable transactional
activity for UK based solar assets. In the Board's view, this is
the most effective and transparent way in which to measure the
value of the Company's portfolio because of the consistent
characteristics seen in solar farms.
Following this combination of both market and DCF approach, the
Board is continuing to derive an average price of GBP1.29m per MWp
from comparable transactions. Indeed, we have not seen any
transactions or structural changes to the market that would justify
a deviation from this valuation.
Benchmarking the Company's portfolio to this GBP1.29m per MWp
results (using our actual cost of debt) in a cost of equity
discount rate of 7.20% (7.26% in June 2018 and 7.54% in December
2017) and an unchanged WACC discount rate of 5.65% (5.65% in June
2018 and 5.90% in December 2017). The very slight reduction in the
equity discount rate is a result of the repayment of some of the
long term debt during the period.
Non-Subsidised Solar
In September's Chairman's Statement, I said that non-subsidised
solar was not quite there yet but caveated this statement saying
that the solar industry has the ability to surprise in respect of
the speed at which it adjusts to the prevailing market conditions.
This speed of adjustment is happening and accelerating. We continue
to evaluate this opportunity with our Investment Adviser and as
market conditions evolve we believe this area will be of
significant scale in the coming years.
The expected arrival of a scalable primary market based on
non-subsidised solar is tailor-made for the skill set of the
Investment Adviser. Working closely with developers and
contractors, utilising the Investment Adviser's in-house technical,
engineering and power purchase capabilities, and then equity
funding through construction, has the potential to deliver the next
phase of growth for the Company, while sustaining our market
leading dividend objective. I look forward to updating you in due
course.
Debt Strategy
The Company has used the period to continue to amortise its
debt. The portfolio has the benefit of high levels of regulated
revenues, almost exclusively using the RO Scheme, which provides
index linked income for 20 years from the point of grid connection.
It is our view that it is in shareholders' best interests to seek
to use every year of regulated revenues to amortise the Company's
existing long term debt, within the objectives of our dividend
target. The period under review saw a good example of this in
practice, whereby we paid down GBP7.7m of debt.
Power Prices
The second half of 2018 saw significant increases in power
prices, driven by factors outlined in our Company's Investment
Adviser Report. What is important for our shareholders is that the
Company was able to take advantage of these rises and re-strike the
majority of our contracts. This has delivered medium term certainty
over a large percentage of our revenues and we have also seen our
average weighted power contract price increase to in excess of
GBP58 per MWh, up from GBP45 in the first half of 2018. As many of
these contracts were struck for in excess of two years our
shareholders will benefit from these higher priced contracts for a
prolonged period, with most of these higher prices becoming
effective in or shortly after January 2019.
Technical Asset Management
The higher irradiation was successfully converted into higher
than expected generation. This and the combined effects of our
strong portfolio and the excellent performance by BSL, the Bristol
based technical asset management team that is responsible for all
aspects of servicing the operation of the portfolio, has enabled
generation to exceed expectations for the half year by over
11%.
Conclusion
The performance of the Company over the past six months had its
foundations laid during the period when the Company's asset base
was built, primarily, funding through construction to create a high
quality and well priced portfolio. There have been few additions to
our asset base since 2016 but we now anticipate that this patience
and discipline should soon be rewarded with the potential arrival
of an economic UK market for solar assets without subsidy. Our
evaluation is ongoing and the intention is to seek to apply our
highly effective investment model for primary market assets by
funding through construction, to enhance the portfolio and continue
to deliver our dividend objective.
And finally, on behalf of the Board, I would like to thank you
for voting - as recommended by your Board - against the
discontinuation resolution tabled at the Company's AGM on 30
November 2018.
John Rennocks
Chairman
25 February 2019
The Company's Investment Portfolio
[Table]
Analysis of the Company's Investment Portfolio
[Map]
[Chart]
Report of the Investment Adviser
1. About Bluefield Partners LLP
Bluefield was established in 2009 and is an investment adviser
to companies and funds investing in solar energy infrastructure.
Our team has a proven record in the selection, acquisition and
supervision of large scale energy and infrastructure assets in the
UK and Europe. The management team has been involved in over GBP1.7
billion of solar PV funds and/or transactions since 2008.
Bluefield was appointed Investment Adviser to the Company in
June 2013. Based in its London office, Bluefield comprises of a
dedicated and highly experienced team of investment, legal and
portfolio executives. As Investment Adviser, Bluefield takes
responsibility, fully inclusive within its advisory fees, for
selection, origination and execution of investment opportunities
for the Company, having executed 50 individual SPV acquisitions on
behalf of BSIF since flotation. Due to the strong expertise of the
Investment Adviser, no additional transaction arrangement or
origination service providers are employed by the Company and no
investment transaction arrangement fees have been paid either to
the Investment Adviser or any third parties.
Bluefield's Investment Committee has collective experience of
over GBP19 billion of energy and infrastructure transactions.
2. Structure
The Company holds and manages its investments through a UK
limited company, BSIFIL, in which it is the sole shareholder.
[Chart]
3. Portfolio: Acquisitions, Performance and Value
Enhancement
Portfolio
As at 31 December 2018, the Company held an operational
portfolio of 87 PV plants (consisting of 46 large scale sites, 39
micro sites and 2 roof top sites) with a total capacity of 465.3MWp
with the portfolio displaying strong diversity through:
geographical variety (as shown by the map above), a range of proven
PV technologies and infrastructure (arising from the solar PV farms
having been constructed by a number of experienced solar
contractors), and a blend of asset sizes with capacities ranging
from microsites to substantial, utility-scale solar farms
(including two plants at c.50MWp).
Acquisitions
During the 6 month period to 31 December 2018, the Investment
Adviser reviewed approximately 300MWp of acquisition opportunities,
but due to the Investment Adviser's stringent acquisition criteria
only 2% of the projects assessed went on to be recommended to the
Board.
Out of this pipeline, the Company completed only one
acquisition, with a capacity of 5MWp. The plant was constructed by
Canadian Solar, is accredited under the 1.2 ROC Scheme and was
funded using GBP5.9m from the Company's increased and extended
GBP50m RCF (taking total drawings to GBP30.2m as at 31 December
2018), as well as utilising GBP0.9m of recycled working capital
from previous acquisitions. The asset commenced generation in March
2017.
In keeping with the Investment Adviser's objective to deliver
value and return accretive acquisition opportunities to the
Company, the Investment Adviser is currently assessing a range of
transactions as it looks to continue its policy of securing high
quality, return accretive acquisitions.
As a consequence of our strong pricing discipline, the focus
continues to be primarily on the optimisation of performance of the
excellent asset base already secured.
Performance
In the period to 31 December 2018, the portfolio, with a total
installed capacity of 465.3MWp, achieved a net PR of 80.2%, against
a forecasted net PR of 79.8% (H1 2017/18: 81.7%), creating an
'asset management uplift effect' of +0.5% for the first six months
of current reporting period.
Table 1. Summary of BSIF Portfolio Performance for H1 2018/19
(441.5MWp):
Actual Forecast Delta (% Actual YoY Delta
H1, 2018/19 H1, 2018/19 change) H1, 2017/18 (% change)
-------------------------
Weighted Average
Irradiation (Hrs)(1,2) 604.6 548.5 +10.2% 524.4 +15.3%
------------- ------------- --------- ------------- ------------
Net Performance
Ratio (%)(1,2) 80.2% 79.8% +0.5% 82.4% -2.6%
------------- ------------- --------- ------------- ------------
Generation Yield
(MWh/MWp)(1,2) 486.2 437.5 +11.1% 432.2 +12.5%
------------- ------------- --------- ------------- ------------
Total unit Price
- Power + ROCs
+LDs(3) (GBP/MWh) GBP123.68 GBP117.27 +5.5% GBP122.17 +1.2%
------------- ------------- --------- ------------- ------------
Total Revenue -inc
LDs (GBP/MWp) GBP60.13 GBP51.31 +17.2% GBP52.80 +13.9%
------------- ------------- --------- ------------- ------------
Notes to table 1
1. Excluding grid outages and significant periods of constraint
or curtailment that were outside of the Company's control (for
example, DNO-led outages and curtailments).
2. Table excludes assets with a collective capacity of 18.8MWp,
which were acquired during H2 2017/18 reporting period and
therefore do not yet offer comparisons with H1 2018/19. The table
also excludes the 5MWp Little Bear plant, acquired in October
2018.
3. Actual and forecast revenue figures include ROC recycle
estimates in line with standard forecasts.
As shown in the table above, irradiation levels during the
reporting period were almost 10% higher than forecast as July,
September and October all experienced levels significantly above
expectations, and also when compared to the same period in 2017/18
reporting year.
Operational outperformance (assisted by the Net PR being 0.5%
above forecast levels) across the portfolio, when combined with the
high irradiation levels, gave rise to significantly higher than
forecast generation (+11.1%). When combined with an increase in
Total Unit Price (materially due to rising power prices feeding
into PPA fixes over the period) to GBP123.7/MWh, revenues were
considerably higher than both expectations (+17.2%) and the
corresponding period of H1 2017/18 (+13.9%).
The portfolio's 'availability' (the total time the plant was
operating, as a percentage of the maximum possible) was
substantially as expected, at 98.27%, against a forecast of
98.89%.
Although the portfolio's net performance was higher than
forecast (+0.5%), it was lower than the equivalent period from the
previous reporting year by 2.6%; a result of both expected and
unexpected factors.
Firstly, a fall in year on year performance will always be
expected as the effects of degradation impact the PV modules'
performance (e.g. an industry standard rate of degradation is
c.-0.4%per annum), however, as Figure 1 below illustrates, a
consequence from the exceptionally high levels of irradiation
experienced over the six months to 31 December 2018 is that the
operational efficiency of the plants falls (albeit overwhelmingly
offset by outperformance in absolute yield as both the performance
table above and Figure 2 below illustrate).
Figure 1 -H1 2018/19 vs H1 2017/18 actual PR and irradiation
[Graph]
The reason behind this fall in efficiency is a result of the
plants experiencing inverter saturation, commonly referred to as
'clipping', during periods of unexpectedly high irradiation.
Inverter saturation occurs when the DC power from the PV array
exceeds the maximum input level for the inverter.
In the UK, due to lower average irradiation levels (e.g. when
compared to Southern Europe) it is common to oversize the
generating capacity by a factor of 1.2 to 1.4 (i.e. building more
module capacity than inverter capacity) to ensure generation is
maximised at times when irradiation is below peak levels. An
example might be a plant which is licensed to deliver 5MWp to the
grid being built with a generating capacity of 6MWp; whilst 1MW
will be 'clipped' at times of peak irradiation, the plant will be
able to deliver 5MW for significantly more hours in the year than
is the case where 5MW is the peak output available from the
panels.
The consequence of clipping is that during periods of
exceptionally high irradiation the output from the modules will
exceed the permitted input of the inverter. At this point, whilst
the plant will be generating above forecast expectations, since the
inverter is not capturing all of the available DC generation the
performance ratio of the plant (i.e. conversion efficiency)
reduces.
This is a design feature of most of our plants and has no
correlation to the underlying operational stability of the
plant.
Figure 2 - H1 2018/19 vs H1 2017/18 actual generation and
revenue
[Graph]
The geographical and equipment diversity within the Company's
portfolio allows the effects of both 'Outage Risk' (whereby a
higher proportion of large capacity assets would hold increased
exposure to material losses due to curtailments and periods of
outage, as directed by a specific DNO) and 'Defect Risk' (where
over reliance on limited equipment manufacturers could lead to
large proportions of the portfolio suffering similar defects) to be
mitigated.
This diversification, combined with the considerable efforts of
the Company's asset manager, BSL, is demonstrated by the fact that
the outages experienced by the portfolio (those events both outside
and inside the Company's control) allowed the higher irradiation
levels experienced during the reporting period to be directly
converted to higher generation and, consequently, higher revenues
being collected.
The impact of outages resulting from events within the control
of the Company (for example, periods when a plant, or part of a
plant, were shut to conduct essential maintenance or repairs)
accounted for a reduction of less than 0.11% of the portfolio's
total generation (239.98MWh).
Outages and curtailments which were outside the control of the
Company (for example, where these events are initiated by a DNO for
them to undertake upgrade works in the local area) accounted for
4,923.94MWh of lost generation, an increase from the 3,200MWh of
lost generation during the same period during the 2017/18 year.
This increase reflects more DNO-led events due to essential repair
and upgrade works within the proximity of the BSIF assets.
The combined impact of both sets of outages was an effective
decrease of 2.20% to total generation across the portfolio.
Of the outages resulting from events outside the Company's
control, the most significant periods were recorded at Southwick, a
48MWp plant in Hampshire, which experienced a complete outage for
121 hours in July 2018, as a result of failure on the DNO cable
which connects the site to the local grid, as well as a further DNO
led outage in September, lasting 85 hours.
Following these events, the Investment Adviser and the Company's
asset manager have been working closely with the DNO, SSE, to
mitigate the occurrence of future cabling issues. The combined
impact of these outages gave rise to generation and revenue losses
of 1,799.44MWh and GBP207.7k, respectively.
Regarding outages and curtailments due to planned maintenance or
repairs by the Company, the most significant curtailment was
recorded at Molehill in Kent where the plant experienced a
transformer failure in October 2018.
Given the timing of the failure, the decision was taken by the
Company to replace all three transformers on site to avoid similar
future issues and as the resulting works required an outage over
late October and early December 2018 lasting 1,368 hours, only
1,177.08 MWh of generation losses (equal to GBP131.37k) were
suffered compared to a significantly higher value if the works had
been deferred and completed during the spring or summer months.
During the financial year to date, the Company received
c.GBP0.1m in LDs (GBP0.3m Dec 17) for underperformance, revenue
losses and the rectification of minor equipment defects.
During the period, 8 plants (52.23MWp) successfully passed
through their FAC bringing the Company's total number of sites
passed FAC to 339.5MWp (c.73%) out of a total portfolio of 465.3MWp
as at 31 December 2018.
Figure 3 - Proportion of the Company's portfolio pre/post FAC as
at 31 December 2018
[Graph]
Final acceptance occurs following at least two years of rigorous
testing, as well as a comprehensive audit of the site for defects
by BSL, all of which have been remedied or provided for before such
acceptance is passed. Following this rigorous acceptance procedure
and completion of final acceptance, the EPC is released of its
obligations (though some warranties remain for full statute of
limitations periods).
Whilst the portfolio is maturing, a significant portion (29% by
installed capacity) remains protected by performance warranties
provided by the EPC contractors (in addition to equipment
manufacturers' warranties), backed by retentions or warranty bank
bonds, applicable from each asset's provisional acceptance date.
These warranties provide a contractual entitlement to the recovery
of damages because of operational underperformance against a
contracted level of performance, or as a result of defects.
At the end of the reporting period, our operation and
maintenance subsidiary, BOL, now provides O&M contractor
services to 20 of the Company's assets, representing 225MWp, just
under 50% of the BSIF portfolio. Aside from annual cost savings of
c.GBP160k for the sites already transferred, this transition of
services is expected to deliver noticeable benefits from increased
contractual service levels and, through a close operational working
relationship with the asset manager, BSL, faster response
times.
The Company's operating portfolio as at 31 December 2018 and the
total electricity generated during H1 of the 2018/19 financial year
is shown below:
Table 3. BSIF Portfolio Generation for the reporting period by
Asset (excluding the 5MWp site Little Bear acquired in October
2018):
Solar Farm Asset Total Investment Installed Generation
Commitment Capacity to 31 December
(Million (MWp) 2018 (Actual,
GBP) MW/h)
West Raynham 55.9 50.0 25,785.03
----------------- ---------- ----------------
Southwick 61.0 47.9 21,225.11
----------------- ---------- ----------------
Elms 32.8 28.9 14,604.29
----------------- ---------- ----------------
Hardingham 22.7 20.1 10,220.29
----------------- ---------- ----------------
Pentylands 21.4 19.2 9,085.30
----------------- ---------- ----------------
Molehill 23.1 18.0 8,361.60
----------------- ---------- ----------------
Hoback 19.0 17.5 8,805.02
----------------- ---------- ----------------
Littlebourne 22.0 17.0 8,230.56
----------------- ---------- ----------------
Goosewillow 19.0 16.9 8,681.16
----------------- ---------- ----------------
Hill Farm 17.3 15.2 7,821.78
----------------- ---------- ----------------
Roves 14.0 12.7 6,172.94
----------------- ---------- ----------------
Pashley 15.4 11.5 6,022.85
----------------- ---------- ----------------
Hall Farm 13.4 11.4 5,794.20
----------------- ---------- ----------------
Sheppey 12.0 10.6 5,560.29
----------------- ---------- ----------------
Betingau 11.2 10.0 4,097.26
----------------- ---------- ----------------
Capelands 8.6 8.4 3,785.14
----------------- ---------- ----------------
North Beer 9.3 6.9 2,997.93
----------------- ---------- ----------------
Ashlawn 7.6 6.6 2,903.35
----------------- ---------- ----------------
Redlands 6.4 6.2 3,098.87
----------------- ---------- ----------------
Saxley 7.0 5.9 2,674.18
----------------- ---------- ----------------
Durrants 6.4 5.0 2,473.49
----------------- ---------- ----------------
Romsey 5.8 5.0 2,537.67
----------------- ---------- ----------------
Salhouse 5.6 5.0 2,559.37
----------------- ---------- ----------------
Frogs Loke 5.6 5.0 2,586.81
----------------- ---------- ----------------
The Grange 5.4 5.0 2,340.42
----------------- ---------- ----------------
Bunns Hill 5.3 5.0 2,608.36
----------------- ---------- ----------------
Oulton 5.3 5.0 2,512.23
----------------- ---------- ----------------
Rookery 5.2 5.0 2,543.02
----------------- ---------- ----------------
Old Stone 5.7 5.0 2,378.70
----------------- ---------- ----------------
Place Barton 5.5 5.0 2,355.14
----------------- ---------- ----------------
Court Farm 5.5 5.0 2,441.47
----------------- ---------- ----------------
Kellingley 5.0 5.0 2,366.20
----------------- ---------- ----------------
Kislingbury 5.0 5.0 2,451.50
----------------- ---------- ----------------
Willows 4.6 5.0 2,190.29
----------------- ---------- ----------------
Clapton 6.3 5.0 2,437.60
----------------- ---------- ----------------
Holly Farm 7.3 5.0 2,633.17
----------------- ---------- ----------------
East Farm 5.5 5.0 1,919.07
----------------- ---------- ----------------
Trethosa 5.8 4.8 2,158.65
----------------- ---------- ----------------
Folly Lane 5.3 4.8 2,340.83
----------------- ---------- ----------------
Gypsum 4.4 4.5 2,176.79
----------------- ---------- ----------------
Tollgate Farm 4.6 4.3 2,046.41
----------------- ---------- ----------------
Burnaston 14.4 4.1 1,809.80
----------------- ---------- ----------------
Galton Manor 7.2 3.8 2,562.57
----------------- ---------- ----------------
Barvills 3.3 3.2 1,676.96
----------------- ---------- ----------------
Langlands 3.1 2.1 938.15
----------------- ---------- ----------------
Goshawk (10 micro
sites) 2.0 1.1 475.22
----------------- ---------- ----------------
Butteriss (20
micro sites) 2.3 0.8 334.50
----------------- ---------- ----------------
Corby 2.3 0.5 207.09
----------------- ---------- ----------------
Promothames (9
micro sites) 1.3 0.4 193.74
----------------- ---------- ----------------
GRAND TOTAL 550.1 460.3 224,182.37
----------------- ---------- ----------------
Value Enhancement Initiatives
As previously reported, the Investment Adviser continues to
focus on initiatives that seek to enhance and create additional
value for the portfolio, through the optimisation of both
operations and revenues.
The most significant of these initiatives is a wide ranging
asset life extension programme, which seeks to allow the SPVs to
extend the available tenure of the PV plants (above 2MWp of
installed capacity) up to 40 years (with the majority of the
assets' leases and planning approvals currently envisaging an
average term of c.25 years).
The project is progressing well, and the Investment Adviser is
pleased to report that over 75% of the BSIF portfolio (by installed
capacity) is now being actively engaged. To date, contractual terms
have been agreed with the landowners on nearly half of these
assets, with formal lease variations now executed on solar farms
with a total combined capacity of approximately one quarter of the
portfolio.
These variations allow the lease tenure to be increased up to 40
years.
Of the plants where agreement has been reached with the
respective landowners, submissions to the relevant Local Planning
Authorities are expected during Q1 2019.
When extending lease terms, the Investment Adviser is using the
opportunity to add further value through including new rights to
install and operate battery storage facilities so that when the
commercial climate for such infrastructure becomes attractive,
these facilities can be rapidly deployed across the portfolio.
By way of illustration, the prospective valuation impact to the
Company assuming an increase of 5 years to the current 25 year
operational life assumption (i.e extending from 25 years to 30
years) with respect to the plants (61MWp) currently being prepared
for planning submission would be c.GBP3.4m or c.0.9pps, but perhaps
more significantly, this will extend the life of the Company and
reduce the rate of NAV depreciation.
To date, no allowance has been made within our valuation models
for the benefit of any lease extensions and whilst there is a high
degree of confidence that a PV plant could operate for 30years,
assuming the equivalent increase in planning, in the absence of
formal consent, would require a more fully substantiated position
to be detailed before adoption within the Director's valuation.
In addition, the Investment Adviser is actively discussing
opportunities within the UK's burgeoning long term, corporate and
direct wire PPA market, as both routes have the potential to
provide predictable and reliable income streams over the long term
(in some cases up to 25 years).
Furthermore, the Investment Adviser is also undertaking detailed
studies relevant to the post-subsidy-era solar PV developments,
including the assessment of various internal and external
development opportunities.
PPA Strategy
Over the reporting period, the Company maintained its strategy
to fix the price of power sale contracts for individual assets not
covered by long term contracts, for periods between 12 and 36
months. The majority of contracts are being struck for a minimum of
18 months, which is the average duration required under the LTF
agreement.
The Company has largely continued to implement the approach of
fixing power prices evenly throughout the year, in order to
mitigate the Company's exposure to seasonal fluctuations and short
term events which have the potential to increase volatility in the
price of electricity in the UK.
Prices are typically fixed up to 3 months in advance of the
commencement of the fixing period and PPA counterparties are
selected on a competitive basis, but with a clear focus on
achieving diversification of counterparty risk.
The PPA renewal strategy applied during the period, and c.95MWp
of plants (some 20% of the portfolio) benefitting from 15 year PPAs
with floor prices, means BSIF, in the unlikely scenario of power
prices falling to nil, has c.65% of its revenue guaranteed over the
next 15 years, as revenues are derived from a combination of floor
prices and the guaranteed renewable electricity support
schemes.
The graph below shows that as at 31 December 2018 the Company
has a price confidence level of c.92% to June 2019 and c.90% to
December 2019 over its power and subsidy revenue streams.
The Company's strategy of fixing prices over periods of 12-36
months means the portfolio retains the ability to continue to
benefit from some of the rising power price trend in recent
months.
Figure 4. Percentage (%) of BSIF PPA revenues fixed, as at 31
December 2018
[Graph]
The Investment Adviser's strategy to secure leverage at the
portfolio rather than asset level has enabled the Company to retain
flexibility in implementing its short term PPA strategy following
the closing of the Company's long term borrowing facility, through
its subsidiary BSIFIL, in September 2016.
This means the Company has the flexibility to explore
value-enhancing options, such as negotiating corporate PPA offtake.
This flexibility would not be available if the lenders had required
BSIF to enter 15 year offtake contracts, as is a typical
requirement of asset level project financing. The Company also
remains able to maximise potential economies of scale by taking
advantage of opportunities only available to owners who can commit
significant volumes of generating capacity.
As a result, the Company can regularly tender out a large
portion of its power to ensure it always achieves the most
competitive pricing and avoids the greater discounts applied by
offtakers when they are entering long term contracts. For example,
a tender of 4 x 5MWp is preferred over 4 separate tenders of 5MWp
in order to maximise value.
Revenues and Power Prices
The portfolio's revenue streams in the reporting period,
excluding ROC recycle estimates, show that the sale of electricity
accounts for 39.4% of the Company's income. Regulated revenues from
the sale of FiTs and ROCs account for 60.6%.
Overall, wholesale power markets have shown significant
improvement during the reporting period as global commodity prices
rose during 2018, and UK power prices hit an 8 year high in
September 2018, with an average price of GBP67/MWh.
The two key drivers behind the rise (c.20%) in UK power prices
over the last 12 months were:
1. Rising carbon prices - Since the beginning of 2018 European
Emission Allowance (EUA) prices have jumped 150% as speculators
have entered the market predicting future scarcity and price
increases. At US$92 per tonne, coal prices have also been higher
(they passed the US$100 mark in September 2018).
2. Higher gas prices - Gas prices rose over 30% during the year
as an exceptionally cold FY17/18 winter led to higher summer gas
demand from storage facilities. With the UK's main gas storage
facility (Rough) closed and a reduction in the gas production in
the Netherlands (Groningen field's output being limited for
security reasons), demand outstripped short term flexibility of
supply.
These factors have meant short term electricity prices have
de-coupled from recent curves released by power forecasters, who
present figures on an average weather year basis and do not attempt
to accommodate these extreme weather effects.
Compounding this deviation is also the fact that traded prices
usually reflect present views more than market fundamentals. In
other words, market prices in the short term are more
representative of current market circumstances (low wind + high
demand + current gas market constraints) than balanced market
scenarios (e.g. what is the electricity market equilibrium for an
average weather in any given year).
As an illustration of the points mentioned above, please see
below a chart comparing the wholesale electricity prices versus gas
and carbon over the last 24 months.
Figure 5. Wholesale Electricity Prices versus Gas and Carbon
over the last 24 months.
[Graph]
Source: Bloomberg. Carbon price EU ETS from Bloomberg Jan 2019,
effective GB price based on IA calculations
Evidencing the Company's PPA strategy provides it with the
ability to benefit from rising power prices is the fact that in the
period post 30 June 2018 the weighted volume average pricing for
PPA fixes (covering c.232MWp of the Company's portfolio), for
contracts between 12-36 months was GBP58.57/MWh.
This compares to a day ahead market base load power price of
GBP45.06 per MWh for the 12 months to 31 December 2017, and
GBP59.45 per MWh to 31 December 2018 as well as the latest blended
forecaster estimates of GBP56.31/MWh for 2019 and GBP52.90/MWh for
2020.
Although it is important to note that as PPAs are struck on a
rolling forward looking quarterly basis, the majority of the fixes
completed in the period to December 2018 take effect in Q1
2019.
However, due to the timing of the increase in power prices over
2018 (prices rose significantly from June 2018) this upward
movement has had a limited impact with respect to the Company's
average seasonal weighted power price (from GBP45.54/MWh in the 12
months ending 31 December 2017, compared to GBP46.21/MWh to 31
December 2018).
Targeted Charging Review - Potential Changes to the treatment of
BSUoS
Background
In August 2017 Ofgem launched a Targeted Charging Review (TCR):
Significant Code Review (SCR) to investigate the way in which
residual network charges are applied across the electricity
network.
The main objectives of this review were to: consider the reform
of charging arrangements so that the network can operate
efficiently in the future; ensure costs are shared fairly amongst
all users; and prevent any adverse impacts on consumers.
Since the TCR was launched the Company has monitored the
progress of this review, but until November 2018 the likely impacts
on solar generators have been unclear and minimal. Thus it has not
been appropriate to attempt to quantify the potential impacts.
However, in November 2018 Ofgem published a consultation
document and accompanying Impact Assessment on the TCR, which
summarised Ofgem's proposals in relation to the future of
transmission and distribution residual charges with respect to
charging arrangements for 'embedded generators', i.e. smaller
scale, non-centralised generators such as solar and onshore
wind.
Whilst the scope of the TCR is very wide ranging, the pertinent
point for the Company, and indeed all solar plant owners, is that
Ofgem's 'minded to' decision is that there should be changes in the
way that BSUoS charges - how the electricity system operator
recovers its costs for grid balancing services - are allocated.
The proposed changes, and the reasons for their relevance to the
Company, are as follows:
-- Currently, embedded generators receive a benefit (c.GBP2/MWh)
within the price secured under PPAs, as an avoided BSUoS benefit.
This benefit would be removed under the proposals.
-- Embedded generators do not currently pay BSUoS. The proposal
states that embedded generators would be charged to help align
charging with transmission connected generators.
-- The proposals would be implemented from April 2021.
In conjunction with other large scale asset owners (and led by
the Solar Trade Association), the Company has been involved in
submitting a response to the consultation (which closed on 4
February 2019) on behalf of the solar industry, with Ofgem due to
publish its final decision in mid-2019.
Potential future impact on the Company's valuations and
earnings
As the proposed change to BSUoS covers two elements, removal of
a benefit and potential application of a charge, the changes could
affect both the future earnings and valuation of the Company's
portfolio.
To this end, the potential impact on the Company from Ofgem's
proposed changes are outlined below:
-- Loss of embedded benefit: No expected impact - currently, the
BSUoS embedded benefit is often included within the fixed price
when PPAs are agreed. The company has always adopted a conservative
approach to this benefit and does not assume a future benefit
within its earnings forecasts or NAV calculation. As a result, its
removal would not affect the Company's forecasts or NAV.
-- Application of BSUoS charge: Some expected impact - assuming
a charge of c.GBP2/MWh from April 2021 (as predicted by independent
power forecasters), BSIF valuation could be reduced by c.GBP10m
(c.2.8pps) based on the blended forecast power curve adopted for
the Company's 31 December 2018 valuation.
Given the proposal is under consultation and the outcome has not
yet been finalised, neither the Investment Adviser nor the
Directors believe it appropriate that any speculative assumptions
on the outcome of the review should be included in the Company's 31
December 2018 valuation.
4. Analysis of underlying earnings
The total generation and revenue earned in the 6 months to 31
December 2018 by the Company's portfolio, split by subsidy regime,
is outlined below.
Subsidy Regime Generation PPA Revenue Regulated
(MWh) (GBPm) Revenue (GBPm)
FiT 7,652 0.3 2.2
----------- ------------ ----------------
2.0 ROC 3,936 0.2 0.4
----------- ------------ ----------------
1.6 ROC 45,730 2.2 3.9
----------- ------------ ----------------
1.4 ROC 117,199 5.2 8.7
----------- ------------ ----------------
1.3 ROC 22,075 1.2 1.5
----------- ------------ ----------------
1.2 ROC 27,589 1.4 1.8
----------- ------------ ----------------
Total 224,182 10.5 18.5
----------- ------------ ----------------
The Company includes ROC recycle assumptions within its long
term forecasts and applies a market based approach on recognition
within any current financial period, including prudent estimates
within its accounts where there is clear evidence that participants
are attaching value to ROC recycle for the current accounting
period.
In October 2018, Ofgem announced that the final value for ROC
recycle for the period April 2017 to March 2018 (CP16) was GBP5.42
per MWh (equivalent to 11.9% of CP16 ROC buyout prices). This was
in line with the ROC Recycle estimate the Company had recognised in
its 30 June 2018 Financial Statements.
The following demonstrates that the portfolio generated
underlying earnings of GBP18.0m (4.9pps) and underlying earnings
for distribution, post debt repayments of GBP7.7m (2.1pps), of
GBP10.3m (2.8pps).
Underlying Portfolio Earnings
Half year Half year Full year Full year
period to period to to to
31-Dec-18 31-Dec-17 30-Jun-18 30-Jun-17
(GBPm) (GBPm) (GBPm) (GBPm)
----------- ----------- ---------- ----------
Portfolio Revenue* 28.9 24.7 56.2 47.9
----------- ----------- ---------- ----------
Liquidated damages 0.1 0.3 1.7 1.3
----------- ----------- ---------- ----------
Portfolio Income 29.0 25.0 57.9 49.2
----------- ----------- ---------- ----------
Portfolio Costs -6.1 -5.8 -12.9 -11.4
----------- ----------- ---------- ----------
Project Finance Interest
Costs -0.3 -0.4 -0.7 -0.7
----------- ----------- ---------- ----------
Total Portfolio Income
Earned 22.6 18.8 44.3 37.1
----------- ----------- ---------- ----------
Group Operating Costs(#)
** -2.3 -2.2 -4.3 -4.2
----------- ----------- ---------- ----------
Group Debt Costs -2.3 -2.0 -4.2 -4.4
----------- ----------- ---------- ----------
Underlying Earnings 18.0 14.6 35.8 28.5
----------- ----------- ---------- ----------
Group Debt Repayments -7.7 -7.3 -8.3 -3.4
----------- ----------- ---------- ----------
Underlying Earnings
available for distribution 10.3 7.3 27.5 25.1
----------- ----------- ---------- ----------
Bought forward reserves 1.1 1.1 1.1 0.8
----------- ----------- ---------- ----------
Total funds available
for distribution -1 11.4 8.4 28.6 25.9
----------------------------- ----------- ----------- ---------- ----------
Target distribution*** N/A N/A 27.5 24.6
----------------------------- ----------- ----------- ---------- ----------
Actual Distribution
-2 7.0 6.7 27.5 24.8
Underlying Earnings
carried forward (1-2) N/A N/A 1.1 1.1
----------- ----------- ---------- ----------
#Includes the Company and BSIFIL
*Includes ROC recycle revenue of GBP1.6m for CP15 (April
2016-March 2017). This is only applicable to Dec 17 and Jun 18
**Excludes one off transaction costs and the release of up front
fees related to the Company's debt facilities
***Target distribution is based on funds required for total
target dividend for each financial period.
The table below presents the underlying earnings on a 'per
share' basis.
Half year Half year Full year Full year
period to period to to to
31-Dec-18 31-Dec-17 30-Jun-18 30-Jun-17
(GBPm) (GBPm) (GBPm) (GBPm)
-------------- ------------- -------------- -------------
Target Distribution
(RPI dividend) N/A N/A 27.5 24.6
-------------- ------------- -------------- -------------
Total funds available
for distribution (inc
reserves) 11.4 8.4 28.6 25.9
-------------- ------------- -------------- -------------
Average Number of
shares in year* 369,883,530 369,811,281 369,866,027 342,735,213
-------------- ------------- -------------- -------------
Target Dividend (pps) N/A N/A 7.43 7.18
-------------- ------------- -------------- -------------
Total funds available
for distribution (pps)
- 1 3.07 2.27 7.73 7.55
-------------- ------------- -------------- -------------
Total Dividend Declared
& Paid (pps) - 2 1.90 1.80 7.43 7.25
-------------- ------------- -------------- -------------
Reserves carried forward
(pps) ** - 1-2 N/A N/A 0.30 0.30
-------------- ------------- -------------- -------------
*Average number of shares is calculated based on shares in issue
at the time each dividend was declared.
** Reserves carried forward are based on the shares in issue at
the corresponding year end.
5. NAV and Valuation of the Portfolio
The Investment Adviser is responsible for advising the Board in
determining the Directors' Valuation and, when required, carrying
out the fair market valuation of the Company's investments.
Valuations are carried out on a six monthly basis as at 31
December and 30 June each year with the Company committed to
conducting independent reviews as and when the Board believes it
benefits the shareholders to do so (in the period 2013-2018 two
independent valuation reviews were commissioned).
As the portfolio comprises only non-market traded investments,
the Investment Adviser has adopted valuation guidelines based upon
the IPEV Valuation Guidelines as adopted by Invest Europe (formerly
known as the European Venture Capital Association), application of
which is considered consistent with the requirements of compliance
with IAS 39 and IFRS 13.
Following consultation with the Investment Adviser, the
Directors' Valuation adopted for the portfolio as at 31 December
2018 was GBP609.7m (31 December 2017: GBP576.3m).
The table below shows a breakdown of the Directors' Valuations
over the last four 6 month periods:
Valuation Component Dec 2018 June 2018 Dec 2017 June 2017
(GBPm)
Enterprise Portfolio
DCF value (EV) 601.8 592.5 568.5 558.6
--------- ---------- --------- ----------
Deduction of Project
Co debt -12.1 -12.5 -12.9 -13.2
--------- ---------- --------- ----------
Projects valued at
cost (amount invested) 0.0 0.0 6.3 5.0
--------- ---------- --------- ----------
Project Net Current
Assets 20.0 24.2 14.4 23.0
--------- ---------- --------- ----------
Directors' Valuation 609.7 604.2 576.3 573.4
--------- ---------- --------- ----------
Detail of core drivers behind the period end valuation are
outlined in the portfolio valuation movement section below.
Key factors impacting the Directors' Valuation methodology
During the reporting period there have been a number of key
factors that have been considered in the Investment Adviser's
recommendation to the Directors' Valuation:
(i) Competition for operational assets continues to be high,
driven in part by a slowdown in the number of large scale
portfolios coming to market compared to the previous 18 months. As
noted by the Investment Adviser in previous reports, buyers
continue to be a mix of private and public funds but pricing for
solar assets remains between GBP1.29m/MWp and GBP1.35m/MWp.
Evidence of this pricing post Jun '18 comes in the form of
Foresight's acquisition of assets from its own internally managed
EIS funds of 114MWp (GBP1.35m/MWp) and 80.9MWp (GBP1.27m/MWp) as
well as NTR's acquisition of 38MWp (GBP1.42MWp). Post period end,
Greencoat announced the acquisition of a 60.4MWp portfolio from CEE
Group, although the price was undisclosed;
(ii) A change to capital allowance rates, from April 2019, was
announced in the Autumn Budget. The change sees a reduction in the
rate, from 8% to 6%, applied to assets within the Special Rate
pool;
(iii) After RPI reached a 7 year peak in December 2017 at 4.1%,
it dropped gradually over the 12 months to December 2018 to end at
2.7%. Over the equivalent period the Bank of England announced one
rate rise of 0.25% (in August 2018) to take the base rate from 0.5%
to 0.75%;
(iv) As mentioned in the Power Price section above, UK power
prices reached an 8 year high in September 2018, resulting in short
term (1-3 years) power prices being significantly ahead of forecast
curves released by the leading forecasters in H1 2018. The increase
has fed through into the forecasters' Q4 2018 curves, creating a
positive impact on the Company's period end valuation, albeit that
pricing expectations in the longer term (post 2030) continue to be
revised down (principally due to lower gas prices in the long term,
higher renewable penetration driving down prices and lower power
prices in interconnected European markets). To avoid sensitivity to
a single forecast in a volatile market, the Investment Adviser
averages data from two leading forecasters.
Discounting Methodology and Discount Rate
The Directors' Valuation is based upon the discounting of the
net, unlevered, project cash flows of each investment held by the
Company, through BSIFIL, irrespective of whether the investment has
project leverage or not, with the result then benchmarked against
comparable market multiples. The discount rate applied on the
project cash flows is therefore the WACC.
This approach of discounting the unlevered cash flows with a
WACC is consistent with the approach taken in every previous
Directors' Valuation and is intended to avoid asset valuations
being distorted by different debt sizing or amortisation
profiles.
Having discounted the unlevered project cash flows, to establish
a 'willing buyer/willing seller' enterprise valuation or 'EV',
project level debt (if any) is then deducted along with additions
of projects at cost and period end working capital to establish the
'Directors' Valuation' of the portfolio.
Of the 50 SPVs held by the Company, only one (Durrants) has
asset level debt (being GBP12.1m at the financial period end).
Continuing the theme first outlined by the Board in June 2017 as
a result of increasing competition within the UK solar market, a
sustained trend has emerged with respect to the GBP/MWp for large
scale portfolios. The first notable benchmark transaction was EFG
Hermes' purchase of TerraForm's 365MW portfolio for an EV of
GBP1.29m/MWp in December 2016, but since then over 1.3GWp of
operational portfolios have been sold, to both public and private
funds, within the value range of GBP1.29m-GBP1.42m/MWp.
Consequently, the Board continues to adopt the approach, under
the 'willing buyer/willing seller' methodology, that the valuation
of the Company's portfolio be prudently benchmarked on GBP/MWp
basis against comparable portfolio transactions. As the period to
31 December 2018 has continued to see high levels of competition
for large scale portfolios, the Board believes it appropriate to
maintain a prudent benchmarking approach, on GBP/MWp basis, in
respect of the valuation of the BSIF portfolio.
By valuing the portfolio at an EV of GBP601.8m, and an effective
price of GBP1.29m/MWp, the Board has conservatively achieved this
aim. On this basis, the WACC discount rate of 5.65%, has remained
unchanged from June 2018.
The cost of equity (or levered equity discount rate) implied by
a WACC of 5.65% is 7.20% (June 2018: WACC 5.65%, cost of equity
7.26%).
Whilst the WACC discount rate has remained unchanged, the
levered equity discount rate has fallen fractionally from June 2018
as a result of slight reductions to the Company's leverage. This is
the result of repayments to the long term portfolio facility with
Aviva Investors (GBP7.3m) and the project level facility at our
Durrants plant (GBP0.4m) being higher than additional drawings
under the RCF (GBP5.9m).
As in the June 2018 valuation, the Company continues to apply
the conservative assumption that 70% (GBP21.1m) of the amounts
drawn under the RCF (GBP30.2m as at 31 December 2018) will be
converted into long term fully amortising debt on maturity in
September 2021, at an interest rate of 3.50%.
Given the Investment Adviser's record of securing competitive
long term debt, as evidenced by the re-financing in September 2016
of the Company's GBP200m RCF with Aviva Investors who subsequently
authorised the increase of the current RCF in September 2018, the
Directors are comfortable with the assumptions applied to the
conversion of such a small tranche before September 2021.
In parallel, as mentioned above and further below, the equity
discount rate has marginally decreased.
For completeness, as outlined in the last two reporting cycles,
tax shielding based on interest deductions relating to both the
Company's external and, as permitted (under the Finance Bill 2017),
inter-company loans (e.g. Eurobonds) has been included within the
cash flows which are discounted.
The average EBITDA interest tax shield from this combination of
third party long term debt and inter-company debt equates to 16.5%
over the life, being 25% (14% from external shielding and 11% from
internal shielding) in 2019 and falling thereafter with
amortisation of the debt, and remains conservative with respect to
the 30% level permitted under the fixed ratio test of the corporate
interest restriction rules.
With the WACC remaining unchanged since June 2018 and the
levered equity discount reducing only fractionally, the equity IRR
implied by the Directors' Valuation of 6.63% has also remained
broadly constant (6.70% as at 30 June 2018).
The equity IRR is derived from the actual impact of the
Company's amortisation profile over the tenor of its third party
debt, GBP216.8m as at 31 December 2018, taking into account both
the cost and declining leverage levels (34%, based on the Company's
GAV as at 31 December 2018 of GBP639.3m*), as well as the effect of
interest shielding on GBP80m of Eurobond notes between BSIF and
BSIFIL.
The equity IRR of 6.63% is the return from the equity forecast
cash flows of the portfolio (after tax deductions) which give rise
to the same resulting NAV as the WACC methodology and is intended
to assist in outlining the relationship between a point in time
valuation of the Company's portfolio, based on the Company's
underlying valuation assumptions, and the commensurate equity
return.
The equity IRR implies that the future cash flows of the
Company, based upon the Directors' Valuation of GBP609.7m, which
includes the conservative assumption of a zero terminal value of
each asset after c.25 years of operational life, are expected to
deliver a c.6.6% gross annualised return on today's NAV.
For the Company's portfolio this equates, within the Directors'
Valuation as at 31 December 2018, to a weighted average portfolio
life of 21.3 years. The Board has elected not to adopt a longer
assumed life, even for assets with extended lease or planning
permissions at this stage.
Nevertheless, the Investment Adviser is carrying out an active
programme of asset life extensions through planning and lease
amendments and this may justify the adoption of a longer asset life
in the future.
Consistent with the previous financial year, the Board has
adopted an assumed RPI of 2.75% throughout the expected asset life
(including from 2019 onwards). This inflation rate was increased in
December 2016 following a revision of market expectations with
respect to long term inflation rates.
Power Price
As with Directors' Valuations since 31 December 2016, the
Directors have continued to adopt an equal blend of the forecasts
from two leading independent forecasters. As stated in previous
reports, the reason for this is to prevent the valuation of the
portfolio being unduly influenced by one forecasters set of
assumptions.
The blended forecast used within the latest Directors' Valuation
is based on forecasts released in December 2018 (both forecasters)
and implies an annual growth rate, in real terms from 2019, over
the 25 year forecast of -0.8% from a starting point of the mid
GBP50s / MWh to final life price in 2042 of the mid GBP40s/MWh.
This fall in real term pricing is a consequence of the predicted
increased penetration of renewables post 2030 and higher levels of
interconnection capacity.
The DCF for each project applies the contractually fixed power
price applicable to each solar PV asset until the end of the fixed
period and, thereafter, the blended independent forecast price.
As in previous valuation cycles, the short term pricing within
the energy price forecast used was compared by the Investment
Adviser to PPA prices achievable in the market for its solar assets
and was considered to reflect the market without discount or
premium.
*GAV is the aggregation to the portfolio's DCF value, project
Durrant's outstanding debt and the working capital balances from
the portfolio and BSIFIL.
Plant Performance
During the period, a further 8 plants (combined capacity
52.23MWp) underwent FAC testing.
This process triggers the end of performance-related EPC
warranties and, in the context of the valuation approach, marks the
first point at which long term operational performance can be
potentially adopted within the future cash flows of the
project.
The number of projects now being valued using PR from
operational or final acceptance (this covers a minimum of 2 years
of operational data) is 20 (19 assets in June 2018) and the
Investment Adviser is pleased to confirm that the weighted average
PR for these plants, including the effects of degradation, is 82.2%
(June 2018: 83.3%).
Consistent with the valuation approach taken in previous
periods, the Directors' Valuation does not amend long term plant
performance forecasts based upon short term performance while the
plants remain within the warranty period and subject to outstanding
contractual testing obligations.
Other Cash flow Assumptions
No material changes have been made regarding regulatory revenue
or cost assumptions.
NAV movement
In the period, the Company paid total dividends of GBP14.2m,
being 3.83pps in total for the third and fourth interim dividends
in respect of the year ended 30 June 2018 (which, combined with the
earlier interim dividends, provided a total dividend in the 2017/18
financial year of 7.43pps).
Over the period the Company's NAV has increased by GBP4.2m, from
GBP419.0m as at 30 June 2018, to GBP423.2m as at 31 December 2018.
Adjusting the 30 June 2018 NAV of GBP419.0m for the dividends paid
in the period (GBP14.2m) results in an uplift in the NAV of the
Company during the period of GBP18.4m.
A breakdown in the movement of the NAV (GBPm) of the Company
over the period and how this interacts with the movement in the
valuation of the portfolio is illustrated in the charts below.
Post period end, in February 2019, the Company paid the first
interim dividend for the 2018/19 financial year of 1.90pps. It
expects to pay a second interim dividend of 1.90pps in May 2019, a
third interim dividend of 1.90pps in August 2019 and a final,
fourth interim of 1.98pps in October 2019 to meet the Company's
2018/19 dividend target of 7.68pps.
A breakdown in the movement of the NAV (GBP million) of the
Company over the period and how this interacts with the movement in
the valuation of the portfolio is illustrated in the charts
below.
[Graph]
Directors' Valuation movement
(GBPmillion) As % of re-based
valuation
---------------------------- --------- ----- ---------------- -----------------
30 June 2018 Valuation 604.2
---------------------------- --------- ----- ---------------- -----------------
Additions in the period(#) 6.8
---------------------------- ---------------- ---------------- -----------------
Re-based Valuation 611.0
---------------------------- ---------------- ---------------- -----------------
Cash receipts from portfolio (25.7) (4.2)%
Operational updates (4.2) (0.7)%
Power Curve Movement 9.4 1.5%
Capital Allowance update (2.1) (0.3)%
Balance of portfolio return 21.3 3.5%
31 December 2018 Valuation 609.7 (0.2)%
--------------------------------------- -------------- ------- -----------------
#Additions in the period reflect total investment commitment for
Little Bear (5MWp) in October 2018
Each movement between the re-based valuation and the 31 December
2018 valuation is considered in turn below:
Cash receipts from the Portfolio
This movement reflects the cash payments made from the
underlying project companies up to BSIFIL and the Company to enable
them to settle operating costs and distribution commitments as they
fall due within the period.
Operational updates
This movement reflects the impact of updates to operational
running costs, power price fixes as well as minor revisions to
asset level PRs in order to accurately reflect expected life time
operational performance.
Power Price Movement
Both of the Company's two independent forecasters released
updated forecasts in December 2018 and these have been applied to
the Directors' Valuation. The impact of adopting an equal blend of
two independent forecasters, against power price expectations
applied in the 30 June 2018 valuation, results in an increase of
GBP9.4m and is primarily due to an uplift in the shape of the
blended curve over the immediate 5-10 years.
The discounted cash flow for each project applies the
contractually fixed power price applicable to each solar PV asset
until the end of the fixed period, and thereafter the equal blend
of two independent forecasters' prices.
Capital Allowance update
This change reflects the reduction in capital allowance rate
from 8% to 6% with respect to capital spend allocated to the
Special Rate pool - a change that impacts all business that have
capital spend allocated to long life equipment.
The impact on the Company's 31 December 2018 valuation is a
reflection of tax depreciation on Special rate pool balances (c.84%
of each SPV's capital allowances) being spread over a longer period
of time and so whilst the overall payment of tax remains neutral
compared to 30 June 2018, the reduction in rate means the timing of
tax payments has been brought forward.
Balance of Portfolio Return
The balance of portfolio return is the result of the unwinding
of the discount rate over the period, as well as minor operational
and financial assumption changes.
Other Assumptions
Consistent with previous Directors' Valuations, the valuation
assumes a terminal value of zero for all projects within the
portfolio c.25 years after their commencement of operation.
Although as outlined in the Portfolio section, should the
operational life of the assets be extended by a further 5 years (to
30 years), the valuation of the portfolio would benefit from a
meaningful increase.
Overall there have been no material changes to assumptions
regarding the future performance or cost optimisation of the
portfolio when compared to the Directors' Valuation of 30 June
2018.
The assumptions set out in this section will remain subject to
review by the Investment Adviser and the Board and may give rise to
a revision of valuation approach in future reports.
Following the adoption of IFRS 10 and the Company's move to
presenting its results on a non-consolidated basis, rather than
consolidating its immediate subsidiary BSIFIL, the below table
serves to aid the reader in reconciling the Directors' Valuation to
the relevant line on the Statement of Financial Position.
Reconciliation of Directors' Valuation to Balance sheet
Balance at period / year end
Category 31 30 June 31 30 June
December 2018 December 2017
2018 (GBPm) 2017 (GBPm)
(GBPm) (GBPm)
--------------------- ---------------------- ---------------------- ----------------------
Directors'
Valuation 609.7 604.2 576.3 573.4
--------------------- ---------------------- ---------------------- ----------------------
BSIFIL
Working
Capital 17.5 18.8 23.2 15.9
--------------------- ---------------------- ---------------------- ----------------------
BSIFIL
3(rd)
Party Debt (204.7) (204.9) (184.6) (186.0)
--------------------- ---------------------- ---------------------- ----------------------
Financial
Assets at
Fair
Value per
Balance
sheet 422.5 418.1 414.9 403.3
--------------------- ---------------------- ---------------------- ----------------------
Directors' Valuation sensitivities
Valuation sensitivities are set out in tabular form in Note 8 of
the financial statements. The following diagram reviews the
sensitivity of the EV of the portfolio to the key underlying
assumptions within the discounted cash flow valuation.
[Graph]
6. Financing
Aviva Investors Long Term Facility
The LTF is provided by Aviva Investors in two tranches. The
first is a GBP121.5m fixed rate long term facility and the second
is a GBP65.5m index-linked long term facility.
Loan Amount Tenor No Refinancing Cost Average Interest
Risk Loan Life rate exposure
at drawdown during 18
year tenor
Fixed GBP121.5m 18 years Fully amortising All in 10.6 Zero
and 3 over 18 cost of
months years sculpted 287.5bps
from drawdown to cash
flows
---------- --------------- ----------------- ---------- ------------- ---------------
Index-Linked GBP65.5m 18 years Fully amortising RPI plus 11.3 Linked to
and 3 over 18 70bps RPI
months years sculpted
from drawdown to cash
flows
---------- --------------- ----------------- ---------- ------------- ---------------
Both tranches are fully amortising over 18 years, providing
natural alignment with the average remaining life of the Company's
regulated revenues, eliminating refinancing risk as well as
insulating the Company's equity cash flows from significant
principal repayments in the final years of the facility when the
contribution of revenue from power is increased.
During the period principal repayments of GBP7.3m, combined with
indexation increases of GBP1.1m, resulted in a total outstanding
loan balance as at 31 December 2018 of GBP174.5m (Fixed GBP110.3m,
Index linked GBP64.1m).
The LTF is held by the Company's wholly-owned subsidiary,
BSIFIL, and is the result of a deliberate structuring approach to
maximise both transparency and portfolio management flexibility,
whilst also delivering the lowest cost of capital in our sector (as
at 31 December 2018, the blended debt cost of the facilities was
3.3%).
Thanks to the conservative leverage (35% of GAV as at 31
December 2018), on the Company's base case projections the average
DSCR remains close to 3 times, with the lowest point of coverage
over the entire tenor projected to be in excess of 2.5 times.
Revolving Credit Facility - Increase and Extension
On 23 October 2018 the RCF, provided by RBSI to BSIFIL, was
successfully increased from GBP30m to GBP50m and extended by a
further two years to 30 September 2021. The re-stated and amended
facility also includes the option for BSIFIL to request a further
one year extension to 30 September 2022.
The terms of the facility have not changed, with a constant
margin of 2.0% over LIBOR.
As at 31 December 2018 the Company had drawn GBP30.2m, out of
GBP50m, from its RCF.
Both the RCF and the LTF are secured upon a selection of the
Company's investment portfolio and offer the ability to substitute
reference assets.
Project level debt
In addition to the LTF and the RCF, the Company also has a small
project finance loan of GBP12.1m secured against project Durrants
(a 5 MWp FiT plant located on the Isle of Wight).
This facility was provided by Bayern Landesbank and is fully
amortising with a final maturity of 2029.
7. Market Developments
Brexit negotiations continued to dominate 2018, with financial
market sentiment intrinsically linked to the developments of the
dialogues between the United Kingdom and the European Union.
Brexit did not have everything to answer for, as trade disputes
and the global economic slowdown have also been determinant factors
for financial markets in the second half of the year as equity
markets around the world, including the UK, suffered considerable
declines between June and December 2018.
With crude oil falling in excess of 30% since October 2018,
government debt, particularly US treasuries, saw important inflows
as investors sought protection against falling financial
markets.
In a period of market volatility, the renewable energy sector
becomes a net beneficiary, as it usually is perceived as a
defensive sector with stable cash flows and predictable returns in
the form of dividends.
Between 30 June 2018 and 31 December 2018, the Company yielded a
total return of +5.34%* compared to -10.24%* for the FTSE100
reflecting the perceived value of long term cash flows in the
Renewables sector.
Capacity accredited under the RO Scheme remains unchanged at
7.2GWp, representing 56% of the total solar capacity in the UK, but
constituting only 2.4% of the number of installations, implying a
high concentration of generation from industrial scale sites.
About 26% of all operational capacity is projects sized 50kWp to
5MWp and circa one third are larger than 5MWp but smaller than
25MWp. Capacity accredited under the FiT scheme was 4.8GWp as of 30
November 2018. This equates to about 38% of total solar capacity
and 85% of all installations.
According to the BEIS, the UK's total installed solar capacity
breached 13GWp (across 972,468 installations) as at 30 November
2018 as installed capacity increased by 1.8% (146MWp) compared to
November 2017.
[Graph]
*Source; Bloomberg comparative return tool
Illustrating the dramatic change to the expansion of the market
between 2013-17 is the stark fact that during November 2018, there
were 4,728 confirmed installations, but only a total capacity of 17
MWp. Whilst this is the highest number of installations in a month
since September 2016, 86.3% of these were sub-4kWp
installations.
Overall, c.70MWp of solar PV capacity was added to the grid in
the second half of 2018, all across sub-5MW plants.
Mirroring the slowdown in the primary market, secondary activity
has also dramatically decreased, with c.800MWp changing hands
between the beginning of January and November 2018, compared to
over 1.4GWp during 2017, reflecting the lowest yearly M&A
activity since 2013.
With 465MWp under management, the Company continues to maintain
a strong position within the UK solar market, as it maintains and
operates about 4% of the country's utility-scale solar PV capacity
and continues to apply stringent capital discipline to ensure it
only acquires assets that are accretive to shareholders'
returns.
8. Regulatory Environment
UK Carbon Budgets
These are legally binding greenhouse gas reduction targets, set
for five-year periods, with the ultimate goal of reducing emissions
to at least 80% below 1990 levels by 2050.
The main recommendations of the 5th Carbon Budget (2028-32) were
to set the limit at 1,765MtCO2e, including international shipping,
and to limit annual emissions to an average 57% below 1990
levels.
Without international shipping and aviation, the limit would be
1,725Mt and should be met without the use of international carbon
credits (apart from the EU ETS).
For power, the CCC recommended that the government implement
policies to reduce the sector's carbon intensity to below
100gCO2/kWh in 2030 compared with 450gCO2/kWh in 2014. This
represents a target reduction of 78% with respect to 2014
levels.
Update on Contracts for Differences
On 11 October 2017, the UK government announced new CfD rounds
to be scheduled in 2019. The total budget of up to GBP557m in
subsidies will again be restricted to offshore wind and other "less
mature technologies". This means there will be no new government
support for solar power until at least the end of the decade.
On 20 November 2018, the BEIS released a draft notice on the
budget and terms for the third CfD allocation round. The next CfD
allocation round is due to begin in May 2019 and has a budget of
GBP60m.
Subsidy free PV
The lack of supportive regulations means that any new projects
will have to be delivered on a subsidy free basis and the economics
of investment in solar PV continue to improve as a result of
falling equipment prices.
In continental Europe, solar power has already entered the new
era of unsubsidised project development. Countries such as Spain,
Portugal and Italy are taking the lead and a few projects have
already started operation. In the first half of 2018 at least 12
such subsidy free projects, totalling c.676MWp, have been either
built or were under construction in the EU.
In the UK, over 110MWp subsidy free solar PV capacity was added
to the grid in 2018, of which c.74MWp is utility scale.
The figure below shows historical and projected LCOE for a UK
solar project based on data provided by a leading market
intelligence service.
Plotted against historic and spot and forward prices in the UK,
which can act as a reference for potential PPA prices, the
Investment Adviser has observed a much more rapid convergence of
power prices to the UK solar levelised cost of electricity compared
to the same projections in June 2018.
UK solar levelised cost vs power price (GBP/MWh)
[Graph]
These are promising signs for the future of subsidy free solar
PV in the UK and, as a result, the Company continues to monitor
opportunities on the primary market closely.
9. Environmental, Social and Governance
As a solar energy infrastructure investor, the Investment
Adviser is conscious of the Company's environmental and social
impact. The production of renewable energy equates to a significant
amount of CO2 emissions saved, representing a sustainable and
ethical investment. However, the Investment Adviser also considers
its impact on the biodiversity and the local community surrounding
its assets.
Environmental Impact
Approximately 25 acres of land are required for every 5MWp of
installation, enough to power 1,612 homes based on a medium Typical
Domestic Consumption Value (TDVC) of 3,100 kWh of electricity for
every 5 MWp installed, this is an annual saving of 1,744 tonnes of
CO2.
Based on these figures, the portfolio capacity of 465.3MWp as at
31 December 2018 will power the equivalent of 150,097 homes and
save 162,320 tonnes of CO2 in a year.
Biodiversity
The completed benchmarking study of the biodiversity enhancement
measures implemented on the Company's large scale assets showed
that across three major measures; wildflower meadow creation,
native tree and hedgerow planting and creation of habitat to
support local wildlife (e.g. bat boxes, bird boxes, beehives) the
majority of plants had benefited from enhancements in at least two
of these areas and that all plants had received enhancement in at
least one area.
The Investment Adviser is working towards ensuring all remaining
plants benefit from biodiversity enhancements covering at least two
of the three major measures listed above. The improvement process
is anticipated to be completed during the current planting
season.
In addition to this, we are looking to collaborate with local
wildlife trusts to further enhance the presence of native local
species in and around the solar parks. Focus is given to the
introduction of bee keeping, to the portfolio, especially for
assets where wildflower meadows have been previously planted.
Sheep Grazing
Many sites within the portfolio support sheep grazing,
demonstrating that solar farms can support farming and are also
providing a cost effective way of managing grassland in solar farms
while increasing its conservation value. Where possible the
Investment Adviser facilitates the introduction of sheep grazing on
the existing and newly acquired assets.
Community Benefits
The Investment Adviser supports community benefit schemes across
its portfolio, assisting in the support and development of the
local communities surrounding the asset sites. Over the year to 31
December 2018, the portfolio assets made donations of GBP169k to
community benefit schemes for local councils and parishes for
charitable, educational, environmental, amenity or other
appropriate purposes within the areas of the community.
Bluefield Partners LLP
25 February 2019
Statement of Principal Risks and Uncertainties for the Remaining
Six Months of the year to 30 June 2019
As described in the Company's annual financial statements as at
30 June 2018, the Company's principal risks and uncertainties
include the following:
-- Portfolio acquisition risk;
-- Portfolio operational risk;
-- Valuation error;
-- Depreciation of NAV;
-- Unfavourable weather and climate conditions;
-- Unfavourable electricity market conditions;
-- Changes in tax regime;
-- Changes to government plans, and
-- Political risk.
The Board believes that these risks are unchanged in respect of
the remaining six months of the year to 30 June 2019.
Further information in relation to these principal risks and
uncertainties may be found on pages 24 to 30 of the Company's
annual financial statements as at 30 June 2018.
These inherent risks associated with investments in the solar
energy sector could result in a material adverse effect on the
Company's performance and value of Ordinary Shares.
Risks are mitigated and managed by the Board through continual
review, policy setting and regular reviews of the Company's risk
matrix by the Audit Committee to ensure that procedures are in
place with the intention of minimising the impact of the above
mentioned risks. The Board carried out a formal review of the risk
matrix at the Audit Committee meeting held on 19 February 2019. The
Board relies on periodic reports provided by the Investment Adviser
and Administrator regarding risks that the Company faces. When
required, experts will be employed to gather information, including
tax advisers, legal advisers, and environmental advisers.
Directors' Statement of Responsibilities
The Directors are responsible for preparing the Interim Report
and Unaudited Condensed Interim Financial Statements in accordance
with applicable regulations. The Board confirms that to the best of
their knowledge:
-- the Unaudited Condensed Interim Financial Statements have
been prepared in accordance with IAS 34 'Interim Financial
Reporting' as adopted by the European Union; and
-- the interim management report which includes the Chairman's
Statement, Report of the Investment Adviser and Statement of
Principal Risks and Uncertainties for the remaining six months of
the year to 30 June 2019 include a fair review of the information
required by:
a. DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
Unaudited Condensed Interim Financial Statements; and a description
of the principal risks and uncertainties for the remaining six
months of the financial year; and
b. DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place during the
first six months of the financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
The Board is responsible for the maintenance and integrity of
the corporate and financial information included on the Company's
website, and for the preparation and dissemination of financial
statements. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
On behalf of the Board
Paul Le Page Laurence McNairn
Director Director
25 February 2019 25 February 2019
Independent Review Report to Bluefield Solar Income Fund
Limited
Conclusion
We have been engaged by Bluefield Solar Income Fund Limited (the
"Company") to review the condensed set of financial statements in
the half-yearly financial report for the six months ended 31
December 2018 of the Company which comprises the unaudited
condensed statements of financial position, comprehensive income,
changes in equity, cash flows and the related explanatory
notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
December 2018 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement letter to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Rachid Frihmat
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants, Guernsey
25 February 2019
Unaudited Condensed Statement of Financial Position
As at 31 December 2018
31 December 2018 30 June 2018
Unaudited Audited
Note GBP GBP
------------------------------------------------ ----- -------------------------------------- ---------------------
ASSETS
Non-current assets
Financial assets held at fair value through
profit or loss 8 422,544,786 418,098,105
Total non-current assets 422,544,786 418,098,105
------------------------------------------------ ----- -------------------------------------- ---------------------
Current assets
Trade and other receivables 9 951,284 753,237
Cash and cash equivalents 10 43,895 501,751
Total current assets 995,179 1,254,988
------------------------------------------------ ----- -------------------------------------- ---------------------
TOTAL ASSETS 423,539,965 419,353,093
------------------------------------------------ ----- -------------------------------------- ---------------------
LIABILITIES
Current liabilities
Other payables and accrued expenses 11 349,216 357,609
------------------------------------------------ ----- -------------------------------------- ---------------------
Total current liabilities 349,216 357,609
------------------------------------------------ ----- -------------------------------------- ---------------------
TOTAL LIABILITIES 349,216 357,609
------------------------------------------------ ----- -------------------------------------- ---------------------
NET ASSETS 423,190,749 418,995,484
------------------------------------------------ ----- -------------------------------------- ---------------------
EQUITY
Share capital 368,012,390 368,012,390
Retained earnings 55,178,359 50,983,094
TOTAL EQUITY 13 423,190,749 418,995,484
------------------------------------------------ ----- -------------------------------------- ---------------------
Number of Ordinary Shares in issue
at period/year end 13 369,883,530 369,883,530
------------------------------------------------ ----- -------------------------------------- ---------------------
Net Asset Value per Ordinary Share (pence) 7 114.41 113.28
------------------------------------------------ ----- -------------------------------------- ---------------------
These unaudited condensed interim financial statements were
approved and authorised for issue by the Board of Directors on 25
February 2019 and signed on their behalf by:
Paul Le Page Laurence McNairn
Director Director
25 February 2019 25 February 2019
The accompanying notes form an integral part of these unaudited
condensed interim financial statements.
Unaudited Condensed Statement of Comprehensive Income
For the six months ended 31 December 2018
Six months ended Six months ended
31 December 2018 31 December 2017
Unaudited Unaudited
Note GBP GBP
------------------------------------------------------------------------- ----- ----------------- -----------------
Income
Income from investments 5 362,500 340,411
Interest income from cash and cash equivalents - 2,600
------------------------------------------------------------------------- ----- ----------------- -----------------
362,500 343,011
Net gains on financial assets held at fair value through profit or loss 8 18,666,086 18,404,433
------------------------------------------------------------------------- ----- ----------------- -----------------
Operating income 19,028,586 18,747,444
------------------------------------------------------------------------- ----- ----------------- -----------------
Expenses
Administrative expenses 6 665,483 610,092
Operating expenses 665,483 610,092
------------------------------------------------------------------------- ----- ----------------- -----------------
Operating profit 18,363,103 18,137,352
------------------------------------------------------------------------- ----- ----------------- -----------------
Total comprehensive income
for the period 18,363,103 18,137,352
------------------------------------------------------------------------- ----- ----------------- -----------------
Attributable to:
Owners of the Company 18,363,103 18,137,352
Earnings per share:
Basic and diluted (pence) 12 4.96 4.90
------------------------------------------------------------------------- ----- ----------------- -----------------
All items within the above statement have been derived from
continuing activities.
The accompanying notes form an integral part of these unaudited
condensed interim financial statements.
Unaudited Condensed Statement of Changes in Equity
For the six months ended 31 December 2018
Number of
Ordinary Retained
Note Shares Share capital earnings Total equity
GBP GBP GBP
--------------------- ------------ ------------ -------------- ------------- -------------
Shareholders'
equity at 1 July
2018 369,883,530 368,012,390 50,983,094 418,995,484
--------------------------- ------ ------------ -------------- ------------- -------------
Dividends paid 13,14 - - (14,167,838) (14,167,838)
Total comprehensive
income for the
period - - 18,363,103 18,363,103
Shareholders'
equity at 31 December
2018 369,883,530 368,012,390 55,178,359 423,190,749
--------------------------- ------ ------------ -------------- ------------- -------------
For the six months ended 31 December 2017
Number of
Ordinary Other Retained
Shares Share capital reserves earnings Total equity
GBP GBP GBP GBP
------------------ ---------- ------------ -------------- ---------- ------------- -------------
Shareholders'
equity at 1
July 2017 369,811,281 367,934,730 77,660 40,595,865 408,608,255
------------------------ ---- ------------ -------------- ---------- ------------- -------------
Dividends paid - - - (11,094,339) (11,094,339)
Total comprehensive
income for the
period - - - 18,137,352 18,137,352
Shareholders'
equity at 31
December 2017 369,811,281 367,934,730 77,660 47,638,878 415,651,268
------------------------ ---- ------------ -------------- ---------- ------------- -------------
The accompanying notes form an integral part of these unaudited
condensed interim financial statements.
Unaudited Condensed Statement of Cash Flows
For the six months ended 31 December 2018
Six months ended Six months ended
31 December 2018 31 December 2017
Unaudited Unaudited
Note GBP GBP
------------------------------------------------------------------------ ------ ----------------- -----------------
Cash flows from operating activities
Total comprehensive income for the period 18,363,103 18,137,352
Adjustments:
Increase in trade and other receivables (198,047) (355,508)
(Decrease)/increase in other payables and accrued expenses (8,393) 10,983
Net gains on financial assets held at fair value through profit or loss 8 (18,666,086) (18,404,433)
Net cash used in operating activities (509,423) (611,606)
------------------------------------------------------------------------ ------ ----------------- -----------------
Cash flows from investing activities
Purchase of financial assets held at fair value through profit or loss 8 - (4,320,601)
Receipts from unconsolidated subsidiary 8 14,219,405 11,190,000
Net cash generated from investing activities 14,219,405 6,869,399
------------------------------------------------------------------------ ------ ----------------- -----------------
Cash flow from financing activities
Dividends paid 13,14 (14,167,838) (11,094,339)
Net cash used in financing activities (14,167,838) (11,094,339)
------------------------------------------------------------------------ ------ ----------------- -----------------
Net decrease in cash and cash equivalents (457,856) (4,836,546)
Cash and cash equivalents at the start of the period 501,751 4,980,341
Cash and cash equivalents at the end of the period 10 43,895 143,795
------------------------------------------------------------------------ ------ ----------------- -----------------
The accompanying notes form an integral part of these unaudited
condensed interim financial statements.
Notes to the Unaudited Condensed Interim Financial
Statements
For the six months ended 31 December 2018
1. General information
The Company is a non-cellular company limited by shares,
incorporated in Guernsey under the Law on 29 May 2013. The
Company's registration number is 56708, and it is regulated by the
GFSC as a registered closed-ended collective investment scheme.
The investment objective of the Company is to provide
shareholders with an attractive return, principally in the form of
dividends, by investing via SPVs in a portfolio of large scale UK
based solar energy infrastructure assets.
The Company has appointed Bluefield Partners LLP as its
Investment Adviser.
2. Accounting policies
a) Basis of preparation
The financial statements, included in this interim report, have
been prepared in accordance with IAS 34 'Interim Financial
Reporting', as adopted by the EU and the DTR. These financial
statements comprise only the results of the Company as all of its
subsidiaries are measured at fair value as explained in Note 2.c.
The accounts have been prepared on a basis that is consistent with
accounting policies applied in the preparation of the Company's
annual financial statements for 30 June 2018.
These financial statements have been prepared under the
historical cost convention with the exception of financial assets
held at fair value through profit or loss and in accordance with
the provisions of the DTR.
These financial statements do not include all information and
disclosures required in the annual financial statements and should
be read in conjunction with the Company's audited financial
statements for the year ended 30 June 2018, which were prepared
under full IFRS requirements as adopted by the EU and the DTRs of
the UK FCA.
Seasonal and cyclical variations
Although the bulk of the Company's generation occurs during the
summer months when the days are longer, the Company's results do
not vary significantly during reporting periods as a result of
seasonal activity.
b) Going concern
The Directors in their consideration of going concern, have
reviewed comprehensive cash flow forecasts prepared by the
Investment Adviser, future projects in the pipeline and the
performances of the current solar plants in operation and, at the
time of approving these financial statements, have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for at least 12 months and do not consider
there to be any threat to the going concern status of the
Company.
The Directors have concluded that it is appropriate to adopt the
going concern basis of accounting in preparing these financial
statements.
c) Accounting for subsidiaries
The Board considers that both the Company and BSIFIL are
investment entities. In accordance with IFRS 10, all subsidiaries
are recognised at fair value through profit and loss.
d) Segmental reporting
IFRS 8 'Operating Segments' requires a 'management approach',
under which segment information is presented on the same basis as
that used for internal reporting purposes.
The Board, as a whole, has been determined as constituting the
chief operating decision maker of the Company. The key measure of
performance used by the Board to assess the Company's performance
and to allocate resources is the total return on the Company's NAV,
as calculated under IFRS, and therefore no reconciliation is
required between the measure of profit or loss used by the Board
and that contained in these financial statements.
For management purposes, the Company is engaged in a single
segment of business, being investment in UK solar energy
infrastructure assets via SPVs, and in one geographical area, the
UK.
e) Fair value of subsidiary
The Company holds all of the shares in the subsidiary, BSIFIL,
which is a holding vehicle used to hold the Company's investments.
The Directors believe it is appropriate to value this entity based
on the fair value of its portfolio of SPV investment assets held
plus its other assets and liabilities. The SPV investment assets
held by the subsidiary, inclusive of their intermediary holding
companies, are valued semi-annually as described in Note 8 based on
referencing comparable transactions supported by discounted cash
flow analysis and are referred to as the Directors' Valuation.
3. Critical accounting judgements, estimates and assumptions in
applying the Company's accounting policies
The preparation of these financial statements under IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and other
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates.
The area involving a high degree of judgement or complexity or
area where assumptions and estimates are significant to the
financial statements has been identified as the valuation of the
portfolio of investments held by BSIFIL (see Note 8).
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 affects
only that period or in the period of the revision and future period
if the revision affects both current and future periods.
As disclosed in Note 8, the Board believes it is appropriate for
the Company's portfolio to be benchmarked on a GBPm / MWp basis
against comparable portfolio transactions and on this basis the
WACC discount rate of 5.65% (as applied in June 2018) has been
retained.
4. Changes in significant accounting standards
New standards, interpretations and amendments adopted by the
Company
The accounting policies adopted in the preparation of the
interim financial statements are consistent with those followed in
the preparation of the Company's annual financial statements for
the year ended 30 June 2018, except for the adoption of new
standards effective as of 1 January 2018. The Company has not early
adopted any other standard, interpretation or amendment that has
been issued but is not yet effective.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers replaces IAS 18
Revenue for annual periods beginning on or after 1 January 2018.
The Company considers that it does not have any material revenue
streams that fall within the scope of IFRS 15 Revenue from
Contracts with Customers and hence that the implementation of IFRS
15 did not have a material impact on its interim financial
statements.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement for annual periods
beginning on or after 1 January 2018, bringing together all three
aspects of the accounting for financial instruments: classification
and measurement; impairment; and hedge accounting.
The Company has applied IFRS 9 retrospectively. However there
was no financial impact and no change to the comparative
information for 30 June 2018 due to the application of IFRS 9 as
investments continue to be held on a fair value basis.
Several other amendments and interpretations apply for the first
time in 2018, but do not have an impact on the interim financial
statements of the Company.
5. Income from investments
Six months ended Six months ended
31 December 2018 31 December 2017
GBP GBP
Monitoring fee in relation to loans supplied 362,500 340,411
362,500 340,411
================= =================
The Company provides monitoring and loan administration services
to BSIFIL for which an annual fee is charged and is payable in
arrears.
6. Administrative expenses
Six months ended Six months ended
31 December 2018 31 December 2017
GBP GBP
Investment advisory base fee (see Note 15) 158,154 152,362
Legal and professional fees 92,278 57,438
Administration fees (see Note 15) 150,567 148,886
Directors' remuneration (see Note 15) 90,000 82,800
Audit fees 48,270 43,460
Non-audit fees 16,000 15,500
Broker fees 25,018 25,147
Regulatory Fees 20,739 20,443
Registrar fees 19,383 21,016
Insurance 4,045 4,376
Listing fees 7,571 6,638
Other expenses 33,458 32,026
665,483 610,092
================= =================
7. Net Asset Value per Ordinary Share
The calculation of NAV per Ordinary Share is arrived at by
dividing the total net assets of the Company as at the unaudited
condensed statement of financial position date by the number of
Ordinary Shares of the Company at that date.
8. Financial assets held at fair value through profit or
loss
31 December 2018 30 June 2018
Total Total
GBP GBP
Opening balance (Level 3) 418,098,105 403,339,287
Addition - funds passed to BSIFIL - 4,320,601
Addition - acquisition of Eurobonds(*) - 76,565,712
Disposal - de-recognition of loans(*) - (76,565,712)
Change in fair value 4,446,681 10,438,217
Closing balance (Level 3) 422,544,786 418,098,105
================= =============
*Non-cash transaction: On 12 July 2017, a number of loan
facilities, totalling GBP76.6m, between the Company and BSIFL were
de-recognised and replaced with a Eurobond instrument listed on the
TISE.
Investments at fair value through profit or loss comprise the
fair value of the investment portfolio, which is valued
semi-annually by the Directors, and the fair value of BSIFIL, the
Company's single, direct subsidiary being its cash, working capital
and debt balances. A reconciliation of the investment portfolio
value to financial assets at fair value through profit and loss in
the Statement of Financial Position is shown below.
31 December
2018 30 June 2018
Total Total
GBP GBP
Investment portfolio, Directors'
Valuation 609,692,394 604,235,581
BSIFIL
Cash 15,105,274 14,687,260
Working capital 2,404,489 4,083,400
Debt (204,657,371) (204,908,136)
-------------- --------------------------
(187,147,608) (186,137,476)
Financial assets at fair value through
profit or loss 422,544,786 418,098,105
============== ==========================
Analysis of net gains on financial assets held at fair value through profit or loss (per unaudited
condensed statement of comprehensive income)
Six months ended Six months ended
31 December 2018 31 December 2017
GBP GBP
Unrealised change in fair value of financial assets held at fair value
through profit or loss 4,446,681 7,214,433
Cash receipts from unconsolidated subsidiary* 14,219,405 11,190,000
Net gains on financial assets held at fair value through profit and loss 18,666,086 18,404,433
================= =================
*Comprising of repayment of loans and Eurobond interest
Fair value measurements
Financial assets and financial liabilities are classified in
their entirety into only one of the following three levels:
-- Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices);
-- Level 3 - inputs for assets or liabilities that are not based
on observable market data (unobservable inputs).
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The only financial instruments carried at fair value are the
investments held by the Company, through BSIFIL, which are fair
valued at each reporting date. The Company's investments have been
classified within Level 3 as BSIFIL's investments are not traded
and are valued using unobservable inputs.
Transfers during the period
There have been no transfers between levels during the six
months period ended 31 December 2018. Any transfers between the
levels will be accounted for on the last day of each financial
period. Due to the nature of investments, these are always expected
to be classified as Level 3.
Directors' Valuation methodology and process
The same valuation methodology and process for operational solar
plants is followed in these financial statements as was applied in
the preparation of the Company's financial statements for the year
ended 30 June 2018. Solar plants under construction and not yet
operational are valued at cost and exclude acquisition costs which
are expensed in the period in which they are incurred, whilst
investments that are operational are valued on a DCF basis over the
life of the asset (typically 25 years) and, under the 'willing
buyer-willing seller' methodology, prudently benchmarked on a
GBP/MWp basis against comparable transactions for large scale
portfolios. No assets were valued at cost as at the period end.
Each investment is subject to full UK corporate taxation at the
prevailing rate with the tax shield being limited to the 30% level
permitted under the fixed ratio test of the corporate interest
restriction rules.
The key inputs to a DCF based approach are: the equity discount
rate, the cost of debt (influenced by interest rate, gearing level
and length of debt), power price forecasts, long term inflation
rates, irradiation forecasts, operational costs and taxation. Given
discount rates are a product of not only the factors listed
previously but also regulatory support, perceived sector risk and
competitive tensions, it is not unusual for discount rates to
change over time. Evidence of this is shown by way of the revisions
to the original discount rates applied between the first UK solar
investments and those witnessed in recent years and given the fact
discount rates are subjective, there is sensitivity within these to
the interpretation of factors outlined above.
Judgement is used by the Board in determining keeping the WACC
at 5.65%, from 30 June 2018, and two key factors that have impacted
the adoption of this rate are outlined below:
a. Transaction values have remained consistent at ca. GBP1.29
-1.35/MWp for large scale portfolios and which the Board have used
to determine that an effective price of GBP1.29m/MWp is an
appropriate basis for the valuation of the BSIF portfolio as at 31
December 2018;
b. Inclusion of the latest long term power forecasts from the Company's two providers.
In order to smooth the sensitivity of the valuation to forecast
timing or opinion taken by a single forecast, the Board continues
to adopt the application of a blended power curve from two leading
forecasters.
It is only for the SPVs of BSIFIL, and their intermediate
holding companies, that the Directors determine the fair value (see
Note 2(e)). Fair value of operational SPVs is calculated on a
discounted cash flow basis in accordance with the IPEV Valuation
Guidelines, benchmarked on a GBP/MWp basis against large scale
portfolio transactions. The Investment Adviser produces fair value
calculations on a semi-annual basis as at 30 June and 31 December
each year. Previously, in every third year, the Board had an
external valuation or benchmarking exercise performed by an
independent expert. Based on the availability of market data, the
Board does not intend to continue this practice going forward and
will ask for an external valuation to be carried out from time to
time at its discretion. During the year ended 30 June 2018 the
Company commissioned a benchmarking exercise with an independent
third party, which was considered by the Board in determining the
portfolio fair value for the 30 June 2018 financial statements. An
external valuation was previously undertaken for the year ended 30
June 2015.
Sensitivity analysis
The table below analyses the sensitivity of the fair value of
the Directors' Valuation to an individual input, while all other
variables remain constant.
The Board considers the changes in inputs to be within a
reasonable expected range based on its understanding of market
transactions. This is not intended to imply that the likelihood of
change or that possible changes in value would be restricted to
this range.
Change in fair value Change in NAV
of the Directors' Valuation per share
Input Change in input GBP (pence)
-------------------------------- ---------------- ----------------------------- --------------
WACC (5.65%) +0.5% (22,300,000) (6.03)
-0.5% 23,700,000 6.41
-------------------------------- ---------------- ----------------------------- --------------
Power prices +10% 29,300,000 7.92
(blended curve parallel shift) -10% (29,400,000) (7.95)
-------------------------------- ---------------- ----------------------------- --------------
Inflation rate (2.75%) + 0.25% 8,600,000 2.33
- 0.25% (8,400,000) (2.27)
-------------------------------- ---------------- ----------------------------- --------------
Energy yield (P50) 10 year P90 (49,100,000) (13.28)
10 year P10 49,000,000 13.25
-------------------------------- ---------------- ----------------------------- --------------
Interest shield +50% 9,400,000 2.54
-50% (9,500,000) (2.57)
-------------------------------- ---------------- ----------------------------- --------------
Operational costs +10% (5,100,000) (1.38)
-10% 5,100,000 1.38
-------------------------------- ---------------- ----------------------------- --------------
9.Trade and other receivables
31 December 2018 30 June 2018
GBP GBP
Current assets
Monitoring fees receivable (see Note 5) 906,603 702,603
Other receivables 16,400 10,400
Prepayments 28,281 40,234
951,284 753,237
================= =============
There are no other material past due or impaired receivable
balances outstanding at the period end.
The Board considers that the carrying amount of all receivables
approximates to their fair value.
10. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Company and
short term bank deposits held with maturities of up to three
months. The carrying amounts of these assets approximate their fair
value.
11. Other payables and accrued expenses
31 December 2018 30 June 2018
GBP GBP
Current liabilities
Investment advisory fees 78,948 77,379
Administration fees 88,092 70,716
Audit fees 48,114 70,800
Directors' Fees 52,100 -
Other payables 81,962 138,714
349,216 357,609
================= =============
The Company has financial risk management policies in place to
ensure that all payables are paid within the agreed credit period.
The Board considers that the carrying amount of all payables
approximates to their fair value.
12. Earnings per share
Six months ended Six months ended
31 December 2018 31 December 2017
Profit attributable to shareholders of the Company GBP18,363,103 GBP18,137,352
Weighted average number of Ordinary Shares in issue 369,883,530 369,811,281
Basic and diluted earnings from continuing operations and profit for the period
(pence) 4.96 4.90
----------------- -----------------
13. Share capital
The authorised share capital of the Company is represented by an
unlimited number of Ordinary Shares of no par value which, upon
issue, the Directors may designate into such classes and denominate
in such currencies as they may determine.
Six months ended Year ended
Share capital 31 December 2018 30 June 2018
Number of Number of
Ordinary Shares Ordinary Shares
Opening balance 369,883,530 369,811,281
Shares issued in respect of IA Variable fee - 72,249
Closing balance 369,883,530 369,883,530
================== =================
Six months ended Year ended
Shareholders' equity 31 December 2018 30 June 2018
GBP GBP
Opening balance 418,995,484 408,608,255
Dividends paid (14,167,838) (24,408,846)
Total comprehensive income 18,363,103 34,796,075
Closing balance 423,190,749 418,995,484
================== ==============
Dividends declared and paid in the period are disclosed in Note
14.
Rights attaching to shares
The Company has a single class of Ordinary Shares which are
entitled to dividends declared by the Company. At any General
Meeting of the Company each ordinary shareholder is entitled to
have one vote for each share held. The Ordinary Shares also have
the right to receive all income attributable to those shares and
participate in dividends made and such income shall be divided pari
passu among the holders of Ordinary Shares in proportion to the
number of Ordinary Shares held by them.
Retained earnings
Retained earnings comprise of accumulated retained earnings as
detailed in the statement of changes in equity.
14. Dividends
On 31 July 2018, the Board declared a third interim dividend of
GBP6,657,903, in respect of year ended 30 June 2018, equating to
1.80pps (third interim dividend in respect of the year ended 30
June 2017: 1.50pps), which was paid on 31 August 2018 to
shareholders on the register on 10 August 2018.
On 26 September 2018, the Board declared a fourth interim
dividend of GBP7,508,635, in respect of year ended 30 June 2018,
equating to 2.03pps (fourth interim dividend in respect of the year
ended 30 June 2017: 1.50pps), which was paid on 26 October 2018 to
shareholders on the register on 5 October 2018.
During the period, GBP1,300 was paid reflecting the January 2018
dividend due to those Ordinary Shares issued to the Investment
Adviser on 12 January 2018 in respect of their variable fee for the
financial year ended 30 June 2017.
Post period end, on 24 January 2019, the Board declared its
first interim dividend of GBP7,027,787, in respect of year ended 30
June 2019, equating to 1.90pps (first interim dividend in respect
of the year ended 30 June 2018: 1.80pps), which was paid on 22
February 2019 to shareholders on the register on 1 February
2019.
15. Related Party Transactions and Directors' Remuneration
In the opinion of the Directors, the Company has no immediate or
ultimate controlling party.
Total administration fees incurred during the period amounted to
GBP150,567 (31 December 2017: GBP148,886), of which GBP88,092 (30
June 2018: GBP70,716) was outstanding at the period end.
The total Directors' fees expense for the period amounted to
GBP90,000 (31 December 2017: GBP82,800).
Remuneration paid to each Director is as follows:
31 December 2018 31 December 2017
John Rennocks 30,000 28,550
Paul Le Page 22,500 19,950
Laurence McNairn 18,750 17,100
John Scott 18,750 17,200
----------------- -----------------
90,000 82,800
================= =================
The number of Ordinary Shares held by each Director is as
follows:
31 December 2018 31 December 2017
John Rennocks* 316,011 316,011
Paul Le Page* 137,839 137,839
Laurence McNairn 441,764 441,764
John Scott 452,436 452,436
1,348,050 1,348,050
================= =================
*Includes shares held by PCAs.
John Scott and John Rennocks are Directors of BSIFIL. Mike Rand
and James Armstrong, who are partners of the Investment Adviser,
are also Directors of BSIFIL.
The Company and BSIFIL's investment advisory fees for the period
amounted to GBP1,622,322 (31 December 2017: GBP1,554,421) of which
GBP266,022 (30 June 2018: GBP241,822) was outstanding at the period
end and is to be settled in cash. The payment of the investment
advisory fee is split between the Company (10%) and the Company's
immediate subsidiary, BSIFIL, (90%).
Fees paid during the period by SPVs to BSL, a company which has
the same ownership as that of the Investment Adviser totalled
GBP1,025,426 (31 December 2017: GBP1,235,628).
Fees paid during the period by SPVs to BOL, a company which has
the same ownership as that of the Investment Adviser totalled
GBP547,868 (31 December 2017: GBP87,269).
The Company's shareholder loan monitoring fee income for the
period, due from its subsidiary BSIFIL, amounted to GBP362,500 (31
December 2017: GBP340,411) of which GBP906,603 was outstanding at
the period end (30 June 2018: GBP 702,603).
16. Risk Management Policies and Procedures
As at 31 December 2018 there has been no change to financial
instruments risk to those described in the financial statements of
30 June 2018.
17. Subsequent events
Post period end, on 24 January 2019, the Board declared its
first interim dividend of GBP7,027,787, in respect of year ended 30
June 2019, equating to 1.90pps (first interim dividend in respect
of the year ended 30 June 2018: 1.80pps), which was paid on 22
February 2019 to shareholders on the register on 1 February
2019.
Glossary of Defined Terms
Administrator means Estera International Fund Managers
(Guernsey) Limited
AGM means the Annual General Meeting
AIC means the Association of Investment Companies
AIC Code means the Association of Investment Companies Code of
Corporate Governance
AIC Guide means the Association of Investment Companies
Corporate Governance Guide for Investment Companies
AIF means Alternative Investment Fund
AIFM means Alternative Investment Fund Manager
AIFMD means the Alternative Investment Fund Management
Directive
Articles means the Memorandum of 29 May 2013 as amended and the
Articles of Incorporation as adopted by special resolution on 7
November 2016.
Auditor means KPMG Channel Islands Limited (see KPMG)
Aviva Investors means Aviva Investors Limited
BEIS means the Department for Business, Energy & Industrial
Strategy
BEPS means Base erosion and profit shifting
Bluefield means Bluefield Partners LLP
BOL means Bluefield Operations Limited
Board means the Directors of the Company
Brexit means departure of the UK from the EU
BSIF means Bluefield Solar Income Fund Limited
BSIFIL means Bluefield SIF Investments Limited being the only
direct subsidiary of the Company
BSL means Bluefield Asset Management Services Limited
BSUoS means Balancing Services Use of System charges: costs set
to ensure that network companies can recover their allowed revenue
under Ofgem price controls
Business days means every official working day of the week,
generally Monday to Friday excluding public holidays
CAGR means compound annual growth rate
Calculation Time means the Calculation Time as set out in the
Articles of Incorporation
CCC means Committee on Climate Change
CfD means Contract for Difference
Company means Bluefield Solar Income Fund Limited (see BSIF)
Companies Law means the Companies (Guernsey) Law 2008, as
amended (see Law)
C Shares means Ordinary Shares approved for issue at no par
value in the Company
DCF means Discounted Cash Flow
DECC means the Department of Energy and Climate Change
Defect Risk means that there is an over-reliance on limited
equipment manufacturers which could lead to large proportions of
the portfolio suffering similar defects
Directors' Valuation means the gross value of the SPV
investments held by BSIFIL, including their holding companies
DNO means Distribution Network Operator
DSCR means Long Term Debt Service Cover Ratio calculated as net
operating income as a multiple of debt obligations due within one
year
DTR means the Disclosure Guidance and Transparency Rules of the
UK's Financial Conduct Authority
EBITDA means earnings before interest, tax, depreciation and
amortisation
EGM means Extraordinary General Meeting
EIS means Enterprise Investment Scheme
EPC means Engineering, Procurement & Construction
EU means the European Union
EV means enterprise valuation
FATCA means the Foreign Account Tax Compliance Act
FAC means Final Acceptance Certificate
Financial Statements means the unaudited condensed interim
financial statements
FiT means Feed-in Tariff
GAV means Gross Asset Value on Investment Basis including debt
held at SPV level
GFSC means the Guernsey Financial Services Commission
Group means Bluefield Solar Income Fund Limited and Bluefield
SIF Investments Limited
Guernsey Code means the Guernsey Financial Services Commission
Finance Sector Code of Corporate Governance
GWh means Gigawatt hour
GWp means Gigawatt peak
IAS means International Accounting Standard
IASB means the International Accounting Standards Board
IFRS means International Financial Reporting Standards as
adopted by the EU
Investment Adviser means Bluefield Partners LLP
IPEV Valuation Guidelines means the International Private Equity
and Venture Capital Valuation Guidelines
IPO means initial public offering
IRR means Internal Rate of Return
KPI means Key Performance Indicators
KPMG means KPMG Channel Islands Limited (see Auditor)
KWh means Kilowatt hour
KWp means Kilowatt peak
Law means Companies (Guernsey) Law, 2008 as amended (see
Companies Law)
LCOE means Levelised Cost of Electricity: average unit cost of
electricity over the lifetime of a generating asset expressed on a
net present cost basis
LD means liquidated damages
LIBOR means London Interbank Offered Rate
Listing Rules means the set of FCA rules which must be followed
by all companies listed in the UK
LSE means London Stock Exchange plc
LTF agreement means Long Term Financing agreement with Aviva
Investors
Main Market means the main securities market of the London Stock
Exchange
MW means Megawatt (a unit of power equal to one million
watts)
MWh means Megawatt hour
MWp means Megawatt peak
NAV means Net Asset Value as defined in the prospectus
NMPI means Non-mainstream Pooled Investments and Special Purpose
Vehicles and the rules around their financial promotion
NPPR means the AIFMD National Private Placement Regime
O&M means Operation and Maintenance
Official List means the Premium Segment of the UK Listing
Authority's Official List
Ofgem means Office of Gas and Electricity Markets
Ordinary Shares means the issued ordinary share capital of the
Company, of which there is only one class
Outage Risk means that a higher proportion of large capacity
assets hold increased exposure to material losses due to
curtailments and periods of outage
P10 means Irradiation estimate exceeded with 10% probability
P90 means Irradiation estimate exceeded with 90% probability
PCA means Persons Closely Associated
PPA means Power Purchase Agreement
pps means pence per share
PR means Performance Ratio (the ratio of the actual and
theoretically possible energy outputs)
PV means Photovoltaic
RBS means The Royal Bank of Scotland plc
RBSI means Royal Bank of Scotland International plc
RCF means Revolving Credit Facility
RO Scheme means the Renewable Obligation Scheme which is the
financial mechanism by which the UK Government incentivises the
deployment of large-scale renewable electricity generation by
placing a mandatory requirement on licensed UK electricity
suppliers to source a specified and annually increasing proportion
of electricity they supply to customers from eligible renewable
sources or pay a penalty
ROC means Renewable Obligation Certificates
ROC recycle means the payment received by generators from the
redistribution of the buy-out fund. Payments are made into the
buy-out fund when suppliers do not have sufficient ROCs to cover
their obligation
RPI means the Retail Price Index
SPA means Share Purchase Agreement
SPV means a Special Purpose Vehicle which hold the Company's
investment portfolio of underlying operating assets
Sterling means the Great British pound currency
TISE means The International Stock Exchange (based in the
Channel Islands)
UK means the United Kingdom of Great Britain and Northern
Ireland
UK Code means the UK Corporate Governance Code
UK FCA means the UK Financial Conduct Authority
United Nations Principles for Responsible Investment means an
approach to investing that aims to incorporate environmental,
social and governance factors into investment decisions, to better
manage risk and generate sustainable, long term returns.
WACC means Weighted Average Cost of Capital
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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