TIDMGCP
RNS Number : 5623W
GCP Infrastructure Investments Ltd
13 December 2023
GCP Infrastructure Investments Ltd
("GCP Infra" or the "Company")
13 December 2023
LEI 213800W64MNATSIV5Z47
Annual report and financial statements for the year ended 30
September 2023
The Directors of the Company are pleased to announce the
Company's annual results for the year ended 30 September 2023. The
full annual report and financial statements can be accessed via the
Company's website www.graviscapital.com/funds/gcp-infra/literature
and will be posted to shareholders on 11 January 2024.
About the Company
The Company seeks to provide shareholders with regular,
sustained, long-term dividend income whilst preserving the capital
value of its investments over the long term by generating exposure
to infrastructure debt and/or similar assets. It is currently
invested in a diversified, partially inflation-protected portfolio
of investments, primarily in the renewable energy, social housing
and PPP/PFI sectors.
The Company is a FTSE 250, closed-ended investment company
incorporated in Jersey. It was admitted to the Official List and to
trading on the London Stock Exchange's Main Market in July 2010. It
had a market capitalisation of GBP589.8 million at 30 September
2023.
At a glance - 30 September 2023
FY2021 FY2022 FY2023
-------------------------------------- ------ ------ ------
Net assets GBPm 916.8 998.1 956.6
Profit/(loss) for the year GBPm 62.4 140.3 30.9
Dividends for the year p 7.0 7.0 7.0
Aggregate downward revaluations since
IPO(1) (annualised) % 0.42 0.18 0.36
Share price p 100.40 97.80 67.70
NAV per share p 103.92 112.80 109.79
-------------------------------------- ------ ------ ------
Highlights for the year
- Dividends of 7.0 pence per share for the year to 30 September
2023 (30 September 2022: 7.0 pence per share). For the forthcoming
financial year, the Company has set a dividend target(2) of 7.0
pence per share.
- Against a challenging macro-economic backdrop, the Company's
total shareholder return(1) for the year was -25.2% (30 September
2022: 3.8%) with total shareholder return(1) of 57.1% since IPO in
2010. Total NAV return(1) for the year was 3.7% (30 September 2022:
15.8%).
- Profit for the year decreased to GBP30.9 million (30 September
2022: profit of GBP140.3 million), due to a combination of factors
including lower electricity prices and generation and revaluations
in respect of discount rate adjustments. For information on
financial performance for the year, refer to the financial review
below.
- NAV per share at 30 September 2023 of 109.79 pence (30 September 2022: 112.80 pence).
- Limited new loans of GBP9.2 million. Portfolio investments of
GBP129.5 million(3) focused on restructuring and management. This
was offset by repayments of GBP128.0 million(3) , giving a net
investment in the existing portfolio of GBP1.5 million.
- Refinance of two biomass projects generating GBP50.0 million
in net cash proceeds. The proceeds were used to repay the Company's
RCF and led to a 1.2 pence per share uplift to the Company's NAV
primarily from prepayment fees.
- Third party independent valuation of the Company's partially
inflation-protected investment portfolio at 30 September 2023 of
GBP1.0 billion (30 September 2022: GBP1.1 billion). The principal
value of the portfolio was GBP1.0 billion (30 September 2022:
GBP1.0 billion).
- Entered into arrangements to partially hedge the Company's
financial exposure to electricity prices for the summer 2023 and
winter 2023/24 periods.
- Adoption by the Board of a capital allocation policy realising
c.15% (GBP150 million) of the portfolio to rebalance sectors and
reduce equity exposures, and to apply the funds towards a material
reduction in the RCF and facilitate the return of capital to
shareholders of at least GBP50 million before the end of the
calendar year 2024. Refer to the Chairman's statement below.
- Post year end, the Company signed heads of terms for a new
reduced GBP150.0 million RCF with Lloyds, AIB, Mizuho and
Clydesdale, in accordance with the Board's stated intention to
reduce leverage of the Company.
1.APM - for definition and calculation methodology, refer to the
APMs section below.
2.The dividend target set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
3.Inclusive of non-cash items as disclosed in note 11 to the
financial statements.
Andrew Didham, Chairman of GCP Infra, commented:
The wider financial market in which the Company operates has
continued to face significant challenges. Against a backdrop of
increased inflation, higher interest rates and high energy prices,
the Company has continued to deliver stable and predictable income
for shareholders through its focus on debt investments in
infrastructure assets vital to the efficient operation of modern
society.
The Company generated total profit and comprehensive income for
the year of GBP30.9 million (30 September 2022: GBP140.3 million)
and paid a dividend of 7.0 pence per ordinary share (30 September
2022: 7.0 pence). For the forthcoming financial year, the Company
has set a dividend target(1) of 7.0 pence per share. At the year
end, the Company's share price was 67.70 pence, representing a
38.3% discount(2) to NAV (30 September 2022: 97.80 pence,
representing a 13.3% discount(2) to NAV). The Board believes the
discount at which the Company's shares have traded to the stated
NAV is not reflective of the strength in the Company's underlying
investment portfolio, with the effective yield considerably higher
than the discount rate on investments determined by the independent
Valuation Agent. Underlying portfolio performance also remains
strong, with loans continuing to be serviced.
The Board and the Investment Adviser are committed to the
Company's intentions to re-allocate capital towards reducing
gearing, buying back shares while they remain an attractive
investment opportunity and disposing of assets to rebalance the
portfolio and generate funds. Subject to market conditions and the
ability to agree acceptable terms, the Board has adopted a capital
allocation policy of realising c.15% (GBP150 million) of the
portfolio to rebalance sectors and reduce equity exposures, and to
apply the funds towards a material reduction in the RCF and
facilitate the return of capital to shareholders of at least GBP50
million before the end of the calendar year 2024, whilst
maintaining the dividend target(1) . The Board believes that this
capital allocation policy will underline the Company's position as
a leading investor in infrastructure debt, with a strong focus on
sustainable investments.
1.The dividend target set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
2.APM - for definition and calculation methodology, refer to the
APMs section below.
Investment objectives and KPIs
The Company's purpose is to invest in UK infrastructure debt
and/or similar assets to meet the following key objectives:
Dividend income Diversification Capital preservation
To provide shareholders To invest in a diversified To preserve the capital
with regular, sustained, portfolio of debt and/or value of its investments
long-term dividends. similar assets secured over the long term.
against UK infrastructure
projects.
------------------------- -------------------------- -------------------------
Key performance indicators
The Company paid a dividend The investment portfolio The Company has generated
of 7.0 pence in respect is exposed to a wide a NAV total return(5)
of the year. A dividend variety of assets in for the year of 3.7%
target(1) of 7.0 pence terms of project type and 169.5% since the
has been set for the and the source of its Company's IPO in 2010.
forthcoming financial underlying cash flow.
year. 109.79p
51 NAV per share at 30 September
7.0p Number of investments 2023
Dividends paid for the at 30 September 2023
year ended 30 September 0.36%
2023 12.0%(3) Aggregate downward revaluations
Size of largest investment since IPO (annualised)(5)
GBP30.9m as a percentage
Profit for the year ended of total portfolio
30 September 2023
--------------------------- --------------------------- --------------------------------
Sustainability indicators
Portfolio contributing Portfolio that benefits Board gender and ethnic
to green economy(2) end users within society(4) diversity(6)
65% 35% 50%
---------------------- ---------------------------- -----------------------
Further information on Company performance can be found in the
financial review below.
1.The dividend target set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
2.The LSE Green Economy Mark recognises London-listed companies
generating more than half their revenues from green environmental
products and services. The Company's portfolio is 65% invested in
the renewable energy sector.
3.The Cardale PFI loan is secured on a cross -- collateralised
basis against 18 operational PFI projects, with no exposure to any
individual project being in excess of 10% of the total
portfolio.
4.The Company's portfolio is 33% invested in PPP/PFI projects in
the healthcare, education, waste, housing, energy efficiency and
justice sectors which are measured in alignment with the UN SDGs,
and 2% of the portfolio is invested in PPP/PFI leisure
projects.
5.APM - for definition and calculation methodology, refer to the
APMs section below.
6.For further information please refer to the Nomination
committee report in the full annual report on the Company's
website.
Portfolio at a glance:
The Company's portfolio comprises underlying assets across the
UK which fall under the following classifications:
Number % of portfolio
Sector of assets
-------------------- ---------- --------------
Geothermal 1 1
Solar 53,179 25
PPP/PFI 134 24
Supported living 905 11
Hydro-electric 14 2
Gas peaking 2 1
Biomass 761 9
Electric vehicles 250 1
Wind 11 17
Anaerobic digestion 23 9
-------------------- ---------- --------------
Senior ranking security
42%
Weighted average annualised yield(1)
7.9%
Average life
10 years
Partially inflation protected
41%
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Chairman's statement
I am pleased to present the Company's annual report for the year
ended 30 September 2023.
Andrew Didham
Chairman
Introduction
Political and economic volatility have continued to impact UK
markets this financial year. Against a backdrop of wider economic
turmoil and uncertainty, the Company has continued to deliver
stable and predictable income for shareholders through its focus on
debt investments in infrastructure assets vital to the efficient
operation of modern society.
The underlying portfolio assets have performed as expected, with
loans continuing to be serviced. However, it is important to
recognise the Company's share price has come under pressure, with
shares trading at a persistent discount(1) to NAV throughout the
year and a substantial portion of the prior year, after eleven
years of the shares trading at an average premium(1) .
This issue is not individual to the Company; other investment
companies focused on the provision of income from infrastructure
and renewable energy generation have faced similar share price
pressure. This is primarily due to high levels of economic
uncertainty in the UK, with a higher energy price environment
stemming from Russia's invasion of Ukraine and unrest in the Middle
East post year end, as well as increased inflation and higher
interest rates. The Board believes the discount at which the
Company's shares have traded to the stated NAV is not reflective of
the strength in the Company's underlying investment portfolio.
Proposed combination
On 11 August 2023, the Company announced that it had agreed
heads of terms with GCP Asset Backed in respect of a proposed
combination of the two companies (the "Scheme"). As set out at the
time, the Board believed the Scheme would benefit both existing and
new shareholders in the Company.
Following the announcement, the Board and its advisers consulted
widely with shareholders. The majority of shareholders recognised
the Company's efforts to put forward a constructive proposal that
sought to accelerate: (i) the reduction of the Company's
outstanding debt; (ii) the return of capital to shareholders; and
(iii) the reset of the return and risk being generated by the
Company's portfolio of investments.
The Board understood that there was a divergence of views,
predominantly amongst the shareholders of GCP Asset Backed. The
Board determined that if the Scheme was completed with a
significant minority of GCP Asset Backed shareholders that were not
supportive, it would risk the ability of the Scheme to achieve its
intended purpose. Therefore, on 18 September 2023, the Company
announced that it had ceased discussions relating to the
Scheme.
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Capital allocation
Following the termination of discussions in relation to the
Scheme, the Board has reconfirmed the intended capital allocation
policy for the forthcoming year:
- prioritise the reduction of leverage whilst interest rates
remain high, by using capital proceeds from disposals and
refinances to repay the RCF;
- improve the risk adjusted return of the existing portfolio by
reducing equity risks as well as exposure to the social housing
sector; and
- buy back the Company's shares while they remain an attractive
investment opportunity and/or otherwise return capital to
shareholders.
At the year end, the average term of the portfolio was ten
years. The Company has historically been able to complete strategic
refinances and disposals before the end of the term of the loan.
For the forthcoming financial year, the Board and Investment
Adviser intend to refocus on refinances and disposals. Subject to
market conditions and the ability to agree acceptable terms, the
Board has set a conditional target of releasing GBP150 million
(c.15% of the portfolio) of funds in order to materially reduce the
RCF and return at least GBP50 million of capital to shareholders
before the end of the calendar year 2024, whilst maintaining the
dividend target(1) .
The Board believes that the capital allocation policy will
emphasize the Company's position as a leading investor in
infrastructure debt, with a strong focus on sustainable
investments.
Market context
The wider financial market in which the Company operates has
continued to face significant challenges. Russia's invasion of
Ukraine has caused a global energy shock, increasing the cost of,
and volatility in, the prices of electricity and gas. Post period
end, further geopolitical tension between Israel and Hamas in the
Middle East has resulted in additional uncertainty in the market,
contributing to volatility in short-term power prices. In tandem
with this, inflation has continued to increase, with the UK's
inflation rate reaching its highest level in 40 years.
The UK's mini-budget in September 2022 led to a dramatic
increase in the cost of borrowing, with a rapid increase in central
bank rates. At the year end, interest rates had risen to 5.25% in
the UK, with higher rates aiming to reduce headline inflation. The
twelve month CPI rate peaked at 11.1% in October 2022, and reduced
to 6.7% in September 2023, materially above the Bank of England's
target rate of 2.0%. At the time of writing, CPI is 4.6%. While
headline energy costs have reduced from their peak in late 2022,
the UK has continued to see labour market strength, with low
unemployment, strong wage growth and increasing costs.
Whilst the relative yields explain some of the reduction in the
Company's share price, the Board believes the discount at which the
Company's shares have traded to the stated NAV is not reflective of
the strength in the Company's underlying investment portfolio, with
the effective yield considerably higher than the discount rate on
investments determined by the independent Valuation Agent. Despite
this, underlying portfolio performance remains strong.
Financial performance
It has been a challenging financial year for the Company, with
investment revaluations negatively impacting profitability. The
Company generated total profit and comprehensive income of GBP30.9
million (30 September 2022: GBP140.3 million). The comparative
period last year included material positive revaluations resulting
from increased electricity price forecasts, with higher power
prices driven by the war in Ukraine generating higher than expected
cash flows from renewable generating assets. Further information on
financial performance can be found below.
The net assets of the Company decreased to GBP956.6 million
(109.79 pence per share) from GBP998.1 million the previous year
(112.80 pence per share). At the year end, the Company's share
price was 67.70 pence, representing a 38.3% discount(2) to NAV (30
September 2022: 97.80 pence, representing a 13.3% discount(2) to
NAV).
The dividend of 7.0 pence per share for the year was 0.5 times
covered on an earnings cover(2) basis, which includes investment
revaluations in accordance with IFRS, and 1.2 times covered on an
adjusted earnings cover(2) basis, calculated on the Investment
Adviser's assessment of adjusted net earnings(2) in the year;
further information can be found below.
1. The dividend target set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
2.APM - for definition and calculation methodology, refer to the
APMs section below.
Investment activity
The Company undertook very little investment activity during the
year: there was very limited follow-on and new investments before
the dramatic shift in interest rates became embedded early in the
year; later, investment activity was confined to portfolio
restructuring and management. The Board and the Investment Adviser
remain committed to the Company's intentions to reallocate capital
towards reducing gearing, buying back shares whilst they trade at a
significant discount and, where appropriate and attractive,
disposing of assets to rebalance the portfolio and generate
funds.
At the start of the year, the Company's borrowings totalled
GBP99.0 million, with drawings against the Company's RCF peaking at
GBP154.0 million in December 2022. At year end, the borrowings had
fallen to GBP104.0 million following repayments. In March 2023, the
Company commenced a share buyback programme of shares up to a
maximum aggregate value of GBP15.0 million. Since commencement of
the programme and up to the year end, the Company has invested
GBP10.6 million in shares under the authority at an average price
of 78.16 pence per share, a discount(1) to the prevailing NAV. Post
year end, the Company invested a further GBP2.2 million in shares
at an average price of 63.47 pence per share. The Board notes that
buying back shares at a discount(1) to the NAV provides a highly
attractive investment for the Company's shareholders, and is
focused on maximising value by reducing leverage, disposing of
assets and buying back shares before making any new
investments.
The Company made new loans of GBP9.2 million in the year.
Portfolio investments of GBP129.5 million focused on restructuring
and management. This was offset by repayments of GBP128.0 million,
giving a net investment in the existing portfolio of GBP1.5
million.
Investment activity in the year focused on portfolio management
to enhance the Company's security position and generate new
repayments. Portfolio investments advanced to existing borrowers
included: GBP46.4 million in the fourth quarter of 2022 to repay
third party senior debt secured against a portfolio of commercial
solar projects and a portfolio of renewable and PPP assets, which
improved the Company's security; and in May 2023 the Company
entered into agreements for the refinancing of two existing loan
notes in the biomass sector and committed to a new GBP50.0 million
loan note as part of a syndicated facility.
This refinancing generated c.GBP50.0 million of net cash
proceeds that were used to repay the Company's RCF and led to a 1.2
pence per share uplift to the Company's NAV, primarily from
prepayment fees. The refinance improved the Company's security
position whilst also earning prepayment fees of GBP8.7 million.
Financing
The Company maintains a RCF with a number of lenders, with total
commitments of GBP190.0 million, maturing in March 2024, of which
GBP104.0 million is drawn at the date of the report. The Investment
Adviser, on behalf of the Company, has engaged positively with its
lenders. Post year end, in December 2023, the Company signed heads
of terms for a new debt facility at the reduced amount of GBP150.0
million, in line with the Board's stated intention of reducing
Company leverage.
Further details on the Company's financing activity are provided
below and details of the RCF can be found in note 15.
ESG
The Company's portfolio continues to have a positive impact by
contributing to the generation of renewable energy and financing
infrastructure that has clear benefits to users in society. The
Board believes that by ensuring the Company's investments are
focused on their environmental and social impact, the risks
associated with long-term investments are reduced, and the
borrowers' ability to service the loans is increased as users of
the products or services tend to prefer sustainable providers.
The Company has made good progress this year with the ESG
objectives set out in the 2022 annual report. Of particular note
has been the Global Real Estate Sustainability Benchmark ('GRESB')
assessment completed by the Investment Adviser for one of the wind
assets in the portfolio, which achieved a rating of four green
stars and a score of 90 out of 100. The GRESB assessment marks the
first step in the Company's external assurance journey, with the
intention of sharing the lessons learned across the portfolio
assets and replicating policies and management approach for other
assets.
More details of the Company's work in relation to sustainable
investment are given in the sustainability section below.
Share repurchases
The Board is aware of market volatility and its impact on share
prices, including the impact on the Company's share price. The
Company's shares have traded at an average discount(1) of 14.3%
during the year and, at prior year end, an average premium(1) of
8.8% since IPO. At 30 September 2023, the share price was 67.70
pence, representing a discount(1) to NAV of 38.3%.
As outlined above, the Company has undertaken a share repurchase
scheme as part of its ongoing investment strategy, particularly
given the high discount(1) to NAV it has experienced. These
purchases are an attractive use of shareholders' funds relative to
the pipeline of potential new investments, and they are expected to
enhance earnings per share and dividend cover going forward.
The Board continues to support and authorise share repurchases
from time to time, subject to the prevailing share price
discount(1) and availability of cash resources relative to cash
commitments.
Outlook
Bank of England base rates, which at the time of writing are
5.25%, have increased throughout the financial year in a bid to
reduce inflation. Whilst year-on-year CPI peaked in October 2022
and has since fallen, it is still materially above the Bank of
England's target rate of 2.0%. Markets have predicted that interest
rates will reduce in time, but are set to remain higher for longer
than markets were pricing earlier in the year.
Energy prices have fallen from the highs experienced in the
previous financial year, but like interest rates, they are
predicted to stay higher for longer than in this period last year.
Furthermore, the UK has retained its commitment to decarbonise the
electricity grid by 2035. Despite this commitment, and the need for
new renewable electricity generation infrastructure to achieve it,
there were no bids to build new offshore wind capacity under the
most recent contracts-for-difference auction round run by the UK
Government. The Committee for Climate Change has expressed concerns
to Parliament about the pace of change required to meet the UK's
climate goals over the course of the 2030s. The failure to secure
bids to build incremental offshore wind generating capacity is
likely to make these targets even harder to achieve, which will
likely lead to higher power prices for longer.
A total of 41% of the portfolio benefits from some form of
inflation protection, meaning that higher inflation is set to
benefit the existing portfolio. In addition, renewable energy
generators make up around two-thirds of the portfolio and are set
to benefit from power prices being structurally higher than when
the Company originally invested. Thus, the current market and
market outlook are positive for the Company's portfolio.
Higher interest rates have caused a shift in credit markets and,
as a result, opportunities to make new loans within the Company's
risk appetite at rates of interest that reflect the steep change in
rates across asset classes may emerge. Given the continuing need
for new infrastructure to decarbonise the economy, the Board is
confident in the Investment Adviser's ability to continue building
a pipeline of attractive investments for the Company. This gives
the Company the opportunity to reset the long -- term returns on
its investments at a higher yield when it resumes investment
activity.
As noted above, the Board is focused on maximising value for
shareholders by reducing leverage, disposing of assets where
pricing is attractive to generate funds and optimise the portfolio,
and buying back shares, given the attractive risk adjusted returns
from doing so, before making any new investments.
Andrew Didham
Chairman
12 December 2023
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Strategic overview
The Company's purpose is to invest in UK infrastructure debt
and/or similar assets to provide regular, sustained, long-term
dividends and to preserve the capital value of its investments over
the long term.
Investment strategy
The Company's investment strategy is set out in its investment
objective, policy and strategy below. It should be considered in
conjunction with the Chairman's statement and the strategic report
which provides an in-depth review of the Company's performance and
future strategy. Further information on the business model and
purpose is set out below.
Investment objective
The Company's investment objective is to provide shareholders
with regular, sustained, long-term dividends and to preserve the
capital value of its investment assets over the long term.
Investment policy and strategy
The Company seeks to generate exposure to the debt of UK
infrastructure project companies, their owners or their lenders and
related and/or similar assets which provide regular and predictable
long -- term cash flows.
Core projects
The Company will invest at least 75% of its total assets,
directly or indirectly, in investments with exposure to
infrastructure projects with the following characteristics (core
projects):
- pre-determined, long-term, public sector backed revenues;
- no construction or property risks; and
- benefit from contracts where revenues are availability based.
In respect of such core projects, the Company focuses
predominantly on taking debt exposure (on a senior or subordinated
basis) and may also obtain limited exposure to shareholder
interests.
Non-core projects
The Company may also invest up to an absolute maximum of 25% of
its total assets (at the time the relevant investment is made) in
non-core projects, taking exposure to projects that have not yet
completed construction, projects in the regulated utilities sector
and projects with revenues that are entirely demand based or
private sector backed (to the extent that the Investment Adviser
considers that there is a reasonable level of certainty in relation
to the likely level of demand and/or the stability of the resulting
revenue).
There is no, and it is not anticipated that there will be any,
outright property exposure of the Company (except potentially as
additional security).
Diversification
The Company will seek to maintain a diversified portfolio of
investments and manage its assets in a manner which is consistent
with the objective of spreading risk. No more than 10% in value of
its total assets (at the time the relevant investment is made) will
consist of securities or loans relating to any one individual
infrastructure asset (having regard to risks relating to any cross
default or cross-collateralisation provisions). This objective is
subject to the Company having a sufficient level of investment
capital from time to time, the ability of the Company to invest its
cash in suitable investments and the investment restrictions in
respect of 'outside scope' projects described above.
It is the intention of the Directors that the assets of the
Company are (as far as is reasonable in the context of a UK
infrastructure portfolio) appropriately diversified by asset type
(e.g. PPP/PFI healthcare, PPP/PFI education, solar power, social
housing, biomass etc.) and by revenue source (e.g. NHS Trusts,
local authorities, FiT, ROCs etc.).
Non-financial objectives of the Company
The key non-financial objectives of the
Company are:
- to build and maintain strong relationships with all key
stakeholders of the Company, including (but not limited to)
shareholders and borrowers;
- to continue to focus on creating a long -- term, sustainable
business relevant to the Company's stakeholders;
- to develop and increase the understanding of infrastructure
debt as an asset class and to use that understanding continually to
review the Company's investment strategy; and
- to focus on the long-term sustainability of the portfolio and
make a positive impact; through contributing towards the generation
of renewable energy and financing infrastructure that is integral
to society.
Key policies
Distribution
The Company seeks to provide its shareholders with regular,
sustained, long-term dividend income.
The Company has the authority to offer a scrip dividend
alternative to shareholders. The offer of a scrip dividend
alternative was suspended at the Board's discretion for all
dividends during the year, due to the discount(1) between the
likely scrip dividend reference price and the relevant quarterly
NAV per share of the Company. The Board intends to keep the payment
of future scrip dividends under review.
Leverage and gearing
The Company intends to make prudent use of leverage to finance
the acquisition of investments and enhance returns for
shareholders. Structural gearing of investments is permitted up to
a maximum of 20% of the Company's NAV immediately following
drawdown of the relevant debt.
The calculation of leverage under the UK AIFM Regime in note 15
to the financial statements includes derivative financial
instruments as is required by the applicable regulation.
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Business model
The Company's purpose is to invest in UK infrastructure debt
and/or similar assets to provide regular, sustained, long-term
dividends and to preserve the capital value of its investments over
the long term.
Investment Sustainability Implementation of investment Key performance Sustainability
objectives considerations strategy indicators indicators
Generate Governance Board of Directors Stewardship Generate Governance
dividend The Company and oversight dividend income 50%
income operates under 7.0p Board gender
a robust Dividends and ethnic
To provide governance per share diversity
shareholders framework, declared for at
with regular, read more the 30 September
sustained, on pages 90 year ended 2023
long -- term to 119 of 30 September
dividends. the full 2023 Environmental
annual 1,398 GWh
Preserve report on Preserve Renewable
c apital the Company's capital energy
To preserve website. 109.79p exported
the capital NAV per share by portfolio
value of its Environmental at assets(1)
investment The Investment 30 September
assets over Adviser 2023 Social
the long term. positively 856
screens for Provide FTEs at
Provide divers assets which diversification portfolio
ification benefit the 51 asset level
To invest environment, Number of at 30 June
in a read more investments 2023(1)
diversified below. at 30 September
portfolio 2023 Financial
of debt and/or Social 0.5 times(2)
similar assets The Investment Basic dividend
secured Adviser cover (IFRS)
against positively at 30
UK screens for September
infrastructure assets which 2023
projects. benefit
society, read
more below.
Financial
The Company
uses credit
facilities,
hedging
arrangements,
cash flow
forecasts
and stress
scenarios
to ensure
financial
viability,
read more
below.
-------------- -------------- --------------- --------------
Investing ESG due Operating ESG data
The Company diligence The Company collection
seeks pays careful
to generate attention
exposure to the
to control
infrastructure and management
debt and/or of the
similar portfolio
assets and its
in the operating
renewable costs.
energy,
social The day-to-day
housing provision
and PPP/PFI of investment
sectors. advice
and
The Investment administration
Adviser of the
provides Company
advisory is provided
services by the
relating Investment
to the Adviser
portfolio and the
in accordance Administrator
with the respectively,
Company's whose
investment roles
objective are overseen
and policy. by the
Board.
-------------- -------------- --------------- --------------
Financing ESG Managing Assessing
The Company positive As an climate
raises investment investment risk
capital company,
on a highly the Company
conservative seeks
basis, to take
with investment
consideration risk.
given
to scheduled The Investment
capital Adviser
repayments. works
alongside
The Company the Board
will seek to manage
to raise risks
capital and shape
when it the risk
has an policy
advanced of the
pipeline Company.
of investment It is
opportunities. also
It also responsible
makes for risk
prudent monitoring,
use of measuring
leverage and managing.
to finance
the
acquisition
of investments
and enhance
returns.
-------------- -------------- -------------- ---------- -------------- ----------- --------------- --------------
1.Twelve month period to 30 June 2023 to facilitate data
inclusion in the annual report.
2.The dividend of 7.0 pence per share is fully covered by an
adjusted EPS(3) of 8.58 pence per share.
3.APM - for definition and calculation methodology, refer to the
APMs section below.
Investment Adviser's report
The Company's focus remains on investing in UK infrastructure
debt in project companies that have the specific purpose to build,
own and operate assets that benefit from public sector backed
revenues.
UK infrastructure market
Infrastructure investments are typically characterised by high
upfront capital costs, paid back in consideration for the provision
of a service over long asset lives. The infrastructure the Company
seeks to invest in has inherent environmental and social benefits.
For example, some of the assets in the Company's portfolio generate
renewable electricity to displace polluting fossil fuel fired power
stations, while others provide quality accommodation for members of
society who need support to live a productive life with dignity and
independence.
Encouraging the construction and operation of such assets has
historically required Government intervention, initially by way of
subsidies or long -- term revenue guarantees, and more recently by
the UK Government creating long -- term market incentives to
support their business case.
Infrastructure investment has broad cross-party political
backing to support economic, social and fiscal outcomes. In the UK
Government's 2023 Green Finance Strategy, it was noted that,
"Private investment will be crucial to delivering net zero,
building climate resilience and supporting nature's recovery. We
estimate that to deliver on the UK's net zero ambitions through the
late 2020s and 2030s, an additional GBP50 -- 60 billion capital
investment will be required each year."(1) Furthermore, a 2021
report from the Green Finance Institute estimated that over the
next ten years, the UK's domestic nature-related goals could
require between GBP44 -- 97 billion of investment(2) .
With increased policy initiatives incentivising investment in
infrastructure, there are significant opportunities to enhance the
Company's existing portfolio and continue making attractive risk --
adjusted investments.
Challenges and opportunities
The table below sets out some of the challenges and associated
opportunities for infrastructure investment.
Challenge Infrastructure Government support/intervention Investment
opportunities characteristics
Decarbonisation Inflation-linked
of the UK * Further investment in established renewable sectors * CfD subsidy support
economy such as wind and solar but reliant on merchant
by 2050, with prices long term
intermediary
targets in
place
such as the
decarbonisation
of the
electricity
system by 2035
* Deployment of less-established renewables across * Green Gas Support Scheme and Net Zero Hydrogen Scheme
electricity, heat generation and transport
* Various grant and capital support
--------------- --------------------------------------------------------- ----------------------------------------------------------- -----------------------
High energy Exposure to wholesale
prices * Low-marginal cost domestic renewable generators * Price cap energy prices. Some
and reliance on contractual income
foreign (some inflation-linked)
suppliers from capacity mechanism
into the energy or grid service
system arrangements
* Nuclear (including small modular reactors) * Carbon pricing
* Grid infrastructure such as interconnectors * Energy profits levy
-
* Energy storage
-
* Energy efficiency schemes
--------------- --------------------------------------------------------- ----------------------------------------------------------- -----------------------
Climate change Limited current
adaptation: * Flood defences * The Government has a large direct investment flood investment
increased defence programme opportunities,
frequency but expected to
of extreme be a growth area
weather
events in new
geographies
-
* River flood mitigation measures
--------------- --------------------------------------------------------- ----------------------------------------------------------- -----------------------
A growing and Investment
ageing * Housing * This has been a recent focus of direct Government opportunities
population will funding, with a limited role for private sector are typically in
place different investors in public procurements the private sector
demands on (e.g. private care
social homes, private
infrastructure schools).
These have more
corporate or property
investment
characteristics
which are less
attractive
to the Company
-
* Healthcare and social care provision
-
* Transport
-
* Education
-
* Utilities
--------------- --------------------------------------------------------- ----------------------------------------------------------- -----------------------
Digitalisation Demand-based risks
drives * Broadband infrastructure * Capital support for rural deployment and, in certain
a greater need geographies,
for competition
access to for customers
online
services
* Data centres and associated energy systems
--------------- --------------------------------------------------------- ----------------------------------------------------------- -----------------------
1."Mobilising green investment: 2023 green finance strategy", UK
Government, April 2023.
2.Finance Gap for UK Nature Report, Green Finance Institute,
October 2021.
Company position
The Company has a well-diversified portfolio across a wide range
of operational renewable projects, social infrastructure (through
PPP/PFI schemes), and supported living social housing. The explicit
objective of diversification has historically enabled the Company
to respond to more challenging conditions in any one asset class
(such as decreasing yields and/or more competition) by diversifying
into other areas.
Over the life of the Company, the Investment Adviser has seen
several sectors in which the Company has historically been invested
mature over time. PFI, PPP, certain renewable asset classes and
supported social housing have all seen increased demand for
investment, with risks better understood and accepted by
investors.
The Company's response to the current market environment is as
follows:
1. Reduce gearing:
- The Company's debt under the RCF is priced at a margin to
SONIA. Rising interest rates have meant the margin between the
rates charged to borrowers and the cost of the Company's debt has
fallen. Reducing borrowing in this high rate environment is low
risk but enables higher returns for the Company.
2. Buy back shares:
- The Board and the Investment Adviser both consider the implied
yield on the Company's shares, which are trading at a significant
discount(1) to NAV, is higher than the actual risk on the
underlying investments given the positive ongoing performance of
the portfolio. Therefore, buying back the Company's shares offers
an attractive risk-adjusted return for shareholders.
3. Optimise the portfolio:
- The Company's average loan life is ten years. However, the
Investment Adviser continues to seek opportunities to optimise the
portfolio by seeking early refinances or disposals where
appropriate. The Investment Adviser is actively seeking to return
capital to the Company by reducing exposure to the social housing
sector and by de-risking the equity investments.
- The Investment Adviser has identified a number of
opportunities to extend the lives of assets, or to enable assets to
provide additional services that create supporting revenue streams
which will increase the valuation of the assets.
- The debt market has undergone significant change over the last
twelve months and it has created opportunities to invest at a
similar risk level whilst generating higher returns. As such, the
Company remains focused on recycling capital to reduce gearing and
investing in share buybacks. However, over the long term, the need
for new sustainable infrastructure and the higher rates available
in the market will provide attractive opportunities when the
Company resumes making new investments.
Differentiation
The Company retains some key differentiators that make it well
positioned to take advantage of attractive risk-adjusted returns,
despite infrastructure investment opportunities remaining
competitive. These include:
Scale Diversification Track record Debt focus
------------------------ -------------------------- ----------------------- -------------------------
The Company can Having the explicit The Company has The Company's focus
make investments objective been on debt, and flexibility
that are too small of diversifying investing in new across senior and
for certain investors across a range infrastructure sectors subordinated positions,
(such as commercial of asset classes for over a decade. means that it is
banks) to consider, means that The Investment Adviser well placed to match
particularly where the Investment Adviser has the investment risk
there is an opportunity can an established model with an appropriate
to scale an investment seek the most attractive to assess and evaluate capital structure
over time through risk-adjusted returns, opportunities in solution.
follow -- on financing and is not bound new asset classes.
to existing borrowers. to invest in sectors Moreover,
that remain unattractive this track record
due to means the Investment
higher competition Adviser has developed
or asset characteristics. expertise in a
number of asset
classes,
such as anaerobic
digestion
and biomass, that
other investors
are not likely to
benefit from.
------------------------ -------------------------- ----------------------- -------------------------
Key investment activity
This year's focus has been optimising the Company's existing
portfolio and buying back shares, whilst reviewing the use of the
Company's RCF. A full summary of investments and repayments during
the year is shown below.
In December 2022, the Company invested a further GBP36.1 million
into an existing portfolio of commercial solar projects to repay
third party senior debt. These assets are subject to audit by Ofgem
and by replacing the senior debt, the Company was able to manage
the audit process without incurring a potential conflict of
interest with a third party. In May 2023, the Company agreed to a
refinance of two existing loan notes provided to the owners of two
biomass plants.
The loan notes were redeemed at par and the Company received
fees (including prepayment fees) of c.GBP10 million (the effect of
the refinance was equivalent to adding 1.2 pence per share to the
NAV). As part of the refinance, the Company committed a new GBP50.0
million loan note to the owner of the two power plants as part of a
syndicated facility. This refinance improved the Company's security
position, with the new facility including a third operational power
plant. It also increased the total yield projected on the
investment. New investments of note in the year included a GBP7.5
million senior loan to purchase a fleet of electric taxis.
As part of the Company's share buyback programme announced in
March 2023, the Company has invested GBP10.6 million to buyback its
own shares at a discount(1) to the prevailing NAV, providing an
attractive investment for the Company and its shareholders.
The Company has also reduced the use of its RCF given the high
interest rate environment. The drawings under the facility peaked
at GBP154.0 million in December 2022 but were reduced to GBP104.0
million at the year end.
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Investment risk
The table below details the Investment Adviser's view of the
changes to the risk ratings for sectors where changes have been
observed in the past year.
Risk Sector Change in year Description
-------------------------- ---------------- -------------- ----------------------------
Market risk Renewables (all Increased While electricity
The risk of an investment sectors) prices have decreased
being exposed to over the year, volatility
changes in market has persisted. This
prices, such as volatility has also
electricity prices contributed to higher
or inflation. inflation throughout
the year. The Company
has exposure to
electricity prices
and inflation as
part of its renewables
portfolio, and the
higher price environment
has been beneficial
to the assets.
Supported living Increased The rents charged
on the supported
living properties
are inflation linked
and the RPs who
have leased the
properties have
to pass on the inflationary
increases in the
rents they charge
to the local authorities.
-------------------------- ---------------- -------------- ----------------------------
Credit risk Supported living Increased The leases on the
The risk of reliance underlying properties
on customers and have inflation linkage
suppliers to provide and, as such, the
goods and/or services leases charged to
for a project and RPs have increased
manage certain project during the year.
risks as part of The underlying RPs
such arrangements. have to agree to
pass the increases
on to local authorities.
With higher inflation
there is more pressure
on local authorities
to minimise such
rental increases.
-------------------------- ---------------- -------------- ----------------------------
Operational risk Renewables (all Increased The supply chains
The risk of exposure sectors) for spare and replacement
to the construction parts have continued
and/or operations to be impacted by
of a project associated global labour and
with the failure supply chain challenges.
of people, processes The Company has
and/or systems required suffered from delays
to monetise an asset. of this nature during
the year, for example
where a network
operator had a fire
on its site and
had to cease operations
on the wind farm
until repairs were
completed.
-------------------------- ---------------- -------------- ----------------------------
Legal/regulatory Renewables (all Increased There is uncertainty
risk sectors) regarding potential
The risk associated future Government
with changes to intervention in
laws and/or regulations. the energy market,
This covers UK-wide, therefore forecast
non-specific risks, power prices may
such as changes not be realisable
to the tax regime, in reality. The
and specific risks implementation of
such as the change the Electricity
to a subsidy regime Generator Levy in
that a project relies January 2023 has
on. impacted the short-term
profitability of
certain assets in
the portfolio. The
levy will be in
place until 31 March
2028.
-------------------------- ---------------- -------------- ----------------------------
Interest capitalised
The Company received total loan interest income of GBP80.8
million (30 September 2022: GBP74.5 million) from the underlying
investment portfolio. Of this, GBP58.8 million was received in cash
and GBP22.0 million was capitalised in the year (30 September 2022:
GBP52.1 million and GBP22.4 million respectively), refer to note 3
for further information. The capitalisation of interest occurs for
three reasons:
1. Where interest has been paid to the Company late (often as a
result of moving cash through the Company and borrower corporate
structures), a capitalisation automatically occurs from an
accounting point of view.
2. On a scheduled basis, where a loan has been designed to
contain an element of capitalisation of interest due to the nature
of the underlying cash flows.
Examples include projects in construction that are not
generating operational cash flows, or subordinated loans where the
bulk of subordinated cash flows are towards the end of the assumed
life of a project, after the repayment of senior loans.
Planning future capital investment commitments in this way is an
effective way of reinvesting repayments received from the portfolio
back into other portfolio projects.
3. Loans are not performing in line with financial models, resulting in:
(i) lock-up of cash flows to investors who are junior to senior lenders; and
(ii) cash generation is not sufficient to service debt.
Other unscheduled capitalisations in the year related to the
re-direction of cash flows into three gas-to-grid anaerobic
digestion projects in Scotland to address performance issues
encountered in the year.
The table below shows a breakdown of interest capitalised during
the year and amounts paid as part of final repayment or disposal
proceeds:
30 September 30 September 30 September 30 September
2023 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------- ------------ ------------ ------------ ------------
Loan interest received (cash) 58,791 52,079
Capitalised amounts settled as part
of final repayment or disposal proceeds - 9,727
Capitalised (planned) 18,253 15,421
Capitalised (unscheduled) 3,706 6,979
----------------------------------------- ------------ ------------ ------------ ------------
Loan interest capitalised 21,959 22,400
----------------------------------------- ------------ ------------ ------------ ------------
Capitalised amounts subsequently settled
as part of repayments (10,822) 10,822 (13,408) 13,408
----------------------------------------- ------------ ------------ ------------ ------------
Adjusted loan interest capitalised(1) 11,137 8,992
----------------------------------------- ------------ ------------ ------------ ------------
Adjusted loan interest received(1) 69,613 75,214
----------------------------------------- ------------ ------------ ------------ ------------
The table below illustrates the forecast component of interest
capitalised that is planned and unscheduled.
The Investment Adviser and the independent Valuation Agent
review any capitalisation of interest and associated increase to
borrowings to confirm that such an increase in debt, and the
associated cost of interest, can ultimately be serviced over the
life of the asset. To the extent an increase in loan balance is not
serviceable, a downward revaluation is recognised, notwithstanding
that such an amount remains due and payable by the underlying
borrower and where capitalisation has not been scheduled, it
attracts default interest payable.
30 September
----------------------------------
% of total interest 2023 2024 2025 2026 2027 2028
-------------------------- ---- ---- ---- ---- ---- ----
Capitalised (planned) 21% 12% 8% 6% 9% 11%
Capitalised (unscheduled) 4% 5% 1% - - 2%
-------------------------- ---- ---- ---- ---- ---- ----
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Renewables
Renewable projects generate renewable energy across the heat,
electricity and transport sectors and benefit from long -- term
Government subsidies.
65%
Percentage of portfolio by value
GBP683.8m
Valuation of sector
Background
Renewable energy involves the sustainable production of energy
for electricity, heat production and transport. In its 2023 Green
Finance Strategy, the UK Government estimated that to deliver on
the UK's net zero ambitions through the late 2020s and 2030s, an
additional GBP50 to GBP60 billion capital investment will be
required each year. This will provide the Company with significant
investment opportunities across the renewables sector.
Current position
The UK remains committed to decarbonising the electricity system
by 2035 and becoming net zero by 2050. However, the Climate Change
Institute recently noted that "Better transparency is no substitute
for real delivery. Our confidence in the UK meeting its goals from
2030 onwards is now markedly less than it was in our previous
assessment a year ago".(1)
An example of this apparent failure to deliver can be seen in
the results of round five of the UK's flagship renewable support
mechanism, the contract-for-difference ('CfD') published on 8
September 2023. No offshore wind projects bid into the auction, a
technology that has historically been the major beneficiary of the
CfD. As a result of this, questions have been raised over the UK's
target to build 50 GW of offshore wind by 2030 and decarbonise the
electricity grid by 2035, or 2030 under a Labour Government. The
reasons for the failure to attract bids have been well publicised:
the administrative strike price (the maximum price that bidders can
achieve in the CfD auction) was set at a level too low to make new
investment attractive.
Future outlook
Further Government support and intervention is likely to deliver
the new renewable energy generation capacity required to meet the
UK's decarbonisation targets. In the short term, this is likely to
support the price of renewable energy sold by the Company's
existing portfolio of borrowers, and in the medium term is likely
to create further investment opportunities for the Company.
Impact
1,398 GWh Renewable energy exported by portfolio assets(2)
SDG alignment
7 - Affordable and clean energy
8 - Decent work and economic growth
1."Better transparency is no substitute for real delivery",
Climate Change Institute, June 2023.
2.Data at 30 June 2023 to facilitate inclusion in the annual
report.
Evermore and Widnes projects
Refinance of two operational biomass plants
The Evermore project is a c.15.8 MWe waste wood combined heat
and power station located in Lisahally, Northern Ireland. The
project uses c.90,000 tonnes of waste wood per annum, sourced
principally from the construction and demolition industry, to fuel
a steam turbine that generates electricity and supplies heat to a
virgin wood drying system. The project benefits from two ROCs per
MWh of electricity generated for 20 years from its commissioning
date, providing a stable, RPI-linked public sector backed revenue
stream.
The Widnes project is a 20.2 MWe waste wood to energy combined
heat and power station located in Cheshire. It uses up to 147,000
tonnes per annum of waste wood. The plant is eligible for 1.4 ROCs
per MWh of electricity.
The Company originally provided subordinated loans against the
construction and operation of both plants, investing in Evermore in
2013, and committing GBP23.2 million to the financing of its
construction as part of a total financing package of c.GBP80.0
million, with the project completing construction in 2015.
The Company has built a strong working relationship with the
borrowers of both Evermore and Widnes since the initial investments
were made. In the previous financial year, the Company, alongside
another lender, completed the refinance of the senior loans and
subordinated debt, replacing them with 'unitranche' debt, a
flexible form of financing. This resulted in the Company taking a
senior, rather than subordinated, position, removing the associated
lock-up and interest capitalisation risks.
Furthermore, this year the Company completed the refinancing of
the unitranche debt, while retaining exposure to the two plants and
one additional biomass project by participating in a new syndicated
facility. The refinancing repaid the Company at par, while
generating GBP8.7 million of early prepayment fees, demonstrating
the valuation of the loans.
Sustainability indicators
Environment
252 GWh Energy exported in 2022/23(1)
Social
48 FTEs at portfolio asset level(1)
Governance
8 ISO certifications(1)
Financial
GBP33.8m Valuation at 30 September 2023
1.Data at 30 June 2023 to facilitate inclusion in the annual
report.
Supported Living
Supported living projects create long-dated cash flows supported
by the UK Government through the secured pledge of centrally funded
benefits.
11% Percentage of portfolio by value
GBP111.6m Valuation of sector
Background
The Company has historically targeted a subset of the social
housing sector provision referred to as 'supported living' through
the financing of development or conversion of existing
accommodation to suit specific care needs for individuals with
learning, physical or
mental disabilities. The Company has provided debt finance to
entities that own and develop properties, which are leased under a
long-term fully repairing and insuring lease to RPs who operate and
manage the properties. The RPs receive housing benefits for
individuals housed in such properties. The budget for housing
benefit in this sector is funded by the central Government and has
historically been, and remains, highly protected and uncapped.
During the last financial year, the Company refinanced 78
operational supported living properties let by three of the
Company's
borrowers to a single RP. The refinancing facilitated the return
of c.GBP50 million of cash to the Company and an increase in the
Company's expected return on the loan.
Current position
RPs that have leased properties from the Company's borrowers
have continued to be challenged in respect of governance and
financial viability by the Regulator of Social Housing ("RSH"). In
the year under review, these RPs have continued to focus on
improving processes, people and systems in seeking to address the
RSH's governance concerns. Furthermore, the Company has consented
to
a number of amendments in the relationships between RPs and the
Company's borrowers that seek to enhance the financial viability of
the applicable RPs.
It is the Investment Adviser's view that the fundamentals of the
sector, underpinned by a well -- protected housing benefit budget
and a
care model that has demonstrated healthcare and financial
benefits for the recipients, and the UK Government, remain
attractive. The RSH has itself noted its desire to see higher
deployment of care under a supported living model and for this to
be financed by the private sector.
Future outlook
The Company maintains the position that it does not intend to
grow its exposure to the social housing sector in any new projects
as a result of concerns raised by the RSH in respect of the
governance and financial viability of RPs. The Investment Adviser
also notes there is increased competition in this sector, which has
put pressure on potential returns. The Company continues to work
with its borrowers to seek to optimise the portfolio in order to
stabilise the rental yields received by the borrowers from the RPs
and to consider further refinances or other transactions as
appropriate.
Impact
3,119 People housed in supported accommodation(1)
SDG alignment
11 - Sustainable cities and communities
9 - Industry, innovation and infrastructure
1.Twelve month period to 30 June 2023 to facilitate data
inclusion in the annual report.
Westmoreland Supported Housing
Improving governance at a portfolio of supported living
accommodation
The Company has invested in a portfolio of 13 properties and 51
units of supported living accommodation designed to meet the
individual and unique needs of adults with learning disabilities,
mental health issues and physical or sensory disabilities. The
portfolio is leased to Westmoreland Supported Housing Limited
('Westmoreland'), a Registered Provider of social housing.
From 2018, the Company recognised that the supported living
sector had grown rapidly and various RPs were failing to keep up
with the
rapid growth they were experiencing, leading to management
issues at some RPs. Furthermore, the RSH indicated that the funding
model used by the sector did not align with its preferences. This
model involved RPs taking out long leases for properties they let
to local authorities under exempt rents. The Company has not made
any further investments in the sector since then.
As a business that has grown very quickly, Westmoreland
experienced significant financial distress in 2019. This led the
RSH to use its
statutory powers to elect new officers to Westmoreland's board
at the end of 2019, closely followed by a board-directed change in
the
executive team at the start of 2020.
In 2021, the Company's borrower entered into an agreement with
Westmoreland to provide a defined level of financial support
while
Westmoreland worked to address their financial distress and
improve their governance and financial viability. In changing the
board and
executive team, and restructuring the lease payment
arrangements, Westmoreland sought to address the wider concerns
raised by the RSH.
The Company has supported Westmoreland over this period.
Westmoreland is now in a materially better financial position and
has made significant progress in improving its governance and
financial viability, with historic issues addressed as they look
towards consolidation and future growth. As a result, Westmoreland
continues to provide high quality accommodation and care for
its vulnerable tenants.
Sustainability indicators
Environment
45% EPC rating A-C(1)
Social
23 FTEs at portfolio asset level(1)
Governance
4 Governance policies implemented(1)
Financial
GBP9.0m Valuation at 30 September 2023
1. Data at 30 June 2023 to facilitate inclusion in the annual
report.
PPP/PFI
PPP/PFI enables the procurement of private sector infrastructure
financing through access to long -- term, public sector backed and
availability-based payments.
24%
Percentage of portfolio by value
GBP251.2m
Valuation of sector
Background
Partnerships between the public and private sectors to develop,
build, own and operate (or a combination thereof) infrastructure
have taken a number of forms, with the best known as PFI (Public
Finance Initiative), which originated in the UK in the mid-1990s.
Since this time, over GBP60.0 billion has been invested in the
development of new projects across the healthcare, education,
leisure, transport and other sectors under such schemes. The design
and implementation of revenue support mechanisms such as PFI has
been devolved to the Scottish, Welsh and Northern Irish
administrations. The Company has exposure to a number of sectors
within the PPP/PFI sector including education, healthcare, waste,
leisure and housing.
Current position
The PPP/PFI model for procuring infrastructure fell out of
favour before 2020 and there are no material new projects expected
to be procured this way in the medium term, meaning there are
currently limited opportunities for further investments. During the
year, the Company indirectly acquired equity in 13 Scottish hub
projects engaged in the education, health, leisure and community
facilities in which it was already a lender, investing GBP885,000
in total.
Future outlook
There have been no indications that the UK or devolved
governments intend to reverse policies to procure new
infrastructure using private sector finance which is supported by
long-term availability-based payments. To the extent that there are
any such opportunities in the future, the Company will consider
them as investment opportunities.
The Investment Adviser will continue to monitor any PPP schemes
(or similar structures) and secondary markets for potential
opportunities.
Impact
c.26,688 School places in portfolio(1)
SDG alignment
4 - Quality education
3 - Good health and well-being
1.Twelve month period to 30 June 2023 to facilitate data
inclusion in the annual report.
Salford Social Housing PFI
Refurbishment of a portfolio of social housing accommodation
The Salford Social Housing PFI project was formed with the aim
of delivering the refurbishment and management of social housing
accommodation consisting of 1,270 existing dwellings located in
Greater Manchester and owned by Salford City Council.
The Company invested GBP10.9 million in a junior bond on 17
September 2013. The notes were issued by FHW Dalmore (Salford
Pendleton Housing) plc. The senior lender is Pension Insurance
Corporation plc. Together Housing provided the initial equity
investment.
The refurbishment contract completed on 24 February 2017, ahead
of the scheduled contract date of 30 May 2017. From this date,
Pendleton Together Operating Limited became operational.
Following the tragic events at Grenfell, a comprehensive review
of the refurbishment works was undertaken to determine what action
needed to be undertaken on the accommodation. As a result, the
cladding used on the project's nine tower blocks was tested and
failed to meet building safety standards.
A detailed further works programme was developed and funded by
the Company after the Government stated it would not provide
funding for the cladding removal. The programme is currently being
implemented with the involvement of all project stakeholders to
ensure the long-term fire safety of the accommodation.
The Company agreed to pay 40% of the coupon it receives as
junior bond holder to Together Housing Association as they made
additional funding available to undertake the works.
Refurbishment started with remedial works undertaken across the
nine residential buildings. The works cover both internal and
external remediation and are progressing well and according to the
plan agreed with contractors. Completion is expected in 2025.
Sustainability indicators
Environment
73% EPC rating A-C(1)
Social
20 FTEs at portfolio asset level(1)
Financial
GBP9.7m Valuation at 30 September 2023
1.Data at 30 June 2023 to facilitate inclusion in the annual
report.
Investment portfolio
The Company is exposed to a portfolio of 51 investments with a
weighted average annualised yield(1) of 7.9% and average life of
ten years.
Portfolio performance
The portfolio has largely performed in line with expectations
during the year.
For the renewables portfolio, rainfall was lower than expected
over the key winter period across large parts of Scotland, however
it has since improved. Lower rainfall can reduce the amount of
revenue due to lower electricity production from hydro-electric
assets. Furthermore, wind speeds have been slower than average, and
increased maintenance times at wind farms has caused generation to
be below budget. Meanwhile, solar generation and operations have
been in line with expectations.
In relation to the supported living assets, the Company has no
direct control over the underlying occupancy level of the
properties it has lent against, but it continues to work with
borrowers and the underlying RPs to ensure the assets are
maintained to a high quality to attract tenants to the
properties.
As part of an agreed refinancing of existing loans to two
operational biomass plants, the Company received GBP8.7 million in
prepayment fees with the existing loans repaid at par. This
demonstrates the conservative valuation of the portfolio and the
Investment Adviser's ongoing efforts to maximise the value for
shareholders.
A total of GBP50.0 million of the proceeds were reinvested into
the holding company of the two plants, with a further operational
biomass plant brought into the security net, improving the
seniority of the loan along with increasing the level of security
of the loan.
Last year, the Company noted that there were ongoing challenges
at a portfolio of gas-to-grid anaerobic digestion projects in
Scotland. Upgrade works to make the sites more resilient to storm
damage have since been completed and to date have addressed the
issues. Furthermore, the Investment Adviser worked closely with the
landlords and operators of the sites, as well as the gas network
operator, to improve the sites' access to the local gas grid. This
resulted in the implementation of a more reliable method of
injecting biogas into the gas grid. Before the changes were made,
if the demand for gas on the network was low (for example, on warm
summer nights), then the gas network operator would restrict the
amount of gas that could be injected into the grid and sold. The
improvements mean that it is less likely the output of the plant
will be constrained in the future.
The Company continues to have exposure to the outcome of ongoing
Ofgem audits relating to the accreditation and ongoing compliance
of eight ground-mounted commercial solar projects accredited under
the Renewables Obligation. During the year, Renewable Obligation
Certificates ("ROCs") for one of nine projects under audit were
revoked by Ofgem. Three projects in total in the portfolio have now
had their ROCs revoked. Eleven projects have been audited and
retained their ROCs, while a further eight remain subject to
audit.
The Company has made a claim in connection with its rights under
the original investment documentation in respect of the losses it
has incurred due to the revocation. The aggregate provisions in
connection to the circumstances relating to the audits total GBP6.3
million, of which GBP1.7 million has been recognised during the
year.
The Company remains confident that it will be able to either
solely or cumulatively: (i) address Ofgem's queries to prevent or
mitigate any negative impacts on the further eight assets that
remain under audit; (ii) successfully challenge any adverse
decision by Ofgem on other assets under audit; or (iii) recover
losses it incurs from third parties in relation to a breach of
investment documentation across all affected assets.
Portfolio by sector type
PPP/PFI 24%:
Healthcare 8%
Education 6%
Waste (PPP/PFI) 4%
Leisure 2%
Housing (PPP) 2%
Energy efficiency 1%
Justice 1%
Renewables
65%:
Wind (onshore) 17%
Solar (commercial) 15%
Solar (rooftop) 10%
Biomass 9%
Anaerobic digestion 9%
Hydro 2%
Geothermal 1%
Gas Peaking 1%
Electric vehicles 1%
SH 11%:
Supported living 11%
Portfolio by income type
PPP/PFI 24%:
Unitary charge 19%
Gate fee (contracted) 2%
Electricity
(fixed/floor) 1%
Lease income 1%
ROC 1%
Renewables
65%:
ROC 24%
Electricity
(merchant) 18%
FiT 14%
RHI 3%
Electricity
(fixed/floor) 3%
Pay per mile 1%
Embedded benefits 1%
Gas (merchant) 1%
SH 11%:
Lease income 11%
Portfolio by annualised yield(1)
>10% 7%
8-10% 32%
<8% 61%
Portfolio by average life (years)
>20 12%
10-20 6%
<10 82%
Portfolio by investment type
Subordinated 49%
Senior 40%
Equity 9%
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Top ten investments
Key
1 Project type
2 % of total portfolio
3 Cash flow type
1 Cardale PFI Investments(1)
1 PPP/PFI
2 12.0%
3 Unitary charge
2 Gravis Solar 1
1 Commercial solar
2 9.6%
3 ROC/PPA/FiT
3 GCP Programme Funding S14
1 Biomass
2 4.8%
3 ROC/RHI
4 GCP Bridge Holdings(2)
1 Various
2 4.7%
3 ROC/Lease/PPA
5 GCP Programme Funding S3
1 Anaerobic digestion
2 4.5%
3 ROC/RHI
6 Gravis Asset Holdings H
1 Onshore Wind
2 4.5%
3 ROC/PPA
7 Gravis Asset Holdings I
1 Onshore Wind
2 4.4%
3 ROC/PPA
8 GCP Biomass 2
1 Biomass
2 3.9%
3 ROC/PPA
9 GCP Programme Funding S10
1 Supported living
2 3.8%
3 Lease
10 GCP Green Energy 1 Ltd
1 Commercial solar/onshore wind
2 3.6%
3 ROC/PPA
Top ten revenue % Top ten project %
counterparties of service providers of
total total
portfolio portfolio
------------------------- ----------- ---------------------------- -----------
Viridian Energy Supply
Limited 9.2% PSH Operations Limited 13.3%
Statkraft Markets Vestas Celtic Wind
Gmbh 8.9% Technology Limited 12.0%
Solar Maintenance
Electricity Limited 8.5% Services Limited 9.9%
Office of Gas and A Shade Greener Maintenance
Electricity Markets 6.6% Limited 8.5%
Npower Limited 5.8% 2G Energy Limited 5.8%
Smartestenergy Limited 4.8% Pentair 4.5%
Power Ni Energy Limited 4.5% Thyson 4.5%
Total Gas & Energy
Limited 4.5% Atlantic Biogas Ltd 4.5%
Good Energy Limited 4.2% Urbaser Limited 3.9%
Bespoke Supportive
Tenancies Limited 4.0% Colbat Energy Limited 3.9%
------------------------- ----------- ---------------------------- -----------
1.The Cardale loan is secured on a cross-collateralised basis
against 18 individual operational PFI projects.
2.GCP Bridge Holdings is secured against a portfolio of six
infrastructure investments in the renewable energy and PPP/PFI
sectors.
Portfolio overview
In the reporting year, the valuation of the portfolio decreased
from GBP1,087,331,000 in the prior year to GBP1,046,568,000. The
principal value of the portfolio at 30 September 2023 was
GBP1,001,077,000. Investments made and repayments received during
the year are summarised in the chart below:
Investment analysis for year ended 30 September 2023
Investments and repayments GBPm
--------------------------- ------
New investments 9.2
Further advances 129.5
Scheduled repayments (41.3)
Unscheduled repayments (86.7)
Net investment/(repayment) 10.7
--------------------------- ------
Sector analysis
----------------------------------------------------------
Investments (GBPm) Repayments (GBPm)
4.7 Anaerobic digestion (0.9)
60.3 Biomass (93.9)
1.1 Hydro (1.2)
- Offshore wind -
2.2 Onshore wind (15.1)
36.1 Commercial solar (2.2)
0.2 Rooftop solar (3.3)
10.5 PPP/PFI (10.4)
3.7 Supported living -
0.9 Geothermal -
7.8 Flexible generation -
10.4 Electric vehicles (1.1)
0.8 EV charging -
------------------ ------------------- -----------------
Investments and repayments post GBPm
period end
-------------------------------- -----
New investments -
Further advances 0.1
Scheduled repayments (5.6)
Unscheduled repayments -
Net investment/(repayment) (5.5)
-------------------------------- -----
Sector analysis post period end
----------------------------------------------------------
Investments (GBPm) Repayments (GBPm)
- Anaerobic digestion -
- Biomass -
- Hydro -
- Offshore wind -
- Onshore wind (0.3)
- Commercial solar (0.8)
0.1 Rooftop solar (1.6)
- PPP/PFI (2.7)
- Supported living -
- Geothermal -
- Flexible generation -
- Electric vehicles (0.2)
- EV charging
------------------ ------------------- -----------------
Capital structure
As part of its investment portfolio, the Company has targeted
investments across a number of asset classes and within different
elements of the capital structure: senior, subordinated or
equity.
Discount rates
The independent Valuation Agent carries out a fair market
valuation of the Company's investments on behalf of the Board on a
quarterly basis. The valuation principles used by the independent
Valuation Agent are based on a discounted cash flow methodology. A
fair value of each asset acquired by the Company is calculated by
applying an appropriate discount rate (determined by the
independent Valuation Agent) to the cash flow expected to arise
from each asset. Further information is included in note 19.3 to
the financial statements.
The weighted average discount rate used across the Company's
investment portfolio at 30 September 2023 was 7.69%, compared to
7.47% at 30 September 2022. Increases to discount rates were
applied by the independent Valuation Agent during the year, as a
result of the changes in gilt and wider credit markets, and with
reference to market transactions. The third party independent
valuation of the Company's portfolio at 30 September 2023 was
GBP1.0 billion (30 September 2022: GBP1.1 billion). The principal
value was GBP1.0 billion (30 September 2022: GBP986.4 million) at
the year end..
The valuation of investments is sensitive to changes in discount
rates and sensitivity analysis detailing this is presented in note
19.3 to the financial statements.
Performance updates
The specific factors that have impacted the valuation in the
reporting year are summarised in the table below.
Valuation performance attribution
Driver Description Impact (GBPm) Impact (pps)
Higher actual inflation and higher OBR medium-term
Inflation forecast inflation forecast 11.3 1.30
----------------------------------------------------- -------------- -------------
Contractual inflationary adjustment to loan
Principal indexation principal 4.0 0.46
----------------------------------------------------- -------------- -------------
Other indexation Other inflationary mechanics across the portfolio 5.7 0.65
----------------------------------------------------- -------------- -------------
Higher REGO prices locked in and higher forecast
REGOs prices 1.5 0.17
Other upward movements Other upward movements across the portfolio 2.0 0.23
Total upward valuation movements 24.5 2.81
-------------------------------------------------------------------------------------- -------------- -------------
Discount rates Increase in discount rates across the portfolio (24.3) (2.79)
Impact of renewables actual generation lower than
Actuals performance forecast (14.3) (1.64)
----------------------------------------------------- -------------- -------------
Power prices(1) Power price movements in the year (13.6) (1.56)
----------------------------------------------------- -------------- -------------
Effect on valuation of incorporating the Electricity
Electricity Generator Levy Generator Levy legislation (8.2) (0.94)
----------------------------------------------------- -------------- -------------
Valuation adjustment reflecting continued
Social housing uncertainty in the sector (7.0) (0.80)
----------------------------------------------------- -------------- -------------
Solar audits Adjustments relating to the ongoing Ofgem audits (1.7) (0.20)
----------------------------------------------------- -------------- -------------
Tax computations Impact of the latest tax computations (1.2) (0.14)
----------------------------------------------------- -------------- -------------
Other downward movements Other downward movements (2.8) (0.32)
----------------------------------------------------- -------------- -------------
Total downward valuation movements (73.1) (8.39)
-------------------------------------------------------------------------------------- -------------- -------------
Net valuation movements attributable to the timing
Interest receipts of debt service payments between periods (2.9) (0.33)
----------------------------------------------------- -------------- -------------
Net realised gains Historic indexation realised on loan repayment 0.1 0.01
----------------------------------------------------- -------------- -------------
Total other valuation movements (2.8) (0.32)
-------------------------------------------------------------------------------------- -------------- -------------
Total net valuation movements before hedging (51.4) (5.90)
-------------------------------------------------------------------------------------- -------------- -------------
Commodity swap(2) - unrealised Derivative financial instrument entered into for the 4.1 0.47
purpose of hedging electricity price
Commodity swap2 - realised movements 8.7 1.00
----------------------------------------------------- -------------- -------------
Total net valuation movements after hedging (38.6) (4.43)
-------------------------------------------------------------------------------------- -------------- -------------
1.Refer to commodity swap below.
2.The derivative financial instrument is utilised to mitigate
volatility in electricity price movements as detailed above, refer
to note 18 for further details.
Pipeline of investment opportunities
The Company maintains an attractive pipeline of new investments
across existing sectors and emerging infrastructure sectors, and
follow-on investments in the existing portfolio, at returns that
are accretive to dividend coverage and reflect the current market
pricing for credit that is in line with the underlying risk.
However, the Company recognises that the use of cash resources for
pipeline investments must be weighed against repayment of the
Company's RCF, or whilst the Company's share price trades at a
material discount(1) to the NAV, buying back shares. As a result,
new investments are considered only in this context and where there
is a compelling reason to invest.
Portfolio sensitivities
This section details the sensitivity of the value of the
investment portfolio to a number of the risk factors to which it is
exposed. A summary of the overall investment portfolio risks, and
the Investment Adviser's view of the changes in risk, can be found
above. Sensitivity analysis to changes in discount rates on the
valuation of financial assets is presented in note 19.3 to the
financial statements.
Renewables valuations
The table below summarises the key assumptions used in
forecasting cash flows from renewable assets in which the Company
is invested, and the range of assumptions the Investment Adviser
observes in the market.
The Investment Adviser does not consider that the market
compensates such differences in assumptions by applying a higher or
lower discount rate to recognise the increased or decreased risks
respectively of a valuation, resulting in potential material
valuation differences. This is shown in the sensitivity of the
Company's NAV to a variation of such assumptions in the table
below, on a pence per share basis.
Assumption Company approach Lower valuations Estimated Higher valuations
NAV impact
(pence per
share)
Electricity Futures (three Afry Q3 2023 (0.08) / 5.21 Aurora Q3
price forecast years) and 2023
Afry four quarter
average long
term. Electricity
Generator Levy
applied to
31 March 2028
---------------------- ---------------------- -------------- ------------------
Capture prices Asset-specific Higher capture (0.40) / 5.76 No capture
(wind, solar) curve applied prices prices
to each project
---------------------- ---------------------- -------------- ------------------
Asset life Lesser of planning, Contractual - / 2.75 Asset life
lease, technical limitations of 40 years
life (20-25 (solar) and
years) 30 years
(wind)
---------------------- ---------------------- -------------- ------------------
Taxation Long-term corporation Long-term corporation - / 1.59 Short-term
tax assumption tax assumption corporation
of 25% from of 25% from tax assumption
1 April 2023 1 April 2023 of 25% then
19% thereafter
---------------------- ---------------------- -------------- ------------------
Indexation OBR forecast OBR forecast - / 0.97 0.5% increase
in the short in the short to inflation
term, followed term, followed forecasts
by long term by long term
RPI of 2.5% RPI of 2.5%
and long term and long term
CPI of 2.0% CPI of 2.0%
---------------------- ---------------------- -------------- ------------------
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Inflation
A total of 41% of the Company's investments by value, have some
form of inflation protection. This is structured as a direct link
between the return and realised inflation (relevant to the
supported living assets and certain renewable assets) and a
principal indexation mechanism which increases the principal value
of the Company's loans outstanding by a share of realised inflation
over a pre-determined strike level (typically 2.75% to 3.00%).
The table below summarises the change in interest accruals and
potential NAV impact associated with a movement in inflation.
Sensitivity applied
to base case
inflation forecast
assumption (2.0%) (1.5%) (1.0%) (0.5%) 0% 0.5% 1.0% 1.5% 2.0%
NAV impact (pence
per share) (8.39) (6.44) (4.39) (2.26) - 2.29 5.00 7.98 10.94
------- ------- ------- ------- --- ----- ----- ------ ------
Electricity prices
A number of the Company's investments rely on market electricity
prices for a proportion of their revenues. Changes in electricity
prices may therefore impact a borrower's ability to service debt
or, in cases where the Company has taken enforcement action and/or
has direct exposure through its investment structure, it may impact
overall returns.
During the year, the Company applied the impact of the UK
Government's Electricity Generator Levy on energy generators. The
impact of the policy on the NAV at 31 December 2022 was 0.93 pence
per share. Other than this implementation of new Government policy,
the Company's approach of using the quoted futures price for the
three year period immediately after a valuation date, and the Afry
average thereafter, has not changed year on year. Both the
near-term futures prices and longer-term Afry projections have
changed over the year, impacted by short-term supply shocks
following Russia's invasion of Ukraine. Meanwhile, longer-term
projections are now higher than when the renewable energy
generating investments were made. This is due to a structural
increase in the expectations of long-term power prices from the
decarbonisation of the economy as transport and industry move away
from traditional fossil fuels and towards renewables for their main
source of energy, as well as the costs and challenges associated
with achieving this goal.
The table below shows the forecasted impact on the portfolio of
a given percentage change in electricity prices over the full life
of the forecast period, the impact on hedging arrangements in the
period to expiry (March 2024), and the subsequent net impact on a
pence per share basis. Further information on the Company's hedging
arrangements is detailed below and in note 18 to the financial
statements.
Sensitivity
applied to
base case
electricity
price forecast
assumption (10%) (5%) 0% 5% 10%
Portfolio
sensitivity
(pence per
share) (9.20) (4.31) - 4.17 8.34
------- ------- --- ------- -------
Hedge sensitivity
(pence per
share) 0.03 0.01 - (0.01) (0.03)
------- ------- --- ------- -------
Net sensitivity
(pence per
share) (9.17) (4.30) - 4.16 8.31
------- ------- --- ------- -------
Hedging
As further detailed in note 18 to the financial statements, the
Company entered into financial derivative arrangements to hedge a
portion of its financial exposure to electricity prices during the
year. The Company will continue to lock in attractive electricity
prices by fixing prices under PPAs at an asset level and mitigating
volatility through hedging arrangements at a Company level.
The Investment Adviser and Board will continue to review the
hedging strategy on an ongoing basis with the objective of
mitigating excessive NAV volatility and managing risks relating to
hedging, including credit and cash flow impacts, and any required
responses to the implementation of a price cap.
Financial review
The Company's total profit for the year was GBP30.9 million.
Dividends of 7.0 pence per share were paid. Total shareholder
return(1) for the year of -25.2% reflects the widening of the
discount between the Company's net assets and its market
capitalisation.
Financial performance
It has been a challenging financial year for the Company, with
investment revaluations negatively impacting profitability. Over
recent years, the Company has benefited from positive investment
revaluations. However, the past twelve months have seen a period of
significant economic volatility. This backdrop has led to a
decrease in electricity prices and increases to discount rates due
to changes in gilts and wider credit markets. Refer to above for
analysis of valuation movements.
Total income generated by the Company was GBP51.7 million (30
September 2022: GBP157.5 million), comprising loan interest of
GBP80.8 million, net unrealised valuation losses on investments of
GBP51.6 million, net realised gains on investment disposal of
GBP0.1 million and other income of GBP9.5 million (30 September
2022: loan interest of GBP74.5 million, net unrealised valuation
gains on investments of GBP77.1 million and net realised gains on
investment disposal of GBP5.5 million). Refer to note 3 for further
information.
The comparative period last year included material upward
revaluations resulting from increased electricity price forecasts;
this year saw increased volatility but with lower short -- term
prices and lower long-term forecasts than last year. The realised
gains were attributable to the disposal of loans advanced to the
owners of two biomass plants. The loans were redeemed at par along
with the Company receiving prepayment fees of GBP8.7 million.
Net gains on derivative financial instruments at year end were
GBP12.9 million (30 September 2022: GBP0.4 million), reflecting the
electricity price hedging arrangements which locked in attractive
price levels for the Company, refer to note 18 for further
information.
Total income was offset by operating costs for the year of
GBP11.4 million (30 September 2022: GBP12.5 million) which include
the Investment Adviser's fees, the Administrator's fees, the
Directors' fees and other third party service provider costs.
These, and other operating costs, have remained broadly in line
with previous years, with no further costs attributable to the
Company in respect of professional fees associated with ongoing
audits being carried out by Ofgem (refer below for further
details), as these are now being borne by the underlying SPV and
are reflected in the valuation.
The Company remains modestly geared at the year end, with
GBP104.0 million drawn on its RCF, representing a loan to value(1)
of 10.8%. Finance costs have increased year on year due to
increases in SONIA, with GBP9.4 million incurred (30 September
2022: GBP4.7 million).
Total profit and comprehensive income has decreased from
GBP140.3 million in the prior year to GBP30.9 million. As
previously noted, the year -- on -- year reduction was primarily
attributable to investment revaluations in the year.
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Ongoing charges
The Company's ongoing charges ratio1, calculated in accordance
with AIC methodology, was 1.1% for the year ended 30 September 2023
(30 September 2022: 1.1%).
Revolving credit facility
The Company has credit arrangements of GBP190.0 million across
five lenders: RBSI, Lloyds, AIB, Mizuho and Clydesdale. At year
end, GBP104.0 million was drawn and the terms in place are
summarised below:
Facility Size Margin Expiry
2024
RCF GBP190.0m SONIA March
+2.0% 2024
---------- ------- -------
The RCF is due to expire in March 2024. The Investment Adviser
has liaised with the existing lending group to agree heads of terms
for a new reduced facility of GBP150.0 million in line with the
Board's stated intention to reduce leverage by the end of 2024.
Further details are disclosed in note 15 to the financial
statements.
Net assets
The net assets of the Company have decreased from GBP998.1
million at 30 September 2022 to GBP956.6 million at 30 September
2023. The Company's NAV per share has decreased from 112.80 pence
at the prior year end to 109.79 pence at 30 September 2023, a
decrease of 2.7%. This is primarily due to downward revaluations of
investments as detailed above.
Cash generation
The Company received debt service payments of GBP136.8 million
(30 September 2022: GBP206.2 million) during the year, comprising
GBP58.8 million of cash interest payments and GBP78.0 million of
loan principal repayments (30 September 2022: GBP52.1 million and
GBP154.1 million). The Company paid cash dividends of GBP61.8
million during the year (30 September 2022: GBP59.0 million). The
Company aims to manage its cash position effectively by minimising
cash balances, whilst maintaining the financial flexibility to
pursue a pipeline of investment opportunities. This is achieved
through the active monitoring of cash held, income generated from
the portfolio and efficient use of the Company's RCF
Hedging
The Company entered into two separate arrangements to hedge its
financial exposure to electricity prices during the year. The
Investment Adviser recommended hedging c.75% of the Company's
exposure to the GB market for summer 2022/23 at a fixed price of
GBP140.5 per MWh and winter 2023/24 at a fixed price of GBP106.5
per MWh. The mark -- to-market of the hedge at 30 September 2023
was an asset of GBP0.3 million. Further detail on the Company's
electricity price exposure and hedging strategy can be found above
and in note 18.
Share price performance
Against a challenging economic backdrop, the Company's total
shareholder return(1) was -25.2% for the year (30 September 2022:
3.8%) and 57.1% since IPO in 2010. During the year, the Company's
shares have generally traded at a discount(1) to NAV, with an
average of 14.3% for the year and a discount(1) of 38.3% at the
year end. The shares have traded at an average premium(1) of 7.9%
since IPO (30 September 2023: 8.8% premium(1) since IPO). The share
price at 29 September 2023 was 67.70 pence per share (30 September
2022: 97.80 pence).
Further details on share movements are disclosed in note 16 to
the financial statements.
Dividends
The Company aims to provide shareholders with regular,
sustained, long-term dividends. For the year ended 30 September
2023, the Company paid a dividend of 7.0 pence per ordinary share
(30 September 2022: 7.0 pence).
The Board and Investment Adviser do not believe there have been
any material changes in the Company's ability to service sustained
and long -- term dividends since the assessment in early 2021 that
established a dividend target(2) of 7.0 pence per share. As such,
the Company has set a target(2) at the same level, 7.0 pence per
ordinary share, for the forthcoming financial year.
1.APM - for definition and calculation methodology, refer to the
APMs section below
2.The dividend target set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
Dividend cover
In determining the dividend target(1) for the forthcoming
financial year, the Board and Investment Adviser reviewed the
sustainability of the dividend level against various metrics, most
notably the APM based on interest income accruing to the benefit of
the Company from the underlying investment portfolio; loan interest
accrued(2) .
The Board recognises there are various methods of assessing
dividend coverage. The Board and the Investment Adviser consider
this metric to be a key measure in relation to the ongoing
assessment of dividend coverage alongside earnings cover(2)
calculated under IFRS. The loan interest accrued(2) metric adjusts
for the impact of pull -- to -- par, which is a feature of
recognising earnings from the investment portfolio presented under
IFRS.
30 September 2023 30 September 2022
---------------------- ----------------------
Earnings cover Notes GBP'000 pps GBP'000 pps
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
Total profit and comprehensive income 30,905 3.50 140,319 15.88
Dividends paid in the year(3) 9 61,785 7.00(4) 61,826 7.00
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
Earnings cover(2) (times covered) 0.50 2.27
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
30 September 2023 30 September 2022
---------------------- ----------------------
Adjusted earnings cover(5) Notes GBP'000 pps GBP'000 pps
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
Loan interest accrued(2) 86,911 9.86 90,360 10.23
Other income 3 9,544 1.08 60 0.01
Total expenses 5, 20 (11,422) (1.30) (12,450) (1.41)
Finance costs 6 (9,378) (1.06) (4,716) (0.53)
Adjusted net earnings(2) 75,655 8.58 73,254 8.30
Dividends paid in the year 9 61,785 7.00(4) 61,826 7.00
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
Adjusted earnings cover(2) (times covered) 1.23 1.11
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
30 September 2023 30 September 2022
---------------------- ----------------------
Cash earnings cover(5) Notes GBP'000 pps GBP'000 pps
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
Adjusted loan interest received(2) 69,613 7.89 75,214 8.52
Total expenses paid(2) (11,016) (1.25) (12,093) (1.37)
Finance costs paid (8,716) (0.99) (3,985) (0.45)
Total net cash received(2) 49,881 5.65 59,136 6.70
Dividends paid in the year (including dividends settled in
shares) 9 61,785 7.00(4) 61,826 7.00
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
Cash earnings cover(2) (times covered) 0.81 0.96
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
30 September 30 September
2022 2021
Notes Shares Shares
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
Weighted average number of shares 10 881,850,353 883,394,897
--------------------------------------------------------------- ----- -------- ------------ -------- ------------
Further analysis on dividends is shown in note 9 to the
financial statements.
1.The dividend target set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
2.APM - for definition and calculation methodology, refer to the
APMs section below.
3.Including dividends settled in shares in 2022, see note 16 for
further information.
4.Includes 2022 fourth interim dividend of 1.75 pence per share
paid in the 2023 financial year.
5.Principal repayments are excluded for the purpose of
calculating dividend cover.
Sustainability
The Company's portfolio has a positive environmental and social
impact by contributing towards the generation of renewable energy
and financing infrastructure that has clear benefits to end users
within society.
Introduction
Infrastructure, by definition, has a core social purpose. With
long-term investments in renewable energy, PFI assets such as
schools and hospitals, and social housing for vulnerable adults,
the Company's portfolio has an overall positive impact on the
environment and society.
The Company's investment philosophy is centred on the long --
term sustainability of its portfolio. The Board and the Investment
Adviser continually seek to improve the way ESG criteria is
embedded, integrated, monitored and measured within the
portfolio.
In 2020, the Company was awarded the Green Economy Mark by the
LSE. The Green Economy Mark recognises London -- listed companies
and funds that derive more than 50% of their revenues from products
and services that contribute to environmental objectives such as
climate change mitigation and adaptation, waste and pollution
reduction, and the circular economy.
The Company is committed to the transition to net zero through
its investments in assets that support the decarbonisation of the
economy. It invests in renewable assets that provide alternative
energy sources to fossil fuels. With 65% of the portfolio invested
in renewable energy projects, and 1,398 GWh of renewable energy
exported during the year(1) . This is enough to power 450,889
average homes. The Company also invests in biomass and anaerobic
digestion projects, which, along with producing green energy,
produce sustainable fertilisers from waste.
By investing in the supported living sector, the Company has
funded properties across the UK that benefit vulnerable adults. The
properties are a mixture of specially adapted residential stock and
new purpose-built properties offering high-quality accommodation
for people with disabilities. This is an excellent example of
effective partnerships with service providers that create quality
supported living services. The Investment Adviser is focused on
operating to the highest ethical standard in this area due to the
vulnerability of stakeholders.
The Company's activities impact thousands of people across the
UK through its investments in assets in the PPP/PFI sector. These
assets are integral to UK society and provide long-term
partnerships with the public sector.
The Company has exposure to a number of sub-sectors within
PPP/PFI, including education, healthcare, waste, leisure and
housing. Projects financed include 49 schools offering c.27,000
school places and 40 healthcare facilities providing beds to
c.2,000 patients.
ESG highlights
- Achieved a GRESB score of 90 out of 100 for Blackcraig Wind Farm
- Improvements in climate risk reporting under TCFD(4)
- Carbon footprint data externally reviewed(4)
- Operations run on a carbon -- neutral basis(2)
- Eden Geothermal Project opened in June 2023
- Implementation of formal diversity policy(3)
- Funding of three ESG internships(3)
- Updated Modern Slavery statement(4)
1.Twelve month period to 30 June 2023 to facilitate inclusion in
the annual report.
2.Company and Investment Adviser.
3.Investment Adviser.
4.The Company
Responsible Investment
Investment process
The Investment Adviser has been a signatory to the Principles
for Responsible Investment ("PRI") since 2019. The PRI, established
in 2006, is a global collaborative network of investors working
together to put the six principles of the PRI into practice. The
Investment Adviser recognises that applying these principles better
aligns investment activities with the broader interests of society
and has committed to their adoption and implementation. ESG is at
the core of the Company's investment decisions and is led by the
investment team.
The Investment Adviser has over a decade of investing in assets
with a core environmental and social benefit for the Company. ESG
investment processes are overseen by the Investment Adviser's
Responsible Investment committee.
Responsible Investment policy
The Investment Adviser's Responsible Investment policy is
integrated into investment management processes and incorporates
pre-investment, active ownership and governance processes, as
detailed below.
Pre-investment Active ownership
---------------------------------------------------------- --------------------------------------------------------
Deal screening ESG due diligence Monitoring and Reporting
Investment management processes engagement The Investment Adviser
processes positively Prior to a new investment Following execution reports on an annual
screen being approved, and investment, basis,
for investments the relevant investment key relevant with its Responsible
that promote sustainability, team assess ESG indicators are Investment report
conform with how the investment monitored published each year.
the Investment Adviser's fares by the Investment The Responsible
values and benefit against key relevant Adviser's portfolio Investment report
society, including, ESG management team. sits alongside a
but not limited criteria and includes The Investment Adviser PRI
to, an assessment of seeks to engage report, which summarises
the areas of climate ESG characteristics with equity owners its Responsible
change mitigation in every investment and/or operators Investment
and adaptation, proposal of projects to understand activities.
energy transition, submitted the
critical infrastructure, to the Company's ESG factors relevant The Investment Adviser
decarbonising transportation, Investment committee to applies the recommendations
affordable for approval. those projects or of the TCFD in its
living, social housing, properties, own reporting and
education and healthcare. The assessment typically and, where relevant, encourages the application
covers ESG-related use influence as of the TCFD framework
The screening excludes risks a lender of in its funds in
investments which and opportunities, capital or investor line with reporting
focus on non -- and, to to manage exposure requirements.
medical animal testing, the extent applicable, to ESG risks.
armaments, alcohol relevant policies
production, pornography, and ESG indicators are
tobacco, coal production procedures, alignment reported
and power, and nuclear with industry or to the Board for
fuel production. investment -- specific consideration as
Investments with standards and ratings, part of the quarterly
ongoing or persistent and compliance with Board reporting
involvement in relevant ESG -- cycle.
human rights abuses related regulation
are also excluded. and legislation.
This year, the Company
added biodiversity
to the ESG due diligence
process, as well
as diversity, equity
and inclusion. A
climate risk assessment
was also added for
all new investments.
------------------------------ -------------------------- -------------------------- ----------------------------
Governance and responsibilities
------------------------------------------ ----------------------------------------
The Investment Adviser operates In addition to its board, the Investment
a Responsible Investment committee Adviser employs a team of professionals
which comprises senior personnel with in-depth experience in the
from across the business, including investment industry and asset classes.
two representatives from the team
that provide investment advice to The Investment Adviser's approach
the Company. The committee is responsible to stewardship and engagement is
for all aspects of the Investment based on the Principles of the UK
Adviser's Responsible Investment Stewardship Code 2020 and is in
policy, including oversight of ESG line with its philosophy on responsible
initiatives, reporting, regulatory investing.
compliance, staff training and making
recommendations to the board of
the Investment Adviser.
The Investment Adviser has a clearly
defined governance structure with
detailed processes that cover business
operations, including investment
management and portfolio monitoring
and reporting.
------------------------------------------ ------------------------------------------
Corporate ESG initiatives
The Board maintains and monitors a positive dialogue with its
key service providers regarding social and environmental areas. All
key service providers, including the Investment Adviser and the
Administrator, regularly report on their efforts and progress in
areas such as diversity, the environment and social impact. Service
provider initiatives include policies such as promoting paid rather
than unpaid internships, charitable donations, volunteering days
and encouraging low carbon office environments as well as business
travel.
The Company and Investment Adviser run their operations on a
carbon-neutral basis to support the transition to net zero. As part
of its corporate social responsibility the Board supports a local
Jersey charity 'Jersey Trees for Life' as well as using their
scheme to offset its carbon emissions from flights to and from the
UK. Whilst not a verified carbon offsetting assurance scheme, the
offsetting benefits 'Jersey Trees for Life' which is the only
charity that is dedicated solely to the protection and preservation
of trees in Jersey. The charity's aim is to encourage the
protection, preservation and planting of trees, and to foster an
appreciation of trees through community education for their
amenity, ecological preservation and social importance.
The Investment Adviser's premises in London hold a BREEAM
'Excellent' rating and the offices are powered by renewable energy.
The Investment Adviser encourages the use of public transport and
minimisation of flight travel in its business travel policy and
operates an electric vehicle scheme and a bike to work scheme. All
staff are provided with stainless steel, BPA-free, reusable water
bottles and insulated cups to reduce the impact of single -- use
plastic and the Investment Adviser operates an office consumables
and paper recycling scheme.
Furthermore, the Investment Adviser fully offsets carbon
emissions by contributing to a portfolio which is run by provider
Climate Impact Partners, whose aim is to reduce one billion tonnes
of CO(2) by 2030.
Whilst the Board and the Investment Adviser do not consider
offsetting to be by any means a perfect solution to the impact its
activities have on the environment, both parties believe that it is
a useful starting point. The ultimate aim is to reduce emissions
with the intention of continuing to investigate and follow best
practice in this area.
In 2022, the Investment Adviser was awarded an 'Investors in
People' accreditation. The Investment Adviser has committed to
working with Investors in People over a three year time frame, with
the aim of improving its accreditation level over that time. It
encourages everyone in the business to reach their potential and
provides regular training to staff, including funding for specific
industry qualifications. The Investment Adviser also operates a
range of measures to support the physical and mental health of its
employees, including a private healthcare package, weekly fitness
classes and guidance on healthy working practices. This year, the
Investment Adviser held two training sessions for employees on
improving mental health at work. It also offers hybrid working
arrangements for all employees.
This year, the Investment Adviser introduced a formal diversity
policy and diversity and equality training for all employees. The
Investment Adviser also carried out an anonymous questionnaire to
help understand the makeup of its workforce. This means the data
can be monitored over time as the Investment Adviser strives for
improvements in diversity, equality and inclusion, while also
considering specific areas of focus. A broad range of data was
collected, including ethnicity, disability, neurodivergence, sexual
orientation, gender identity, social background and caring
responsibilities of employees. This has helped the Investment
Adviser establish a baseline and will facilitate improved diversity
reporting going forward.
The Investment Adviser also participated in the 10,000 Black
Interns programme this year, which offers paid internship
opportunities across more than 25 sectors, along with training and
development opportunities. The Investment Adviser offered two paid
internships as part of the programme, with both interns working
across the Company. It also facilitated a paid internship for a
student as part of the Young Women in Finance programme. Young
Women in Finance is an organisation dedicated to the eradication of
gender bias for new graduates entering the finance industry, with a
goal of achieving a 50/50 gender split in graduate recruitment
figures by 2030. The intern worked across teams at the Investment
Adviser with a particular focus on the Company's climate risk
assessment and the SBTI.
Furthermore, the Investment Adviser operates a volunteering
initiative which encourages employees to volunteer for charitable
or not -- for-profit purposes by giving an additional two days'
paid leave plus two days' unpaid leave per year. It continues to
operate its charity of the year scheme, and engage with
fundraising, events and through volunteering. This year, for the
second consecutive year, the charity chosen was Little Village, a
charity that supports local low-income families. A total of 34
employees participated with more than 160 hours spent volunteering
over the year. This provided employees with an opportunity to work
as a team, engage with the local community and understand more
about the hardships low-income families with young children face.
Total amounts raised for Little Village to date are over GBP55,000.
The Investment Adviser also made donations to the charities
shortlisted as part of its charity of the year initiative.
34 Employees volunteered
160 Hours spent volunteering
GBP55,000 Raised for Little Village
Portfolio governance
Governance at the Company level is clearly managed and
articulated and is essential in achieving the investment strategy,
managing risks, and creating a positive environmental and societal
impact. The Investment Adviser engages with the underlying assets'
boards to improve and enhance governance at the portfolio level.
The investment documentation issued by the Company includes
standard provisions to ensure effective governance within investee
companies and the compliance of those companies with applicable
environmental, health and safety, anti-money laundering, know your
customer and employment requirements.
During the year, the Investment Adviser continued to develop its
climate risk assessment process for each underlying portfolio
asset. The process assesses the actual and potential impacts of
climate -- related risks and opportunities across the portfolio and
considers both physical and transition risks and transition
opportunities for each asset. This year, additional analysis was
developed based on Met Office and UK forestry agency climate data,
as well as publicly available data on flood risk and EPC ratings.
Further information can be found below.
The directors and employees of the Investment Adviser sit on the
boards of, and control, the SPVs through which the Company invests.
The Company has delegated the day-to-day operations of these SPVs
to the Investment Adviser through the Investment Advisory
Agreement. The Company has started to collate diversity data on new
investment opportunities and the Investment Adviser has added
diversity data to its responsible investment checklist, collecting
data from potential borrowers that approach the Company.
The Board and the Investment Adviser value relationships with
borrowers, ensuring time is spent building and maintaining these
relationships. Engagement takes the form of regular interaction
with the borrowers by the portfolio management teams, including
periodic site visits to the underlying assets and their managers.
Site visits are an important aspect of the portfolio management
role and have both technical and commercial benefits. They allow
the Investment Adviser to assess the performance of both asset and
contractor and investigate any important project issues that
arise.
Furthermore, site visits give the Investment Adviser the
opportunity to understand the operations and relationships
important to each project and its long-term success. Where the
Company is exposed to RPs that have been graded as non-compliant in
respect of governance, the Investment Adviser has been working with
the RPs to improve processes, people and systems in seeking to
address the RSH's governance concerns. Refer above for further
information.
In the financial year, 28 site visits were conducted,
representing 11% of the portfolio by value and 27% of of all SPV
companies, including visits to the Eden Geothermal project (refer
below), Pates Hill Wind farm (refer below) and renewables and
PPP/PFI assets in various UK locations.
SDR
The Investment Adviser and the Company are preparing to comply
with the UK FCA's Sustainable Disclosure Requirements ("SDR")
legislation, which is due to be introduced in the fourth quarter of
2023 or early 2024. The SDR legislation will introduce a set of
sustainability -- related product labels, product level and entity
level disclosures and additional rules regarding sustainable
investing in the UK. Subject to changes to the draft SDR
legislation prior to enactment and coming into effect, the Company
anticipates meeting the requirements for the SDR 'Sustainable
Focus' label.
Data collection project
This year, the Investment Adviser continued to progress its data
collection project to collect material ESG metrics from the
underlying portfolio for the twelve month period to 30 June 2023(1)
.
The process involves the Investment Adviser's portfolio
management team liaising with each asset operator to obtain
relevant ESG data on the underlying portfolio assets. The data
points that are considered material by the Investment Adviser are
detailed in the table below.
Several challenges continued to be faced in respect of the
availability of the data requested, insofar as the Company is a
debt provider and does not own or control c.90% of assets in the
portfolio.
1.Period chosen to facilitate data inclusion in the annual
report.
In the drive for more consistent reporting across the industry,
the Company has actively sought to improve its data collection
project by obtaining an external review of its carbon footprint
data.
The Company engaged with Aardvark, an external ESG certification
service who provide independent and impartial auditing and
certification services. Aardvark reviewed the outputs from the data
collection project, verifying the calculated carbon emissions were
correct. As part of this, Aardvark reviewed primary evidence
supporting the data collection and where this was absent, they
reviewed the reliability of secondary data.
Where the Company was unable to collect data, Aardvark assisted
in developing and verifying estimates. Aardvark have also made
recommendations on how the Company may improve its data collection
so that it can prepare for a limited assurance process in
future.
The Company also appointed MJ Hudson to advise on the data
collection project. They advised on the ESG data collection
approach based on industry frameworks. They also conducted an
independent review of the Company's disclosures for any significant
inconsistencies and provided recommendations for areas where
additional data could be presented.
The data collection project enabled the Investment Adviser to
compare data with the previous year. From this, it was noted that
renewable energy exported reduced during the year. This was
primarily due to lower wind speeds across the UK. Similarly, the
percentage of SPVs with at least one female board member decreased
from 45% to 36% year-on-year. However, this was due to increased
coverage in the data sample collected compared to the previous
year.
Portfolio data coverage
ESG area Data points Portfolio coverage Portfolio coverage Increase/(decrease)
30 June 2023(1) 30 June 2022(1) year-on-year:
----------------- ----------------------------- ------------------ ------------------ ----------------------------
Air pollutants emitted, water
consumption, waste
generated/disposed, energy
conservation strategies
and net habitat gain or
Environmental loss. 72% 61% 11%
----------------- ----------------------------- ------------------ ------------------ ----------------------------
Total FTEs, hours worked,
satisfaction surveys,
absenteeism rates, H&S
metrics, community
benefit fund contribution
and key engagement
initiatives with local
Social community/stakeholders. 74% 70% 4%
----------------- ----------------------------- ------------------ ------------------ ----------------------------
Gender diversity, Board
reporting, ISO
alignment/certification,
green building certificates,
governance and regulatory
policies in place and
Governance audited accounts. 86% 86% -
----------------- ----------------------------- ------------------ ------------------ ----------------------------
Fuel combusted, imported
energy use, water, waste,
biogenic emissions,
mitigated emissions
(landfill), renewable energy
and biogas exported,
buildings' EPC ratings and
energy efficiency
Carbon footprint plans. 84% 56% 28%
----------------- ----------------------------- ------------------ ------------------ ----------------------------
Carbon footprint with primary and secondary
data 53% 56% (3%)
----------------------------------------------- ------------------ ------------------ ----------------------------
Carbon footprint with estimated data 31% - 31%
----------------------------------------------- ------------------ ------------------ ----------------------------
Carbon footprint with no data 16% 44% (28%)
----------------------------------------------- ------------------ ------------------ ----------------------------
People housed, school places,
hospital beds and renewable
Impact energy and biogas exported. 92% 96% (4%)
----------------- ----------------------------- ------------------ ------------------ ----------------------------
1.Percentage of data entries for applicable KPIs per ESG area
weighted by portfolio value.
Impact
The Company has strong environmental credentials with 65% of its
portfolio invested in renewable energy projects which provide
alternative energy sources to fossil fuels. Additionally, biomass
and anaerobic digestion projects within the portfolio produce
sustainable fertilisers from waste along with the production of
green energy.
The Company has a further 11% of its portfolio invested in
supported living and 23% in PPP/PFI. The carbon impact of
infrastructure contributes to a significant proportion of the UK's
national emissions from a construction, operation and maintenance
perspective. In many cases, the UK's existing infrastructure was
not originally designed and constructed with global warming in
mind. The Investment Adviser has sought to introduce energy
efficiency projects at portfolio assets where there were
opportunities to do so. These included the installation of LED
lighting at certain Scottish schools in the portfolio. Along with
this, the schools also introduced motion detection smart lighting
and heating systems, which are expected to reduce utility
consumption and its associated costs.
The Company and the Investment Adviser's approach to responsible
investment is integrated in its investment decisions and ongoing
portfolio management. Investing in renewables, PPP/PFI and social
housing projects indirectly creates job opportunities which benefit
local communities across the UK.
These projects require contractors and specialist staff during
the labour-intensive construction and/or installation phase, as
well as in operations, maintenance and decommissioning where
applicable. Every project supports jobs in local communities.
Renewables projects not only have a positive impact on the
environment but also have wider benefits for society, improving
local communities through CBFs. A CBF is a voluntary commitment by
a developer to provide funds which are then made available to local
community projects. By way of example, the accepted standard
commitment for a wind farm is GBP5,000 per MW. These funds can be
used to finance any initiative a community deems appropriate and
necessary for their local area, including community-owned renewable
energy projects, recreational facilities or equipment for local
schools. Benefits under the protocol are negotiated directly with
host communities and tailored to their needs to ensure a positive
legacy is achieved.
UN SDGs
By investing in assets integral to society, including those
which contribute to a greener economy, the Company's activities
align with certain Sustainable Development Goals ("SDGs"), as
outlined by the UN. These goals were created in 2015 by the UN to
create a better and more sustainable world by 2030. Examples
include clean and affordable energy, gender equality and
sustainable cities and communities.
The Company makes a positive contribution to the provision of
renewable energy, to the development of infrastructure to support
economic growth and provides high-quality and safe buildings for
vulnerable adults, healthcare patients and students. Furthermore,
the Company's approach to governance, and to labour and health and
safety, makes a positive contribution to the employees, customers,
suppliers and local communities in which the assets operate.
UN SDG alignment of the Company's portfolio:
UN SDG target 3.8
1,676 Hospital beds provided by portfolio(1) / 2022:
1,969(5)
40 Healthcare facilities in portfolio(1) /2022: 41(5)
UN SDG target 4.1
49 Schools in portfolio(1) /2022: 49(5)
26,688 School places provided by portfolio(2) /2022:
26,499(5)
UN SDG target 5.5
50% Board gender and ethnic diversity(3) /2022: 50%(6)
36% Gender diversity of SPV company boards(3/) 2022: 45%(6)
UN SDG target 7.2
1,398 GWh Renewable energy exported by portfolio assets(1 /)
2022: 1,429GWh(4)
450,889 Equivalent homes powered by portfolio assets(1) /2022:
438,122(4)
UN SDG target 8.3
55,280 Number of underlying assets in portfolio(3) /2022:
54,433(6)
856 FTEs at portfolio assets(2) /2022: 727(5)
UN SDG target 9.3
GBP1.7bn Total investment in infrastructure projects since IPO/
2022: GBP1.6bn
UN SDG target 9.4
42% SPVs reporting energy conservation strategies(2/) /2022:
48%(5)
UN SDG target 11.1
GBP166.7m Investment in social housing projects since IPO /2022:
GBP166.7m
905 Number of social housing units(2) /2022: 905(5)
UN SDG target 15.5
65% Renewables portfolio reporting habitat gain or loss(2)
/2022: 43%(5)
60% SPVs reporting ESG as a board agenda item(2) /2022:
35%(5)
UN SDG target 17.2
GBP428.1m Investments in PPP/PFI since IPO /2022: GBP418.7m
47% SPVs reporting local community initiatives(2) /2022:
43%(5)
1.Twelve month period to 30 June 2023
2.At 30 June 2023.
3.At 30 September 2023.
4.Twelve month period to 30 June 2022.
5.At 30 June 2022.
6.At 30 September 2022.
GRESB
SDG alignment
7 - Affordable and clean energy
This year, the Investment Adviser completed a GRESB assessment
for Blackcraig Wind Farm, an underlying asset in the Company's
portfolio. GRESB is an independent organisation that provides
validated ESG performance data and is a global benchmark of ESG
performance. GRESB data is now used by 170 institutional and
financial investors with more than $51 trillion in AUM. As such,
the Investment Adviser identified GRESB as a benchmark to measure
ESG performance as part of the annual GRESB assessment process.
Blackcraig Wind Farm is a 52.9 MW onshore wind farm consisting
of 23 wind turbines located 7km north-east of Galloway in Scotland.
It is 50% co-owned with Temporis Capital Ltd ('Temporis'), who are
the day-to-day asset manager. The wind farm consists of 23 Siemens
SWT-2.3/93 turbines, each with a capacity of 2.3 MW.
In January 2023, the Investment Adviser and Temporis began
gathering information and data using data collection templates and
scoring tools for the GRESB 2023 Infrastructure Asset Assessment.
The assessment was submitted in June 2023, after six months of data
collection and review, assisted by professional advisers
ITPEnergised.
In October 2023, the Company received the final rating, with
Blackcraig Wind Farm receiving an overall rating of four green
stars and a score of 90 out of 100, placing fourth out of eight in
its peer group of onshore wind power generation in Northern
Europe.
The GRESB submission and subsequent score for Blackcraig Wind
Farm marks the first step in the Company's external assurance
journey. The Board and the Investment Adviser were very pleased
with Blackcraig's GRESB score, and intend to share the lessons
learned through the submission across the appropriate portfolio
assets. They also intend to replicate policies and the management
approach for other assets in the portfolio.
Blackcraig Wind Farm has inherent ESG objectives. It creates
renewable energy, contributes to CBFs and educational trusts, and
implements best industry practices with industry-leading
contractors, including O&M and site managers. Additionally, all
staff receive training on responsible investment practices.
The wind farm contributed GBP275,000 to the local community
benefit funds this year. The CBF provides funding for community
centres, habitat preservation and training and education
opportunities to residents of the local area.
As part of the GRESB submission, ESG risk assessments were
undertaken on Blackcraig to identify material risks to the assets.
These risks are currently reviewed and monitored on a monthly
basis, and the Company intends to continue taking part in these
assessments.
Sustainability indicators
Environment
130 GWh Energy exported in 2022/23(1)
Social
GBP275,000 Contribution to CBFs this year(1)
Governance
7 Governance policies implemented(1)
Financial
GBP32.3m Valuation at 30 September 2023
1.Data at 30 June 2023 to facilitate inclusion in the annual
report.
2023 GRESB Infrastructure Asset Benchmark Report
Blackcraig Wind Farm (Scotland) Limited
GRESB rating
4/5 stars
Participation and score
90/100>2023
Peer comparison
4(th) Northern Europe | On-shore Wind Power Generation | Maintenance and operation (out of 8)
Geothermal
SDG alignment
7 - Affordable and clean energy
The first deep geothermal energy project in the UK since 1986,
and operational since June 2023, the Eden geothermal energy plant
in Cornwall is the deepest geothermal well in the UK, measuring 5km
in length. Commercial funding for the project was secured from the
European Regional Development Fund, Cornwall County Council and the
Company.
The Eden Geothermal Project harnesses naturally occurring
renewable energy from the ground to provide heat for its biomes,
plant nursery and offices. Geothermal energy is obtained from heat
located beneath the surface of the earth. The depth of the well
allows it to harness water heated by the Earth's core, which can
reach temperatures of up to 200degC. Energy is created by lifting
water from below the earth's surface through a vacuum-insulated
tube which is inserted into the well. The water then passes through
a heat exchanger, and cooled water is re-injected into the well via
the outer ring, as detailed below.
The project was delivered through a three-way partnership
between the Eden Project Limited, EGS Energy Limited (a geothermal
development and consultancy group) and BESTEC (UK) Limited (a
specialist geothermal developer and drilling adviser). Sustainable
construction methods were practised to both enhance and protect the
environment after the installation of the heat main. Erosion
control methods were used, and all soft ground trenches were
reinstated with topsoil and seeded flower mix. A hibernaculum was
also constructed to provide a habitat for insects.
Prior to the completion of the Eden Geothermal Project in June
2023, the only deep geothermal heating plant in the UK was the
Southampton District Energy Scheme, constructed in 1986. As a
result, geothermal energy currently delivers less than 0.3% of the
UK's heating demand, which is low when compared with other European
countries. In the Netherlands, geothermal plants are already used
to heat greenhouses, and the Dutch Government is aiming for
geothermal energy to contribute to a quarter of their heating needs
by 2050.
Sustainability indicators
Environmental
1 Energy conservation strategy(1)
Social
8 FTEs at portfolio level(1)
Governance
6 Governance policies implemented(1)
Financial
GBP6.1m Valuation at 30 September 2023
1.Data at 30 June to facilitate inclusion in annual report.
Heating is responsible for one-third of the UK's total energy
consumption and almost 17% of the UK's carbon emissions. For the UK
to meet its net zero targets by 2050, it needs to drastically
reduce its carbon emissions. Geothermal energy presents an
important option for the decarbonisation of heat and power, as it
has a low spatial footprint and is scalable, meaning it can be used
to heat individual homes. Currently, the UK is using only a small
fraction of its geothermal heat resources, meaning there is
considerable potential to increase its market share in the UK's
energy mix.
Increased uptake of geothermal energy could also contribute
towards reaching the UK's net zero targets. As a result, the Eden
Geothermal Project is expected to bolster the case for the use of
deep geothermal energy in the UK.
"In other countries, like the Netherlands and France, geothermal
energy is making a serious contribution to achieving net zero and
energy security targets. With the right policy support, the UK has
a huge opportunity to benefit from a resource that can meaningfully
contribute to the decarbonisation and improved security of our
electricity and heat systems."
Philip Kent, CEO, Investment Adviser
Education
SDG alignment
4 - Quality education
In April 2023, Pates Hill Wind Energy Ltd, an SPV company in the
portfolio, donated GBP10,000 to Kirknewton Primary School to help
improve their green initiatives and promote green activity and
culture among students. The donation was used to improve their
outdoor spaces and create different green areas dedicated to
agricultural activities and gardening. The school also used the
funding to build wooden structures that the children can play in
regardless of weather conditions, encouraging them to socialise
outside with different year groups. Alongside the donation, the
Investment Adviser facilitated a trip to a nearby portfolio asset,
Pates Hill wind farm.
The Pates Hill wind farm lies around 10 miles south-east of
Kirknewton Primary School. It is comprised of seven 2 MW turbines
and is located between Glasgow and Edinburgh in West Lothian,
Scotland on a former mining site. Operational since March 2010, it
generates enough energy to power c.8,000 households annually.
As a generator of renewable energy, Pates Hill wind farm has
inherent environmental and social benefits. This year, Pates Hill
Wind Energy Ltd contributed GBP70,000 to the West Lothian
Development Trust, with contributions to Community Development
Funds totalling GBP430,000 since the Company's initial
investment.
Wind power is the fastest-growing renewable energy technology in
Scotland, with wind generating 78% of all renewable electricity
output in 2022. Scotland currently has c.9 GW of onshore wind
capacity and c.2 GW of offshore wind capacity.
In the Scottish Government's Energy Strategy and Just Transition
Plan, it aims to deploy 20 GW of onshore wind by 2030, with the
intention of making Scotland net zero using renewable energy
sources. For offshore wind, the Government is targeting an increase
of 8-11 GW by 2030. Scotland has already hit the milestone of
creating an excess supply of wind energy. In 2022, its renewable
projects generated the amount needed to power homes in the country
for three and a half years. This has become increasingly important,
with energy supply and security a critical issue in the wake of the
war in Ukraine.
Sustainability indicators
Environment
31 GWh Energy exported in 2022/23(1)
Social
3.7 FTEs at portfolio asset level(1)
Governance
6 Governance policies implemented(1)
Financial
GBP10.9m Valuation at 30 September 2023
1.Data at 30 June 2023 to facilitate inclusion in the annual
report.
In April 2023, the Investment Adviser gave an educational
presentation on wind energy and functionalities of wind turbines to
150 schoolchildren from Kirknewton Primary school and hosted a
smaller group of c.40 children, accompanied by their teachers to
visit Pates Hill wind farm, where they learnt about wind power and
its role in energy generation. The children spent the day at the
wind farm with employees from the Investment Adviser, WPO (the
operating team) and Vestas (the turbine manufacturer).
The children were divided into three groups, with one group of
children taken inside a turbine. Another was taken to the engine
rooms, and the final group was shown how the wind turbines operate
by the WPO team, with each group rotating throughout the day. From
the visit, the children learnt about wind turbine operation and
construction, environmental monitoring, and habitat management. The
feedback from both the children and the school staff was positive
with several of the children wanting to learn more about a career
in the industry. The Investment Adviser hopes to be able to host
similar events in the future.
Biodiversity
SDG alignment
15 - Life on land
Infrastructure investors are becoming increasingly concerned
with biodiversity, supported by legislation promoting its
development. With more than half of global GDP linked to nature,
there are many investment opportunities in the area of
biodiversity.
Biodiversity encompasses the different types of life found in
one ecosystem, with each species and organism working together to
maintain balance and support life. It is a key element in providing
critical health, economic and cultural benefits and is essential to
the safeguarding of food and medicine production as well as
habitats.
Following the introduction of The Environment Act in December
2021, developers have a planning obligation to deliver a minimum of
10% net increase in biodiversity from all new developments. While
there is a two year grace period (ending in November 2023), many
local authorities have already declared climate emergencies and now
require biodiversity net gains of up to 25% as part of their
requirements. Additionally, investments in preserving biodiversity
need to triple by 2030 to meet the sustainability standards set out
by the UN.
This has led the Company to review biodiversity opportunities
within the portfolio, and as such, it has identified two existing
assets that have the potential to achieve biodiversity improvements
or biodiversity net gain. The Company has carried out impact
assessments for both locations, as well as a biodiversity net gain
feasibility study. For biodiversity improvements to be achieved in
both locations, various enhancements need to be implemented.
These enhancements include introducing a native hedgerow,
increasing the native grassland in the area, and introducing
species rich pond edge mix. The site operator is implementing a
management plan to adopt the recommendations from the ecologist for
this site.
Enhancement potential primarily comes from the accrual and sale
of Biodiversity Net Gain units ("BNG units"). BNG units are bespoke
to the habitat being destroyed and created; for example, if a
developer is destroying a wetland, and it isn't possible to avoid
habitat loss or dedicate an area on the site to biodiversity they
will then need to acquire wetland BNG units. Sites that have
biodiversity net gain can sell these BNG units to developers to
offset this loss. Revenues from selling BNG units can generate cash
in three to four years with the costs of maintaining the habitat
banks over the 30 year life of the obligation.
In September 2023, the Taskforce on Nature-related Financial
Disclosures ("TNFD") published its final recommendations. The
Investment Adviser has undertaken training for its investment team
on the inclusion of biodiversity in investment and portfolio
management processes, and as such has started to consider how it
can apply TNFD recommendations into its investment process. The
Investment Adviser includes an analysis of biodiversity impact from
new investments as part of the Investment committee process.
Biodiversity considerations are included within the Investment
Adviser's responsible investment checklist which is presented to
the Investment committee.
The Investment Adviser is reviewing the portfolio and new
investment opportunities for the potential to create BNG units.
Sustainability indicators
Environment
42% Portfolio with energy conservation plans(1)
Environment
33% SPVs with habitat management plans(1)
Environment
65% SPVs reporting habitat gain or loss(1)
Environment
21% SPVs conducting a biodiversity assessment(1)
1.Data at 30 June 2023 to facilitate inclusion in the annual
report.
Modern slavery
SDG alignment
8 - Decent work and economic growth
As part of its due diligence responsibilities, the Company
worked to update its Modern Slavery statement this year. The
Company's Modern Slavery statement is an integral part of its
investment and lending process. The statement covers screening, due
diligence, transaction, ongoing monitoring and engagement and best
practice aspects of the investment process. The updated statement
was reviewed by the Management Engagement committee to ensure the
statement was appropriate for the Company.
In updating the statement, the Investment Adviser reviewed the
investment process as it applies to the Company. Key additions to
the statement from this review included supply chain considerations
for human rights and modern slavery abuses, particularly in respect
of technical due diligence processes. This includes projects with
potential risks or exposure to human rights abuses in the
procurement of materials for electric vehicles, batteries or solar
panels.
For example, when considering investment in a fleet of electric
taxis, the Company undertook an analysis of potential human rights
abuses that could occur from the procurement of high-risk minerals
in the supply chains of Chinese cobalt refining companies where
production of the batteries for the taxis occur. The investment
team reviewed the battery manufacturer's sustainability report,
responsible sourcing policy and supplier code of conduct.
Such monitoring is applied continuously throughout the period
when trigger events occur, for example the acquisition of an
existing subcontractor or supplier by a much larger organisation
with some negative media coverage. In such a case the Investment
Adviser, on behalf of the Company, will seek to engage directly
with the new owners.
The potential for adverse impacts on human rights and the
environment exists throughout the renewable energy value chain.
Addressing the human rights risks will help provide the momentum
for change and the further development of alternative supply chain
choices. The Company has clear Board responsibility and oversight
functions for human rights policies.
Sustainability indicators
Governance
81% of SPVs with a modern slavery policy(1)
1.Data at 30 June 2023 to facilitate inclusion in the annual
report.
The Company's Modern Slavery statement is available on the
website.
Governance
Disclose the organisation's governance around climate -- related
risks and opportunities.
Compliance statement
The Company has voluntarily and partially reported against all
four core elements of the TCFD and the eleven recommended
disclosures, taking into account the TCFD 'Guidance for All
Sectors', as well as the supplemental guidance for the financial
sector.
This year, the Company has partially reported against 'Strategy
(c)' in respect of different climate -- related scenarios,
including a 2 C or lower scenario. The Company has also broadened
its Scope 3 reporting under 'Metrics and Targets (b)' to encompass
emissions for the purchase of goods and services.
The Company has omitted to report against 'Metrics and Targets
(c)' as the Company continues to develop and refine its data
collection exercise this year, including the use of external
consultants and review of its carbon emissions. The Board is
committed to a thoughtful process of establishing material,
accurate and relevant climate-related metrics and targets. It
intends to continue to develop its approach in the coming year,
which includes selecting an external consultant to partner with on
this project. It is envisaged that this engagement will also
progress the Board's intentions for third party assurance over its
ESG metrics.
For this reason, the Company is not in full compliance with the
TCFD requirements at this stage. It will continue to work towards
full compliance within the next one to two years.
A. The Board's oversight of climate -- related risks and
opportunities
The Board considers best practice application of ESG principles
as paramount to the Company's operations, the assets within its
investment portfolio and the operation of its advisers. It is
responsible for setting the strategy for the Company, including
climate -- related risks and opportunities.
The Board is informed about relevant climate -- related issues
as part of the quarterly reporting cycle by the Investment Adviser
and the Company's committees.
The Company's committees contribute as follows:
-- Audit and Risk committee: responsible for climate -- related disclosures and risk assessment
-- ESG committee: establishing and monitoring ESG policies and activities
-- Investment committee: reviewing ESG impacts during the investment process
-- Management Engagement committee: ensuring suppliers operate in a socially responsible manner
The ESG committee formally meets at least once a year, however
it engages informally with the Investment Adviser and other service
providers on a regular basis, including participating in briefings
and new initiatives. It reports to the Board at each quarterly
Board meeting. This quarterly engagement includes relevant training
and ESG updates for the Board, both regulatory and Company
specific.
The Board and the Investment Adviser use external consultants
and acquire expertise where needed, including through recruitment.
This year, the Investment Adviser funded three ESG-focused
internships to support the work the Board is carrying out on its
ESG strategy and to assist the Investment Adviser with the climate
risk assessment process and SBTIs. The internships enabled the
Company to benefit from a fresh, more diverse perspective with
enthusiasm and expertise in environmental matters.
Furthermore, from engaging with shareholders at regular
opportunities, including at the October 2022 Capital Markets day,
commissioning specific perception studies and responding to
shareholders' letters, it is apparent that many shareholders
utilise ESG ratings agencies. The Investment Adviser has continued
to engage with ESG ratings agencies this year to understand how the
ratings industry affects investor perceptions of the Company and
its share price. The UK Government published a revised Green
Finance Strategy in the first quarter of 2023, alongside a
consultation on a regulatory regime for ESG ratings providers. The
Company intends to return to this area of focus once the results of
the consultation are published and as these agencies increase their
coverage of investment companies.
B. Describe management's role in assessing and managing climate
-- related risks and opportunities
The Investment Adviser has over a decade of experience in
identifying assets with a core environmental and/or social benefit
for the Company. ESG is at the core of its investment decisions and
is led by the investment team. ESG investment processes are
overseen by the Responsible Investment committee, which reports to
the board of the Investment Adviser. Further information is
provided above.
Climate risks are considered at each stage of the investment
process, including the initial deal screening of opportunities and
investment due diligence processes. Risk assessment takes the form
of both quantitative analysis and qualitative assessments which
look at the ESG approach of investee companies. Environmental
impact assessments are carried out where appropriate as part of the
due diligence process to identify potential transition and physical
short, medium and long-term impacts on costs and viability across
service providers and investments.
This information is presented to the Investment committee as
part of the investment approval process with the Board of Directors
directly or indirectly addressing climate-related risks and
opportunities when evaluating and approving new investments. This
includes climate-related risks. The Investment Adviser provides
fortnightly, ad -- hoc and quarterly updates to the Board on asset
performance, including the response of assets to climate
events.
During the year, the Investment Adviser updated its climate risk
assessment for each underlying asset in the portfolio to assess
climate -- related risks and opportunities. Further information can
be found below.
Following execution and investment, key relevant ESG indicators
are monitored by the portfolio management teams. The Investment
Adviser seeks to engage with investees to understand relevant ESG
factors and to manage exposure to risks. ESG indicators are
reported to the Board for consideration as part of the quarterly
reporting cycle.
Strategy
Disclose the actual and potential impacts of climate -- related
risks and opportunities on the organisation's businesses, strategy
and financial planning where such information is material.
A. Describe the climate -- related risks and opportunities the
organisation has identified over the short, medium and long
term
The Investment Adviser, through its climate risk assessment, has
identified, based on current climate conditions, that the portfolio
is exposed to physical risks arising from extreme weather events,
with examples such as Storm Eunice in February 2022, which caused
damage to solar panels at a solar farm in the portfolio. However,
the overall financial impact to the Company is not material and
various mitigants are in place such as comprehensive insurance
policies which cover physical damage due to weather -- related
events. It is recognised, however, that such insurance policies may
not always be available at a reasonable cost or at all and physical
resilience or protection of assets is kept under review.
The Company defines short, medium and long -- term risk time
horizons as follows: short term: zero to three years; medium: four
to eight years; long term: more than eight years. When considering
materiality, the Investment Adviser considered the financial impact
each risk could potentially have on the asset were it to
materialise. Further information can be found below.
The main short-term physical risk exposures for the portfolio
are to wildfires, heat stress and flood risk. However, there are
mitigants in place. For example, the likelihood of these assets
experiencing damage at the same time is low due to their
geographical dispersion. The Investment Adviser has investigated
mitigation plans to strengthen the weather resistance of certain
assets during the year.
These involve actively managing the maintenance of trees and
tall structures located in the vicinity of projects to reduce the
possibility of falling objects on solar sites, as well as
undertaking work to strengthen solar panel structures at three
sites that have previously suffered storm damage. The Investment
Adviser will continue to monitor and review mitigation plans to
avoid physical damage to the portfolio assets.
Medium to long term, more frequent extreme weather will place
significant pressure on energy infrastructure, including
renewables, and may cause damage to components, power lines and
transmission grids, including potential disruption to supply
chains. Significant impacts may arise in the social infrastructure
sector, leading to localised strain on public services, and the
potential closure of facilities. Higher temperatures may also
impact key components of renewables projects and could also lead to
the overheating of buildings, which particularly affects vulnerable
people.
The Company is also exposed to transition risks in the short
term from sudden and unexpected changes to Government policy. For
example, in November 2022, the UK Government announced the
introduction of an Electricity Generator Levy to tax certain
renewable energy generating assets from January 2023. The impact of
this levy was initially estimated and reported in the 2022 annual
report, with the actual levy applied to the valuation of the
portfolio once full details were published by the UK Government in
December 2022.
As a result of the levy, there was increased volatility in
calculating the value of the Company's investments, indicative of
the continuing risk in further changes being made to the legal or
regulatory framework in which the Company's assets operate.
In the medium to long term, any policy changes to the Minimum
Energy Efficiency Standards ("MEES") would impact properties in the
social housing sector. The ability to claim MEES exemption caps the
maximum exposure to GBP10,000 per property. Overall, 45% of the
social housing portfolio has an EPC rating equal to a C or above,
whilst 42% has an EPC rating of D or below, with the remainder
either unavailable or unrated. The obligation to improve the energy
efficiency of the properties below a 'C' rating sits with the third
party RPs under fully repairing and insuring leases, and this will
be closely monitored with borrowers.
An increased focus on the ESG aspects of the investment process
presents a significant opportunity for the Company. At IPO, ESG
considerations were not as prominent for investors as they have
become in recent years. Whilst many investment funds and companies
are seeking to quantify and reduce their negative environmental and
social impact, the Company finds itself in a position where all of
its investments have a positive environmental or social
contribution, meaning ESG considerations are an inherent aspect of
the Company's central investment thesis.
As the UK embarks on the largest transformation of its
infrastructure in recent history as part of the transition to net
zero, there will be a significant private sector investment
requirement to support this, and public sector support will be
needed across a range of asset classes.
B. Describe the impact of climate -- related risks and
opportunities on the organisation's businesses, strategy and
financial planning
The primary physical impacts of climate change on the business
will be experienced by the Project Companies the Company lends to:
firstly, by increased operating costs or reduced revenues due to
physical risks materialising. In many cases, physical mitigation
measures exist and there is a degree of contractual protection
built into loan agreements from these increased costs. Secondly,
the credit quality of the Project Companies may deteriorate. For
example, extreme weather events might materially increase the cost
of insuring some assets, or they might make some assets
uninsurable. These impacts, if material, may lead to a reduction in
the valuation of the portfolio.
Regarding the Company's strategy, the portfolio benefits from
its geographic, technological and market diversification.
Conversely, opportunities may arise which enable the Company to
deploy capital to a wider range of asset classes, providing further
diversification into new sectors and thereby increasing
revenues.
For financial planning, one potential transitional impact of
climate change arises from the increased deployment of renewable
power generation reducing the marginal cost of electricity and
impacting revenue. A mitigating factor for this is an increased use
of direct PPAs, which will thereby secure steady revenue streams.
The Investment Adviser, on behalf of the Company, has successfully
implemented a number of these agreements. Further information on
the Company's electricity price exposure can be found above. Based
on the climate risk analysis undertaken, referred to below, the
Investment Adviser does not currently propose to make any changes
to financial forecasts due to climate risk.
C. Describe the resilience of the organisation's strategy,
taking into consideration different climate -- related scenarios,
including a 2 C or lower scenario
The climate change risk assessment carried out by the Investment
Adviser has concluded that the Company's strategy is relatively
resilient to both the physical and transition risks associated with
climate change. This year, the Investment Adviser has included a
partial analysis of a 2 C or lower scenario, and in doing so has
noted resilience to the identified physical risks associated with
climate change.
The results of the assessment demonstrated that whilst there are
physical and transitional risks in the context of the Company's
diversified portfolio, the financial impacts were not material. For
example, a storm might generate strong winds which could have a
negative impact on revenue from wind turbines causing them to shut
down in stormy conditions, but might not have an adverse impact on
other assets in the portfolio, illustrating the resilience of a
diversified portfolio.
Risk Management
Disclose how the organisation identifies, assesses and manages
climate -- related risks.
A. Describe the organisation's processes for identifying and
assessing climate -- related risks
The Board of Directors directly or indirectly addresses
climate-related risks and opportunities when evaluating and
approving new investments, including a climate risk assessment for
each new investment.
As part of the Investment Adviser's due diligence process,
climate risk assessments are carried out on each portfolio asset
where appropriate. The Investment Adviser also carries out ongoing
performance monitoring, including asset site visits by experienced
personnel; further information is given above. Fortnightly updates
and quarterly detailed reports on asset performance are also
provided to the Board.
Climate change has become a key risk faced by infrastructure
investors. The Company continues to focus on ESG, with a particular
focus on the potential impacts of climate change and the risk
factors associated with rising global temperatures. As such, the
Investment Adviser has conducted a detailed portfolio-wide climate
risk assessment across each of the 445 projects in the portfolio.
This risk assessment includes an analysis of the impact of a 2 C or
lower global warming scenario.
The risk assessment considers nine risk factors divided between
physical and transition risks:
-- Physical risks: these are events that are driven by a shift
in temperatures and weather patterns. The assessment considers five
risks: flood risk; heat stress; water stress; fires and wildfires;
severe winds and storms. These events have been chosen based on
their materiality to the overall portfolio. Refer to the table
below for further detail on materiality.
-- Transition risks: these are the risks related to the
transition to a low-carbon economy. Four areas were considered:
policy or regulatory; technological; market; and reputational
risks.
External and internal data points were used to assess the
portfolio. EPC ratings and flood risk data were obtained from UK
Government databases for all available sites within the portfolio.
Met Office and UK forestry agency climate data from 2000 to 2017
was also used for temperature, wind, wildfires and drought metrics
in each area local to the portfolio assets. The data points were
used to calculate the portfolio exposure to changes to energy
efficiency standards and to flooding resulting from climate
change.
An asset-by-asset assessment was also undertaken internally by
the Investment Adviser's portfolio management team to consider the
specifics of each investment and to understand the overall exposure
to climate change and any mitigating factors. The results from the
risk assessment form part of the portfolio management
decision-making process, and help identify further mitigation
strategies and inform whether any change is required to the
underlying financial forecasts of the Company.
The climate risk assessment was completed by evaluating the
impact and likelihood of a climate change event happening within
the remaining lifetime of each asset, divided between physical and
transition risks. This assessment assumes an increase in extreme
weather events due to climate change. The risk assessment scores
were calculated by multiplying impact and likelihood metrics to
form a total score for each asset.
For physical and transition risk, the impact metric indicates
the financial impact each risk could potentially have on the asset.
This metric is scored from a scale of 1 to 5, with 5 being the
highest and 1 having a lower impact.
Each score indicates a specific financial impact as shown in the
table below:
Score Materiality Impact
----- ----------- ---------------------------
5 Significant >GBP5 million
4 Major GBP2 million - GBP5 million
3 Moderate GBP501,000 - GBP2 million
2 Minor GBP51,000 - GBP500,000
1 Negligible <GBP50,000
----- ----------- ---------------------------
The likelihood score for physical risk is based on past Met
Office data and future weather projections to determine the
probability of a specific weather event happening, based on the
specific location of the asset.
For transition risk, the likelihood score was rated between 0%
and 100% based on the probability of a climate event happening
within the remaining lifetime of the asset. This probability was
converted to a score between 1 and 5 to keep consistency between
the physical and transition risk likelihood scores, seen in the
table below:
Probability Score
----------- -----
<5% 1
5% - 15% 2
15% - 25% 3
25% - 35% 4
>35% 5
----------- -----
The impact and likelihood metrics were multiplied with each
other to give a score for each risk identified, which led to each
physical and transition risk metric being given a total rating out
of 25. These individual ratings were then weighted by the portfolio
valuation of each asset to give an aggregated score by sub-sector
and sector. A final rating between 0 and 25 was then obtained by
combining total physical and transition risks scores.
The chart on page 64 of the full annual report on the Company's
website shows the output of this process, indicating the sectors
that are most vulnerable to climate change. The placement of each
sector highlights its risk exposure, with a low risk between 0-33%,
medium risk between 33-66% and high risk between 66-100%. Each
sector is plotted based on the risk percentage for each physical
and transition risk. The chart is based on the weighted average
rating for each sector.
Under physical risks, the biggest exposure is to fires/wildfires
and heat stress. An increase in the frequency of fires/wildfires
and heat stress is most likely to impact the renewables sector,
with fires and wildfires most impacting the PPP/PFI sector.
Wildfires are becoming a bigger threat for the UK, with England
averaging 30,000 wildfires a year, according to data from the
Forestry Commission. However, it is important to recognise that
when running the scenario, more data points were available for
wildfire and heat stress than other physical risks, which has
impacted scoring.
Under transition risks, the portfolio is most exposed to market
and policy or regulatory change. Within the renewables portfolio,
biomass projects account for some 9% of portfolio value and are
likely to be most influenced by regulatory and market changes.
While the Investment Adviser views the biomass sector as well
placed to benefit from the transition to net zero as a form of
low-carbon baseload power, current uncertainty around the possible
participation in the UK Emissions Trading Scheme ("UK ETS") along
with future power price caps for renewable generators, is reflected
in the regulatory and market risk scores.
The Investment Adviser also undertook the partial analysis of a
2 C or lower global warming scenario. This analysis concluded that
the Company's strategy is relatively resilient to the physical
risks associated with climate change.
In the 2 C scenario, the Investment Adviser considered changes
in the likelihood of the occurrence of physical climate risks and
focused on the impact from a 2 C change in heat stress and
fire/wildfire metrics likelihood scores in the physical risk
section. Other physical and transition risks were not included due
to difficulty in obtaining independent data points. The Company
recognises it has further to go in achieving full compliance with a
2 C increased temperature scenario as a result of this, and is
committed to including more physical and transition risk data
points in future years.
The likelihood score for heat stress and fires and wildfires in
a 2 C temperature increase scenario was based on the probability of
each metric occurring, using past Met Office data and future
weather projections to determine the probability of a specific
weather event happening based on the location of the asset. A
multiplier of 1.8 for heat stress and 1.1 for wildfires was then
used to calculate the likelihood in a 2 C scenario. This multiplier
was based on data from the Met Office and the UN environment
programme, which is responsible for co-ordinating responses to
environmental issues within the UN.
After running the 2 C scenario, it was determined that heat
stress risk would rise from nine points to 13 out of a possible 75
points in a 2 C scenario. Fire and wildfire risk also increased,
but only by one point from 14 to 15 points, indicating it would
have less of an impact on the portfolio in the case of rising
global temperatures.
The Investment Adviser and the Board recognise that the
prioritisation of climate change requires a change of Government
approach, primarily through regulation. Regulatory changes in UK
ETS, power price caps, energy efficiency standards and the
implementation of windfall taxes on renewable energy generators may
impact the portfolio.
Based on the analysis undertaken, the Investment Adviser does
not currently propose to make any changes to its financial
forecasts due to climate risk. As detailed above, in the medium to
long term, any changes to MEES for buildings could impact certain
assets, and these will be closely monitored with borrowers. The
Investment Adviser also intends to closely monitor the impact of
rising global temperatures on its investments, as the increasing
likelihood of rising temperatures could adversely impact the
portfolio, as shown through the 2 C rising temperature scenario.
The Investment Adviser intends to update the climate risk
assessment on an annual basis.
For details on the Portfolio exposures - climate change risk -
see page 64 of the full annual report on the Company's website
The Company will continue to refine its approach to materiality
as the availability, completeness and accuracy of data improves
over time. The Investment Adviser aims to continue improving all
areas of its climate risk assessment, including the data collection
process, controls around this process and creating meaningful
disclosures.
Whilst the Investment Adviser has concluded that the portfolio
is exposed to low physical and transition risk, the opportunities
for each asset have not been quantified in this exercise. This is
an area that will be considered further in future assessments.
The Investment Adviser has identified several transition
opportunities for the Company. These surround optimisation,
expansion and life extension opportunities for the portfolio
following growing demand for renewable energy and energy security.
This is expected to cause renewable energy demand to increase,
driven by the decarbonisation of transport and heating amongst
other factors.
While opportunities related to physical and transition risk have
not been quantified to date, the Board and the Investment Adviser
hope to include this in future reports.
The Investment Adviser intends to continually improve the
climate change risk assessment process for future years to help
monitor and mitigate exposure to climate change. Areas for
improvement may include:
-- including more physical and transition risks in a 2 C or lower scenario; and
-- combining climate opportunities into the assessment.
B. Describe the organisation's processes for managing climate --
related risks
The portfolio is diversified across a number of asset classes
and ESG processes are embedded into investment decision making. The
importance of the Investment Adviser's engagement and influence in
helping portfolio companies improve their ESG performance is
crucial. Further information is given in the risk section
below.
C. Describe how processes for identifying, assessing and
managing climate -- related risks are integrated into the
organisation's overall risk management
The way in which the Company manages risk and principal risks
and uncertainties is described below. The Board does not consider
climate -- related risk as a principal risk, however it does
recognise climate-related risk as an emerging risk. Refer below for
further information.
Metrics and Targets
Disclose the metrics and targets used to assess and manage the
relevant climate -- related risks and opportunities where such
information is material.
A. Disclose the metrics used by the organisation to assess
climate -- related risks and opportunities in line with its
strategy and risk management process
The Investment Adviser includes an assessment of ESG
characteristics in every investment proposal submitted to the
Company's Investment committee for approval. Prior to the approval
of a new investment, the Investment Adviser assesses how the
investment rates against relevant ESG criteria, laid out in an ESG
checklist tailored to the Company. The checklist typically covers
the counterparty's commitment and capability to effectively
identify, monitor and manage potential ESG-related risks and
opportunities and, to the extent applicable, the availability of
relevant policies and procedures, alignment with industry or
investment-specific standards and ratings, and compliance with
relevant ESG -- related regulation and legislation.
During the year, the Investment Adviser carried out a climate
risk assessment for each underlying asset. Further information on
the methodology used to complete the climate risk assessment is
included above.
B. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3
greenhouse gas emissions and the related risks
As an investment company, the Company does not have a
significant environmental impact in its own right. With no
employees or property and an outsourced services model, there are
no Scope 1 (direct) and Scope 2 (indirect through power demand)
climate -- related emissions to report, and as an investment fund
specifically, its Scope 3 (other indirect) emissions fall under two
categories within Scope 3 as defined by the GHG Protocol:
Category 1: Purchased goods and services
The emissions from services provided by the Company's top ten
third party service providers and emissions from travel of the
Board. The top ten third party service providers represent 90% of
the annual expenditure of the Company and therefore these were
deemed most material in the context of the Company's outsourced
service model.
The Company used a supplier-specific approach whereby
expenditure for each service provider is multiplied by the service
provider's organisational carbon footprint intensity in tCO2e
(market -- based Scope 1 and 2 plus upstream Scope 3 emissions) as
disclosed through publicly available data. Using this approach, the
Company was able to report attributable supplier emissions covering
79% of its annual spend across six of its top ten suppliers.
In the prior year, the Company only reported supplier emissions
from the Investment Adviser and the Administrator. This year, the
Company expanded Category 1 reporting to include other service
providers in the top ten suppliers.
Category 15: Investments
The emissions of the underlying portfolio. As this is only the
second year a detailed data collection exercise has been
undertaken, there are still challenges faced in respect to the
availability of the data requested, insofar as the Company is a
debt provider and does not own or control c.90% of assets in the
portfolio. As such, emissions data points were obtained from 53% of
portfolio assets by value, with a further 31% calculated with
estimated data.
Where no data had been provided, data was estimated using a
consistent methodology, advised by Aardvark, an external ESG
certification service who provide independent and impartial company
auditing and certification services. Estimated data was observed
for a number of rooftop solar assets where the data collection was
challenging to support through primary evidence or aggregated data.
Estimated data was also used for a number of small anaerobic
digestion plants where site level data had not been provided. Here,
averages for equivalent sized plants were used to obtain a holistic
data set for the anaerobic digestion assets.
The Investment Adviser will continue to liaise with asset
operators to improve and refine the availability of future ESG data
which will continue to be collected and reported on an annual
basis. Further information on the data collection exercise can be
found above.
The Company has measured and disclosed the emissions from the
underlying portfolio in accordance with the GHG Protocol. Emissions
from investments (Category 15) comprise proportional Scope 1 and
Scope 2 and limited Scope 3 emissions of the underlying portfolio
and have been allocated based on the Company's proportional share
of total enterprise value (total equity plus debt) in accordance
with the guidance for debt investments and project finance.
The Company has not reported total projected lifetime Scope 1
and Scope 2 emissions of any new projects financed during the year.
It will seek to include this information for future years where
possible.
Greenhouse gas emissions
The Company has measured its emissions in accordance with the
GHG Protocol. An operational control approach was used to define
the organisational boundary and responsibility for GHG emissions.
Emissions have been measured over the twelve month period to 30
June 2023. The period chosen was to facilitate data inclusion in
the Company's annual report.
Year ended Year ended
30 September 2023 30 September 2022
-------- ------------------------ --------------------------------------------------
Absolute Attributable Absolute Attributable Absolute Attributable
emissions emissions emissions emissions emissions emissions
tCO(2) e tCO(2) e tCO(2) e tCO(2) e tCO(2) e tCO(2) e
GHG emissions Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
Scope Scope Scope Scope Scope Scope
1, 2 & 3 1, 2 & 3 1, 2 & 3 1, 2 & 3 1 & 2 1 & 2
-------- ------------------------------ ---------- ------------ ---------- ------------ ---------- ------------
Scope 1 Direct GHG emissions - occur - - - - - -
from sources that are owned or
controlled by the organisation
Scope 2 Indirect GHG emissions - occur - - - - - -
from the generation of
purchased electricity,
heating, cooling
and steam
Energy consumption used to - - - - - -
calculate above emissions:
/(kWh)
Total gross Scope 1 and Scope - - - - - -
2 emissions /tCO2e
-------- ------------------------------ ---------- ------------ ---------- ------------ ---------- ------------
Category 1, emissions from
indirect purchased goods and
Scope 3 services 124 124 12 12 12 12
Category 15, emissions from investments 36,752 13,030 28,526 14,597 17,205 9,520
Total gross Scope 3 emissions /tCO2e 36,876 13,154 28,538 14,609 17,217 9,532
--------------------------------------- ---------- ------------ ---------- ------------ ---------- ------------
Total gross Scope 1, Scope 2 and Scope
3 emissions /tCO2e 36,876 13,154 28,538 14,609 17,217 9,532
--------------------------------------- ---------- ------------ ---------- ------------ ---------- ------------
C. Describe the targets used by the organisation to manage
climate -- related risks and performance against targets
The Board and the Investment Adviser are committed to improving
the Company's data capture and disclosure to help drive more
consistent reporting across the industry. The Company has continued
to make progress towards achieving compliance with TCFD and has
expanded its reporting this year to include a climate risk
assessment for a 2 C or lower global warming scenario, as well as
expanding its emissions data for Scope 3 reporting.
The Company intends to continue to develop its approach in
relation to targets. After reviewing the framework of the SBTI, the
Company is considering targets for implementation that align with
the initiative, where appropriate. However, as a debt provider that
doesn't own or control c.90% of the assets in the portfolio,
certain challenges remain around setting climate-related targets at
a portfolio level.
The Company has thoroughly considered the implementation of the
SBTI, particularly regarding target setting. However, there is
currently no existing guidance from the SBTI on the infrastructure
sector which assists with formulating targets. Formally submitting
targets comes at a cost to the Company and it is therefore
important to ensure it is good value for stakeholders. The first
step is to establish internal targets, and the Company is in the
process of ensuring robust and reliable data to establish a target
base year.
The data collection exercise undertaken this year continues to
provide the Company with useful portfolio-level data. This allows
the Board and the Investment Adviser to focus on areas that are
material. When considering materiality, the Company was advised by
an external consultant, MJ Hudson, using framework guidance
provided by SASB, GRESB and the UN SDGs.
The data will also assist the Board in selecting relevant
targets to manage risk and performance and inform other mitigations
such as regular engagement, oversight and review.
The Company has also engaged with Aardvark, an independent and
external provider, to advise on the necessary next steps to enable
it to commission independent assurance of its ESG data collection
process in due course.
The Investment Adviser has achieved its goal of running its
operations on a carbon-neutral basis by 2023. The Company is also
committed to achieving carbon neutrality by offsetting emissions
generated by business travel, therefore supporting the transition
to net zero. The Investment Adviser and the Board believe this is
the right thing to do as a business to meet the international
target set out by the 2015 Paris Agreement to limit global warming
to below 2degC.
ESG integration
The Company and the Investment Adviser have made considerable
progress with ESG integration over the past years.
Governance
2022
-- ESG committee formed by the Company to define ESG strategy
and ensure it is integrated in the Company's policies and
procedures.
-- Investment Adviser held formal ESG training and carried out a
staff survey to monitor progress on integrating ESG across the
organisation.
-- Improved gender diversity of SPV boards where the Company has direct influence.
-- Carbon offsetting schemes launched at the Investment Adviser and the Company.
-- The Investment Adviser worked with borrowers to implement ESG policies and procedures.
-- Investment Adviser committed additional resource by
recruiting a senior member of staff to lead on ESG and legal
matters.
2023
-- The ESG committee reviewed the updated Modern Slavery statement.
-- Blackcraig Wind Farm achieved GRESB rating of four green stars and 90 out of 100 points.
-- Investment Adviser achieved aim of carbon neutrality by 2023.
-- Investment Adviser considered the application of the SFDR to
the Company and undertook training on the topic.
2024 (and further)
-- The Company to implement a formal ESG policy which will
encompass all aspects of ESG including the Investment Adviser's
Responsible Investment policy.
-- The Company and Investment Adviser apply lessons learned and
best practice across the portfolio where appropriate.
-- Work with borrowers to understand where the Company can
support them in their diversity ambitions.
-- The Company to consider further initiatives to reduce carbon
emissions across the portfolio and Investment Adviser.
Reporting
2022
-- The Company completed data collection project to quantify,
develop and finalise ESG metrics and targets.
-- The Company partially and voluntarily reported against the eleven recommendations of TCFD.
-- The Company completed climate risk assessment for each portfolio asset.
2023
-- The Company continued to develop data collection project and ESG metrics and targets.
-- The Company appointed an external consultant to review carbon emissions data.
-- The Company broadened TCFD reporting to include a partial 2 C
warming scenario under strategy c) disclosures.
-- The Investment Adviser reviewed potential biodiversity impact
for two portfolio assets and undertook training on biodiversity net
gain opportunities.
-- The Company expanded climate risk assessment to include
opportunities and a partial 2 C climate scenario.
2024 (and further)
-- The Company to develop further ESG metrics and targets and
improve data collection coverage and quality at portfolio
level.
-- The Company to obtain limited assurance over its carbon emissions data.
-- Set specific ESG targets for the Company under TCFD metrics and targets c) disclosures.
-- The Company to continue to develop climate risk assessment in
line with best practice recommendations.
Awareness
2022
-- The Company engaged with ESG rating agencies during the year.
-- Investment Adviser launched dedicated area for responsible investment on its website.
-- The Company incorporated the recommendations from the
stakeholder survey, particularly in regard to the reporting of
sustainability matters.
-- Investment Adviser revised its business travel policy to
further encourage use of public transport and minimise flight
travel.
2023
-- The Company introduced biodiversity considerations into
investment process and ran biodiversity training for staff
members.
-- Investment Adviser expanded Responsible Investment report to
include information under TCFD.
-- Investment Adviser funded three ESG-focused internships to
support the work on the Company's ESG strategy and to assist with
the data collection project.
2024 (and further)
-- The Company to implement biodiversity net gain reporting for portfolio assets.
-- The Company to expand its TCFD disclosures.
-- Continue to work with partners to offer further internships with the Investment Adviser.
Stakeholders
Stakeholders are integral to the long -- term success of the
Company. They include shareholders, borrowers, lenders, the public
sector, suppliers and local communities.
Stakeholders
As a member of the AIC, the Company reports against the AIC Code
on a comply or explain basis. Whilst the Company is not domiciled
in the UK, voluntarily reporting against the AIC Code allows the
Company to meet any obligations relating to the 2018 UK Corporate
Governance Code, specifically section 172 of the UK Companies Act
2006.
The Directors seek to understand the needs and priorities of the
Company's stakeholders in accordance with the UK Companies Act
2006. All Board discussions involve careful consideration of the
longer -- term consequences of any decisions and their implications
for stakeholders.
The Board believes that the Company's key stakeholders comprise
shareholders, borrowers, lenders, the public sector, suppliers and
local communities. This section sets out why and how the Company
engages with these stakeholders and the actions taken by it to
ensure that their interests are considered by the Board.
The Board always aims to be fair and balanced in its approach.
The needs of different stakeholders are considered as well as the
consequences of any long-term decisions.
The stakeholder model on page 72 of the full annual report on
the Company's website demonstrates how the Company interacts with
its stakeholders. These relationships provide the foundation for
the Company's longevity, which is beneficial to all parties. The
Board understands the value of maintaining a high standard of
business conduct and stakeholder engagement, whilst also ensuring
the Company positively impacts the environment in which it
operates.
The Directors recognise that, both individually and
collectively, their overarching duty is to act in good faith and in
a way that promotes the success of the Company as set out in
section 172 of the UK Companies Act 2006. The Directors act for the
benefit of shareholders and in the interests of stakeholders as a
whole, having regard, amongst other matters, for the likely
consequences of any decision in the long term to the below
considerations.
Section 172: Promoting the success of the Company
The Board of Directors consider, both individually and together,
that they have acted in the way they consider, in good faith, is
likely to promote the success of the Company for the benefit of its
members as a whole in the decisions taken during the year as set
out below.
The interests of the Company's employees Refer to stakeholder engagement section below and to the
The Company has no employees but has close working governance section in the full annual
relationships with the employees of the report on the Company's website.
Investment Adviser and the Administrator to which it
outsources its main functions.
The need to foster the Company's business relationships Refer to stakeholder engagement section below.
with suppliers, customers and others
The Board has a close working relationship with all its
advisers and regularly engages with
all parties.
The impact of the Company's operations on the community Refer to sustainability section above.
and the environment
The Company's activities are beneficial to the environment
as they comprise, in part, renewable
energy investments that positively impact the environment
and climate change, regulatory and
UK Government targets.
The desirability of the Company maintaining a reputation Refer to Board values and culture in the governance
for high standards of business conduct section in the full annual report on the
Under the leadership of the Chairman, the Board operates Company's website.
with core values of integrity and
impartiality with
an aim of maintaining a reputation for high standards in
all areas of the business it conducts.
The need to act fairly between shareholders of the Company Refer to stakeholder engagement section below.
The Board actively engages with shareholders and considers
their interests when setting the
Company's strategy.
---------------------------------------------------------- ----------------------------------------------------------
This section sets out why and how the Company engages with
stakeholders and the actions taken to ensure that their interests
are taken into account in the Board's decision making.
Shareholders
All investors in the Company, be they institutional, such as
pension funds or wealth managers, or retail, such as private
individuals.
Why engage
The Company generates earnings that benefit shareholders through
dividend income. The Board and the Investment Adviser recognise the
importance of engaging with shareholders on a regular basis to
maintain a high level of transparency and accountability, acting
fairly and to inform the Company's decision making and future
strategy.
How the Company engages
The Company, primarily through its Investment Adviser and
Corporate Broker, engages in ongoing communication with its
shareholders via market interactions, analyst and marketing
presentations and they regularly provide feedback to the Board. The
feedback received from shareholders during the course of these
interactions is taken into consideration when setting the future
strategy of the Company and any Board decisions which impact
shareholders.
The Board encourages shareholders to attend and vote at general
meetings of the Company so that they may discuss governance and
strategy with them and understand their issues and concerns. The
Chairman of the Board and the Chair of each committee attend
general meetings of the Company to answer any questions posed by
shareholders.
The Board recognises that the Company is required to have its
formal shareholder meetings in Jersey, which may preclude
shareholders from attending. To address this issue, on 12 October
2022, the Company held its first 'Capital Markets day' in London,
providing an opportunity for investors to meet the Board, the
Investment Adviser and investee companies, as well as hearing in
greater detail the work being undertaken to drive value within the
portfolio. The presentation from the event is available on the
Company's website. The Investment Adviser is planning to hold a
second Capital Markets day in January 2024. Further information
will be published by the Company in due course.
Further communication with shareholders is achieved through the
annual and half -- yearly reports, news releases via the LSE and
the Company's website. This information is supplemented by the
quarterly calculation and publication of the NAV per share on the
LSE and the publication of a quarterly factsheet by the Investment
Adviser.
The Company's annual report is dispatched to shareholders by
post (where requested) and is also available to download from the
Company's website, together with the half-yearly report. In the
annual report, the Directors seek to provide shareholders with
sufficient information to allow them to obtain a reasonable
understanding of developments affecting the business and the
prospects for the Company in the year ahead.
The strategic report above provides further information.
Communication of up-to-date information is provided through the
Company's website.
The Board and the Investment Adviser have continued to engage
with ESG ratings agencies during the year and intend to engage
further to understand how ESG ratings impact investor perceptions
of the Company.
Key Board decision:
Buyback programme
On 14 March 2023, the Company launched a proactive buyback
programme of shares up to a maximum aggregate value of GBP15.0
million, as a result of the prevailing discount(1) to NAV at which
the Company's ordinary shares were trading.
The Directors have the authority to repurchase up to 14.99% of
the Company's share capital (132,631,170 ordinary shares at the
date of the last authority) if they believe it to be in the
Company's best interest as a whole and as a means of correcting any
imbalance between supply and demand of the shares. The latest
authority was granted at the 2023 AGM and the Board will be seeking
a renewal of the authority at the 2024 AGM.
At the date the buyback programme was launched, the share price
offered value to shareholders with the shares trading at a
significant discount(1) to NAV, meaning any buybacks would be NAV
accretive.
Process:
A Board meeting was held in March 2023 to discuss a
recommendation from the Investment Adviser and the Broker that the
Board initiate a buyback programme. During this meeting, the Board
considered, amongst other matters, the (i) share price discount(1)
to NAV, (ii) potential NAV accretion from buybacks against the
investment pipeline, and (iii) available cash resources.
It was recognised that the repurchase of shares does not
necessarily have a significant impact on the share price.
During the year, the Chairman, the Investment Adviser and the
Broker met with a number of the Company's shareholders to
understand their views on a buyback programme and the Company as a
whole. The shareholders expressed their support for a buyback
programme.
Outcomes:
Based on the buyback programme being in the best interests of
the Company, and as an appropriate means of returning value whilst
maximising sustainable long-term growth for shareholders, the Board
authorised the initiation of a buyback programme of shares up to a
maximum aggregate value of GBP15.0 million. The programme is
authorised in increments in order for it to be monitored by the
Board against the Company's cash position and share price.
During the year, the Company repurchased 13.6 million shares.
Post year end, a further 3.4 million shares have been repurchased.
All shares repurchased are held in treasury.
Key Board decision:
Strategic opportunities
On 11 August 2023, the Company announced that it had signed
heads of terms with GCP Asset Backed in respect of a proposed
combination of the Company with GCP Asset Backed (the "Scheme") and
that it was in separate discussions with RM Infrastructure with the
intention of agreeing a potential combination of the enlarged
Company with RM Infrastructure.
Process:
On 6 September 2023, the Company announced that it had been
unable to agree on structure and terms with RM Infrastructure in
respect of a potential combination that was acceptable to both
parties and, therefore, the Company notified RM Infrastructure of
the termination of discussions on the matter.
A significant shareholder consultation exercise was undertaken
for the Scheme with GCP Asset Backed.
The majority of the Company's shareholders recognised the
Company's efforts to put forward constructive options that sought
to accelerate: (i) the reduction of the Company's outstanding debt;
(ii) the return of capital to shareholders; and (ii) the reset of
return and risk being generated by the Company's portfolio of
investments. The Board was made aware of a divergence of views
regarding the merits of the Scheme amongst shareholders of GCP
Asset Backed. The Board had no desire, if the Scheme was
successful, to create an enlarged entity with a significant
minority of investors opposed to it. The Board considered that such
circumstances would risk the ability of the Scheme to achieve its
intended purposes.
On 18 September 2023, the Company announced that it was no
longer in discussions with GCP Asset Backed regarding the Scheme.
As part of the heads of terms, the Investment Adviser underwrote
the costs incurred by the Company of progressing the Scheme up to a
capped amount, and therefore there was minimal cost to the Company
and its shareholders for the consideration and development of the
Scheme.
Outcomes:
Notwithstanding the cessation of the Scheme, the Company remains
committed to delivering a strategy that accelerates the Company's
capital reallocation. The Company's priorities for the use of its
available cash reserves remain, in the first instance, a
combination of reducing the Company's outstanding debt balance from
the current GBP104.0 million; and buying back shares whilst the
Company's share price trades at a material discount(1) to its NAV.
Given these alternatives, the threshold for new investment activity
remains a high hurdle.
The Board continues to work with the Investment Adviser to
accelerate the return of capital to the Company in addition to
scheduled amortisation through refinances, disposals and other
means that may be available to the Company from time to time.
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Key Board decision:
Electricity price hedging
At a Board meeting held in April 2023, the Investment Adviser
recommended to the Board a new hedging policy for residual
electricity price exposure. This recommended entering rolling
seasonal commodity swap agreements to mitigate volatility in
valuation caused by movements in electricity prices.
Process:
In recent years, the Company has increased its exposure to
investments where the value of such investments was linked to
merchant electricity prices, with valuations changing on a
quarterly basis as power price forecasts were refreshed. Whilst
recent changes to forecasts have benefited the Company, the
volatility of such prices remains a risk to the Company.
Following the maturity of the electricity prices commodity swap
agreement with Axpo Solutions AG entered into by the Company on 13
July 2022. For summer 2022 and winter 2022/23, on 15 February 2023,
the Investment Adviser recommended that the Company enter into a
new swap agreement for summer 2023, which expired on 30 September
2023. The Investment Adviser further recommended entering into a
new swap agreement with Axpo Solutions AG for the 2023 winter
season, and executed this trade on 28 September 2023, which is
still in place at the date of the report.
The commodity swap agreement is a derivative financial
instrument utilised for the purpose of hedging market price
volatility.
Outcomes:
Following a review of the Company's cash flow forecasts, the
Board concluded that the proposed hedging arrangement was in the
interest of shareholders as it would help reduce volatility in the
valuation of investments impacted by electricity power price
fluctuations. This would in turn help support the share price and
total returns for investors going forward.
The Board therefore approved entering into the commodity swap
agreements and adopted a hedging policy in April 2023.
Further information on the commodity swap can be found in note
18 to the financial statements.
Borrowers
Owners of the Project Companies to which the Company advances
loans.
Why engage
The Company values its relationships with borrowers, ensuring
time is spent building and maintaining these relationships. By
engaging with borrowers and understanding their needs, the Company
can build long-lasting relationships that are beneficial to both
parties. Borrower contact enables direct feedback and informs
strategic decision making at the Board level.
How the Company engages
The Company has been able to advance a further GBP129.5 million
to existing borrowers in the financial year under review with a
further GBP0.1 million post year end.
The Investment Adviser is closely engaged with borrowers on an
ongoing basis. Engagement takes the form of regular interaction
with the borrowers by its dedicated portfolio management team.
Refer above for further details and information on site visits
carried out during the year.
The Board takes advantage of all available opportunities to
engage with borrowers. This includes participating in site visits
led by the Investment Adviser.
Suppliers
Suppliers across the UK and Jersey who provide administrative
services to the Company.
Why engage
The Company's suppliers include third party service providers
engaged to provide corporate or administration services, in
addition to the investment advisory services provided by the
Investment Adviser. These services are critical to the ongoing
operational performance of the Company. It relies on the
performance of third party service providers to perform its main
functions.
The Board has a close working relationship with all its advisers
and regularly engages with all parties. The Management Engagement
committee regularly monitors the performance and reviews the terms
of each service contract.
This informs decision making at the Board level in regard to the
continuing appointment of service providers. Further information on
the activities of the Management Engagement committee can be in the
full annual report on the Company's website.
The Audit and Risk committee also conducts an annual review of
the internal controls of the Investment Adviser and the
Administrator; this includes a visit to the offices of both service
providers, refer to the full annual report on the Company's website
for further details.
Public sector
Organisations owned and operated by the UK Government that exist
to provide public services for society.
Why engage
Governments and regulators play a central role in shaping the
renewable energy, PFI and social housing sector policy. Changes in
UK Government policy may adversely affect the ability of the
Company to successfully pursue its investment policy and meet its
investment objective or provide favourable returns to
shareholders.
How the Company engages
The Company engages with local government and regulatory bodies
at regular intervals and participates in focus groups and research
projects on the infrastructure sector through the Investment
Adviser. UK infrastructure policy informs strategic decision making
at Board level with consideration given to the impact the Company
has on the sector.
The Company has historically benefited from co-investment
alongside public bodies seeking to 'crowd-in' private sector
capital and will continue to seek and evaluate such opportunities.
In addition, the Company is helping in efforts to mobilise private
capital to support decarbonisation efforts. The Company's focus
remains on investing in UK infrastructure debt in project companies
that own and operate assets that benefit from public sector backed
revenues.
The UK Government remains committed to its aggressive
decarbonisation targets: net zero by 2050 and the decarbonisation
of the electricity system by 2035. The Investment Adviser's
extensive track record in certain sectors and proven ability to
target emerging sectors means the Company is well placed to benefit
from investment opportunities associated with the transition to net
zero.
Society
The Company makes a positive impact through its investments in
renewables and assets such as schools and hospitals which are
integral to society.
Why engage
Through its investments in renewable energy projects and assets
such as schools and hospitals, the Company's activities indirectly
impact the lives of many thousands of people across the UK. The
Company is committed to being socially responsible and the
Directors consider community involvement to be an important part of
that responsibility.
How the Company engages
The Company indirectly provides benefits to society through its
investing activities, by contributing towards the generation of
renewable energy and providing financing for infrastructure that
has clear benefits to end users within society.
Investing in renewables, PPP/PFI and social housing projects
indirectly creates job opportunities in supply chains that benefit
local communities across the UK. Renewables projects not only have
a positive impact on the environment but also have wider benefits
for society, for example, improving local communities through
Community Benefit Funds.
The Company's investments in supported living have helped fund
many social housing properties across the UK, offering high-quality
accommodation for people living with disabilities. The Investment
Adviser has a particular focus on operating to the highest ethical
standards in this area due to the vulnerability of some
stakeholders.
Lenders
Financial institutions and providers of the Company's credit
facilities.
Why engage
The Company's facilities are used to make investments in
accordance with the investment policy. These arrangements provide
the Company with access to flexible debt finance, enabling it to
take advantage of investment opportunities as they arise as opposed
to holding cash awaiting investment. Access to these facilities is
important in the efficient capital management of the Company.
How the Company engages
Lenders are financial institutions that provide debt finance in
the form of a RCF. The Company, through its Investment Adviser,
engages with its lenders on an ongoing basis.
The Company has in place a RCF of GBP190.0 million total
commitments which will expire on 29 March 2024. The Investment
Adviser on behalf of the Company has engaged positively with its
lenders during the year. Post year end, in December 2023, the
Company signed heads of terms for a new the debt facility at a
reduced amount of GBP150.0 million, in line with the Board's stated
intention of reducing Company leverage.
Given the transaction costs involved in renewing any debt
facility, the existing facility has not been renewed ahead of
expiry.
These arrangements are anticipated to provide the Company with
continued access to flexible debt finance, enabling it to take
advantage of investment opportunities as they arise, and may also
be used to manage the Company's working capital requirements from
time to time.
Further details on the Company's RCF can be found in note 15 to
the financial statements.
Risk management
The Board and the Investment Adviser recognise that risk is
inherent in the operation of the Company and are committed to
effective risk management to protect and maximise shareholder
value.
Approach to risk management
The Board has ultimate responsibility for risk management and
internal controls within the Company. The Board has adopted a risk
management framework to govern how it identifies existing and
emerging risks, determines risk appetite, identifies mitigation and
controls, and how it assesses, monitors and measures risk and
reports on risk.
Risk review process
The Board, with the assistance of the Audit and Risk committee,
undertakes a formal risk review twice a year to assess the
effectiveness of the Company's risk management process and internal
control systems. During the year, the Board continued to track its
most material risks ('A' risks) on a risk matrix showing relative
probability and impact. This allowed the Board to identify the
twelve principal risks facing the Company as described below.
During the year, risks relating to the share price discount(1) to
NAV and the Company's strategic positioning were elevated to
principal risks. Additional, less material risks ('B' risks) are
monitored by the Board on a watchlist.
In addition to the Audit and Risk committee, the Company's
Investment committee and Management Engagement committee have a key
role and contribute to the overall risk management and governance
structure. Consideration is given to the materiality of risks in
designing systems of internal control; however, no system of
control can provide absolute assurance against the incidence of
risk, misstatement or loss.
The following are the key components the Company has in place to
provide effective internal control:
Execution risk
-- The Board and the Investment committee have agreed clearly
defined investment criteria, which specify investment
characteristics, authority and exposure limits.
-- The Board and the Audit and Risk committee receive and review
assurance reports on the controls of the Investment Adviser and
Administrator undertaken by a professional third party service
provider.
-- The contractual agreements with the Investment Adviser and
other third party service providers, and their adherence and
ongoing performance, are regularly reviewed by the Board and at
least annually by the Management Engagement committee.
Portfolio risk
-- The Investment Adviser prepares quarterly reports which allow
the Board to assess the performance of the Company's portfolio and
more general market conditions.
Financial risk
-- The Investment Adviser and the Administrator prepare
financial projections and financial information which allow the
Board to assess the Company's activities and review its financial
performance.
-- The Company has policies and procedures in place to ensure
compliance with legal and regulatory requirements which are
monitored by the Board.
Other risks
-- The Board monitors the outputs from the Company's and the
Investment Adviser's compliance officers.
Emerging risks
-- Emerging risks are a standard item on the Board's agenda with
continual focus and scanning of the regulatory horizon to ensure
early awareness and engagement.
-- Climate risk is now a key consideration for the stability of
future risk-adjusted financial returns, with both physical and
transition risks considered.
-- The Board of Directors directly or indirectly addresses
climate-related risks and opportunities when evaluating and
approving new investments, including an ESG risk and impact
assessment completed for each new investment.
-- More detail on how the Board of Directors identifies,
assesses and manages emerging risks, including climate change risk,
is provided below.
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Risk appetite
As an investment company, the Company seeks to take investment
risk. The Company's investment policy above sets out the key
components of its risk appetite. The Company and the Board seek to
manage investment risk within set risk and return parameters.
Information on the Investment Adviser's view on current asset risk
characteristics for each risk sector is included in the Investment
Adviser's report above.
Role of the AIFM
The Investment Adviser is the appointed AIFM to the Company and
is required to operate an effective and suitable risk management
framework to allow the identification, monitoring and management of
the risks to which the Investment Adviser and the AIFs under its
management are exposed.
The Investment Adviser's permanent risk management function has
a primary role alongside the Board in shaping the risk policy of
the Company. It also has responsibility for risk monitoring and
risk measuring to ensure that the risk level complies with the
Company's risk profile on an ongoing basis.
The principal risks faced by the Company detailed below are
categorised under the headings of execution risk, portfolio risk,
financial risk(1) and other risks.
1.The principal financial risks, the Company's policies for
managing these risks and the policy and practice with regard to
financial instruments are summarised in note 19.
Changes to the principal risks as a result of the risk
review
This year, strategic positioning risk and share price discount
or premium(1) to NAV risk have been elevated from 'A' risks to
principal risks due to the level and persistence of the share price
discount(1) to NAV. There have been no further movements between
categories.
Category 1: Execution risk
Change in residual
Risk Impact How the risk is risk over the year
managed
---------------------------- ---------------------------- ---------------------------- ----------------------------
1 Investment due If an investment In addition to due Stable
diligence underperforms relative diligence carried The current macro-economic
Investment due diligence to expectations, out by the Investment environment is uncertain,
may not reveal all the interest and committee of the and the future outlook
the facts relevant principal received Board and for inflation and
to an investment on the investment the Investment Adviser, interest rates is
and may not highlight may be various third party difficult to predict
issues that could lower than envisaged, financial, technical, with accuracy. The
affect that investment's negatively impacting insurance and legal war in Ukraine,
performance. This the performance experts are engaged along with unrest
risk is likely to of the to advise on specific in the Middle East
be greater in new Company. project risks. post year end has
investment sectors caused volatility
such as geothermal, in energy prices,
hydrogen storage, however the Board
forestry and electric does not intend
vehicles. to increase this
risk from its existing
Link to strategy: heightened level.
1, 3
---------------------------- ---------------------------- ---------------------------- ----------------------------
2 Availability If the Company cannot The Investment Adviser Decreased
of suitable investments invest capital in is constantly engaging The Company made
and reinvestment suitable assets with the market, limited new loans
risk in a timely and seeking new deals, of GBP9.2 million
There is no guarantee appropriate and building a specifically in the year. Portfolio
that the Company manner, the uninvested identified investment investments of GBP129.5
will be able to cash balance will pipeline before million focused
identify suitable have a negative the Company seeks on restructuring
investments with impact on the Company's to raise additional and management.
risk returns. If the capital in order This was offset
and return characteristics only available investments to ensure that it by repayments of
that fit within with an is deployed in a GBP128.0 million,
the investment strategy appropriate risk timely fashion. giving a net investment
of the Company. profile yield lower Consideration is in the existing
Where suitable investments rates of return also given to any portfolio of GBP1.5
can be identified, than scheduled capital million. The Company
the Company may have historically repayments. maintains an attractive
face competition been achievable, pipeline of investments
in closing a transaction. the Company's overall at returns that
This is a risk when returns may be adversely would be accretive
raising capital affected. Furthermore, to dividend coverage
and when reinvesting if loans are prepaid and that reflect
capital repaid to earlier than expected the current market
the Company under the repayment of pricing. However,
existing loan agreements. capital is accelerated, the Company recognises
leading to that the use of
Link to strategy: potential cash drag. cash resources for
1, 2, 3 Ultimately, this pipeline investments
risks the sustainability must be weighed
of the dividend. against repayment
of the Company's
RCF or, whilst the
Company's share
price trades at
a material discount(1)
to the NAV, buying
back shares.
---------------------------- ---------------------------- ---------------------------- ----------------------------
3 Reliance on the Failure by the Investment The performance Increased
Investment Adviser Adviser to carry of the Investment The Investment Adviser
The Company is heavily out its obligations Adviser is continues to provide
reliant on third in accordance monitored closely adequate resources
party service providers with the terms of by the and act with due
to carry out its its appointment, Board. In addition, skill, care and
main functions. or to exercise at least diligence in its
In particular, due skill and care, once a year the responsibilities
the Company depends could Management Engagement as Investment Adviser
on the Investment have a material committee and AIFM to the
Adviser and the effect on performs a formal Company.
expertise of the Company's performance. review
its key personnel Any poor performance, process to consider The Company's shares
and staff to implement misconduct or the are trading at a
the Company's strategy misrepresentation ongoing performance significant discount(1)
and investment policy, by the Investment of the Investment to NAV, in line
to deliver its objectives Adviser may manifest Adviser and the with the wider market,
and to maintain itself in direct Audit and Risk committee which means that
sufficient day-to-day financial losses conducts an annual new investment deals
oversight of the or result in damage control review. are not being actively
investments. Should to reputation, pursued. The Investment
any key personnel causing longer-term The Investment Adviser Adviser is following
leave the employment financial consequences has industry and the Board's policy
of the Investment to the performance asset knowledge of paying down debt
Adviser (and it of the Company. of specific use and buying back
is unable to recruit and importance shares to narrow
other to the Company. this discount before
individuals of similar The Company has considering new
experience and credibility), entered into a contractual investments.
this may have a agreement with the
negative impact Investment Adviser The relationship
on the performance on terms that it between the Investment
of both the Investment considers to be Adviser and the
Adviser and the mutually fair Board remains strong,
Company. and reasonable. open and collaborative
The Investment Adviser and the Directors
The Company is also monitors its key gain additional
reliant on the effectiveness personnel to ensure comfort from the
of the Investment that their experience fact that the Investment
Adviser's control fits the role and Adviser is part
environment. proper training of the wider ORIX
is provided for Corporation group,
Link to strategy: continued professional a global financial
1, 3 development. services company.
The Investment Adviser
obtains assurance
of its
controls processes
annually through
the completion of
an ISAE 3402 audit
by external auditor
Deloitte LLP.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Category 2: Portfolio risk
Change in residual
Risk Impact How the risk is risk over the year
managed
---------------------------- -------------------------- ----------------------------- -----------------------------
4 Changes in laws, Potential adverse Any changes in laws, Stable
regulations and/or effect on the performance regulations and/or The implementation
UK Government policy of the Company's policy, or the application of the Electricity
impacting on investments investment portfolio thereof, are monitored Generator Levy in
Changes in laws, and the returns by the Board on January 2023 has
regulations and/or achieved by the an ongoing basis. impacted the short-term
UK Government policy, Company. profitability of
in particular those The Investment Adviser certain assets in
relating to Price capping or engages with industry the portfolio. The
the PPP/PFI and other intervention bodies levy will be in
renewable energy in the energy to understand and place until 31 March
markets, may have market may impact influence Government 2028.
an adverse effect returns. policy options.
on the Company. Longer term, the
Reduced support Given the UK Government's UK Government has
Link to strategy: for private sector reliance on private confirmed that offering
1, 2, 3 finance of infrastructure capital for, inter contracts -- for-difference
and/or a material alia, the funding is the Government's
change in of new social and main mechanism to
the approach to economic infrastructure support new low-carbon
infrastructure delivery and renewable energy electricity generation
(such as nationalisation) projects, it is projects in the
represent risks the view UK. Whilst the most
to the of the Investment recent auction failed
Company's ability Adviser to secure any bids
to reinvest capital. and the Board that, to build new offshore
despite potential wind capacity, lower
short-term intervention offshore wind capacity
in the energy market, in the UK is likely
the risk to lead to higher
of any future significant prices in the medium
changes in policy to long term, which
is low and will benefit the
is more likely to existing portfolio.
have a prospective
impact rather than
a retrospective
effect.
---------------------------- -------------------------- ----------------------------- -----------------------------
5 Performance of, If a key subcontractor The competence and Stable
and reliance on, was to financial strength The concentration
subcontractors be replaced due of subcontractors, of credit risk to
The performance to the as well as the terms any individual project
of the Company's insolvency of that and feasibility did not exceed 10%
investments is typically, subcontractor or of their engagements, of the Company's
to a considerable for any other reason, are a key focus portfolio at the
degree, dependent the replacement of investment due year end, which
on the performance subcontractor may diligence. The Board is the maximum amount
of subcontractors, charge a higher and the Investment permissible per
most notably facilities price for the relevant Adviser monitor the Company's investment
managers and operations services than previously the Company's exposure policy. Notwithstanding
and maintenance paid. The resulting to any given subcontractor these issues, there
subcontractors. increase and ensure that has been no evidence
The Company is heavily in costs may result the risk of underperformance of insolvency indicators
reliant on subcontractors in the Company receiving is mitigated through in the subcontractor
to carry out their lower diversification. group.
obligations in accordance interest and principal
with the terms of payments than envisaged.
their appointment
and to exercise
due skill and care.
Link to strategy:
1, 2
6 Technological, In the event of The Investment Adviser Stable
operational or construction material operational undertakes extensive The Company continues
issues or construction due diligence on to face challenges
The Company's investments issues, the interest all projects regarding in its gas-to-grid
are exposed to construction and principal payments expected performance. anaerobic digestion
and/or operational received by the A full package of projects in Scotland.
risks or utilise Company may be lower insurance and manufacturer This year, upgrades
relatively new or than expected or guarantees is put have been made to
developing technologies forecast and/or in place to protect enhance site resilience
and may not perform additional costs the Company from to storm damage,
as expected. Over may be incurred. unforeseen events. addressing previous
the life of a project, The Board ensures issues. The Investment
components of a that the Company Adviser collaborated
project may need has security over with landlords and
to be replaced or the assets against operators to implement
undergo a major which it is lending, a more reliable
refurbishment; these so in the instance biogas injection
costs may be higher of a borrower default method into the
than projected. it can enforce security local gas grid.
Operational risks over the assets
also include cyber and implement performance Construction exposure
risks. improvement plans. was 1% at 30 September
2023 (30 September
In addition, climate The Investment Adviser's 2022: 1%).
change, in the form dedicated portfolio
of changes to weather management team
patterns, can also monitors the performance
have an impact on of investments on
assets in relation an ongoing basis.
to their operation Monitoring takes
and/or construction, the form of regular
especially in relation interaction with
to wind and solar borrowers, including
assets. periodic site visits
to the underlying
Link to strategy: assets. The Investment
1, 3 Adviser reports
to the Board on
asset performance
on a quarterly basis.
---------------------------- -------------------------- ----------------------------- -----------------------------
Category 3: Financial risk
Change in residual
Risk Impact How the risk is risk over the year
managed
---------------------------- ----------------------------- ---------------------------- ---------------------------
7 Valuation Such changes to The Company's infrastructure Stable
The value of the investments valuations may negatively investments are The Company is exposed
made by the Company will impact the value generally low volatility to a number of shareholder
change from time to time of the Company's investments with interests, c.9%
according to investment portfolio. stable, pre-determined, of the portfolio
a variety of factors, very long -- term, by value, either
including actual and There can be no public sector backed as a result of the
anticipated movements in assurance that assumptions revenues. Nearly specific targeting
energy prices, interest will turn out to half of the Company's of these positions
rates, inflation and/or be accurate, and investment portfolio or through enforcing
discount rates and general actual data could is exposed to some its security as
market pricing of similar have an adverse form of inflation a result of the
investments. impact on the performance protection mechanism. occurrence of defaults.
of the Company's The Company's investments Such exposures are
The Company makes investments. are valued by an more sensitive to
investments which rely on independent Valuation changes in market
detailed financial models Errors may occur Agent with reference factors, such as
based on certain in the calculation to duration-matched electricity prices,
assumptions, of an investment interest rates, and the operational
estimates and projections of valuation with a typically between performance of projects,
each investment's future potential corresponding 15 and 25 year rates. and are therefore
cash flow. Such assumptions impact upon the The discount rates likely to result
include, Company's published currently used to in increased volatility
inter alia, inflation, power financial statements. value the Company's in the valuation
prices, interest rates, investments include of the portfolio.
feedstock costs, asset a premium to the
productivity, risk-free rate that There is uncertainty
taxation, lifecycle and offers protection regarding potential
insurance costs. There is a in the event of future Government
risk these assumptions may rate rises. intervention in
be incorrect. the energy market,
When modelling future therefore forecast
Link to strategy: 3 cash flows and structuring power prices may
debt profiles, the not be realisable
Investment Adviser in reality. Consequently,
uses assumptions there is a greater
considered to be element of subjectivity
conservative by in the year -- end
third party experts. valuation. This
The Investment Adviser uncertainty, together
constantly monitors with higher interest
the actual performance rates and the pricing
of projects and of transactions
takes action where in the market, has
appropriate. led the independent
Valuation Agent
to increase the
discount rates on
certain portfolio
assets during the
year.
8 Company liquidity and If the Company is The RCF is in place Decreased
balance sheet risk unable to secure to fund potential The Board and the
The Company requires cash borrowing facilities investments in the Investment Adviser
flows from investment income this may adversely near term and to continue to pay
and loan repayments to fund affect the Company's avoid holding material close attention
its investment investment returns amounts of uninvested to cash flow modelling
activities. and may have a material cash awaiting investment. and cash cover to
adverse effect on Consideration may finance acquisitions
The Company utilises the Company's financial also be given to and to pay dividends.
borrowing facilities to position and its other forms of credit The Company refinanced
finance and/or part -- operating results. as part of the Company's two existing loan
finance further acquisitions future funding strategy. notes secured against
in accordance with the Through the use two waste-wood biomass
Company's investment policy. of forecasting and projects. This refinancing
However, there can be no modelling techniques, generated GBP50.0
guarantee that the Investment Adviser million of net cash
any such facility will be has the capability proceeds that were
available to the Company on to plan in advance used to repay the
commercially acceptable the sale of assets Company's RCF, which
terms or at if required for along with other
all. liquidity purposes. routine repayments,
provided additional
Link to strategy: 1 liquidity in the
year.
The Investment Adviser
has liaised with
the existing lending
group and post year
end, in December
2023, signed heads
of terms with Lloyds,
AIB, Mizuho and
Clydesdale for a
new reduced facility
of GBP150.0 million
in line with the
Board's stated intention
to reduce leverage
by the end of 2024.
---------------------------- ----------------------------- ---------------------------- ---------------------------
Category 4: Other risks
Risk Impact How the risk is Change in residual
managed risk over the year
--------------------------- ---------------------------- ---------------------------- -----------------------------
9 Litigation or Any material legal The Board is kept Stable
legal risk claims or regulatory informed by the Previously disclosed
Litigation or legal action against the Investment Adviser litigation and regulatory
action either by Company or its underlying regarding any litigation proceedings regarding
the Company or against assets may adversely or regulatory action a number of solar
it or its assets, damage the Company's relating to the assets have continued
which involve legal reputation and affect portfolio. If necessary, to progress during
costs, management the Company's ability a sub -- committee the year. Further
time and resources to successfully of the Board is details are set
with potential asset pursue its investment constituted to oversee out in the Investment
impairment consequences, policy, meet its a specific matter. Adviser's report
notwithstanding investment objective above.
possible mitigation and/or provide favourable Insurance regarding
through insurance returns to shareholders. representations
schemes. and warranties is
considered on its
The Company is required merits by the Investment
to disclose material Adviser for each
litigation to shareholders transaction.
and/or the Company's
regulators.
Link to strategy:
1, 3
10 Geopolitical Impacts on supply Regular engagement Stable
Risk of a sustained chains, inflation, with the public Although the geopolitical
shift in the geopolitical interest rates, sector through the landscape remains
environment. For and adverse exchange Investment Adviser. turbulent, with
instance, international rate movements. The Investment Adviser the ongoing war
conflict, a winding Potential volatility conducts quarterly in Ukraine and increased
back of globalisation, on long-term power reviews on important unrest in the Middle
trade wars and the prices affecting and/or emerging East post year end
desire to be more the Company's exposure topics for the Board's driving higher energy
self-sufficient to shareholder interests. consideration. Monitoring prices and inflation,
in energy, and increased Increase in the of key emerging the Board does not
migrant flows. volume of capital issues is undertaken consider that this
flowing into by the Directors risk needs to be
Link to strategy: infrastructure on an ongoing basis. increased from its
1, 2, 3 and renewable projects existing heightened
creating downward level.
pressure on yields
and difficulty in The Board, along
sourcing investments with the Investment
within the required Adviser, continues
risk return parameters to closely monitor
of the Company's the impact of these
investment strategy. issues on the portfolio.
Potential for increased
uncertainty around
investment valuations
if Government subsidy
or support is
unpredictable.
--------------------------- ---------------------------- ---------------------------- -----------------------------
11 Share price A significant discount(1) The level of discount(1) New
discount or may prevent the that the Company's The Company's shares
premium(1) to NAV Company raising shares are trading have traded at an
The Company's share more capital. If at has meant that average discount(1)
price discount(1) the Company was buybacks have become of 14.3% during
to NAV will persist unable to secure an attractive option the year and an
and widen to a significant further capital from an investment average premium(1)
level, or will remain for investment, point of view relative of 7.9% since IPO.
at an insufficiently this may adversely to other opportunities. The level of share
large or consistent affect the Company's Consequently, during price discount(1)
premium(1) . ability to achieve the period, the is being closely
its investment policy Company has commenced monitored by the
Link to strategy: and strategy and/or a share buyback Board. The Company
1, 2, 3 maintain a diversified programme of shares has undertaken a
portfolio of investments. up to an aggregate share repurchase
value of GBP15.0 scheme as part of
million. The decision its ongoing investment
to buy back shares strategy, particularly
is subject to ongoing given the high discount(1)
evaluation by the to NAV it has experienced.
Board of the Company's These purchases
share price, the are an attractive
investment pipeline use of shareholders'
and the available funds relative to
cash resources of the pipeline of
the Company. The potential new investments,
level of discount(1) and they are expected
relative to the to enhance earnings
NAV per share is per share and dividend
closely monitored cover going forward.
by the Board.
--------------------------- ---------------------------- ---------------------------- -----------------------------
12 Strategic positioning Implementation of The Board is prioritising New
The Company's shares the wrong strategy the allocation of This risk has been
are trading at a or poor execution capital to pay down elevated from an
persistent discount(1) of it will damage the balance drawn 'A' risk to a principal
to the NAV. In this sentiment in the under its RCF alongside due to the level
environment there Company, exacerbating the buyback of shares. and persistence
is a strong argument the issue with the Select sales of of the share price
to prioritise de-levering discount(1) . portfolio assets discount(1) to NAV
and buying back are under consideration. at the year end,
shares over making At the same time, refer to risk 11
any new investments. the Investment Adviser above.
The Board has to continues to develop
determine the right a pipeline of new
balance and set investment opportunities
the strategy accordingly. and is considering
Shareholders may the refinance of
disagree with the existing positions
strategy, or it to improve returns
may not work as and/or reduce risk,
intended. whilst acknowledging
the current high
Link to strategy: hurdle for new investment.
1, 2, 3
--------------------------- ---------------------------- ---------------------------- -----------------------------
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Key to strategy references
1 Dividend income
2 Diversification
3 Capital preservation
Emerging risks
Emerging risks need to be managed differently than 'business as
usual' risks. Emerging risks are, by their nature, more challenging
to identify, assess and manage. There is a lack of data to assess
and to base the risk response on. The relevant emerging risks for
the Company are described below. Emerging risks is an area that the
Board will continue to consider.
Emerging risks
Change in residual
Risk Impact How the risk is risk over the year
managed
-------------------------- ----------------------------- -------------------------- ------------------------
1 Climate change If renewable assets The portfolio is Stable
a) Physical are damaged by extreme diversified across The Board considers
Higher frequency weather events, a number of asset this to be a long-term
and severity of with subsequent classes and physical issue; the impact
extreme weather inability to connect locations and ESG of climate change
conditions, for to the grid, or processes are embedded on the Company's
example intense suffer reduced availability, in investment decision portfolio will continue
heat waves, storm this would impact making. The Investment to be closely monitored
surges and higher revenue. Adviser has a Responsible by the Board, the
water levels on Investment policy ESG committee and
coasts. and a Responsible the Investment Adviser.
Investment committee
to monitor and implement During the year,
ESG initiatives. the Investment Adviser
Environmental impact carried out a climate
assessments are risk assessment
carried out as part for each underlying
of the due diligence portfolio asset
process. The Investment to assess the actual
Adviser also carries and potential impacts
out ongoing performance of climate -- related
monitoring, including risks and opportunities
site visits (when across the portfolio.
possible) by experienced The analysis considered
personnel. Regular both physical and
fortnightly updates, transition risks
ad hoc and quarterly for each asset.
detailed reports Further information
on asset performance is given above.
are provided to
the Board.
-------------------------- ----------------------------- -------------------------- ------------------------
2 Climate change Increased focus The Board is very Stable
b) Transition on sustainability focused on this Government climate
Risks associated and ESG factors area. Compliance policy, transition
with the long -- amongst governments, with both new and planning frameworks,
term trends arising regulators, shareholders existing reporting and standards of
from climate change and the wider community. requirements and best practice are
and the energy transition Any associated consequences best practice is all nascent and
required. This includes arising from this managed by the Investment will continue to
increasing regulation, risk, such as regulatory Adviser and monitored evolve for some
insurance availability or legal sanction by the Audit and time.
and price, governmental including financial Risk committee.
inertia or over and reputational The ESG committee
-- reaction, failure damage. Governmental and the Investment
of business models, availability, sufficiency Adviser will continue
and changing consumer and consistency to monitor and assess
and business preferences. of support mechanisms the impact of these
to enable the transition policies on the
to a low carbon investment portfolio
economy. Potential and the Company
increase in costs as whole.
to the Company.
-------------------------- ----------------------------- -------------------------- ------------------------
Going concern assessment and viability statement
Going concern
The Directors have considered the financial prospects of the
Company for the next twelve months and made an assessment of the
Company's ability to continue as a going concern. The Directors'
assessment included consideration of the availability of the
Company's RCF, including the refinancing of the current facility
before its scheduled maturity in March 2024 (refer to note 15), in
line with heads of terms signed post year end, hedging
arrangements, cash flow forecasts and stress scenarios.
The Directors are satisfied that the Company has the resources
to continue in business for the foreseeable future and furthermore
are not aware of any material uncertainties that may cast
significant doubt upon the Company's ability to continue as a going
concern.
Viability statement
At least twice a year, the Board carries out a robust assessment
of the principal and emerging risks facing the Company, including
those that may threaten its business model, future performance,
solvency and liquidity.
The Directors have considered each of the Company's principal
risks and uncertainties, detailed above, that could materially
affect the cash flows of the underlying projects that support the
Company's investments. This included an assessment of the impact of
the new risks; share price discount or premium(1) to NAV and
strategic positioning, on the viability of the Company.
The potential impact of a further increase in power prices and,
in particular, the consequent cash requirements of the Company's
hedging programme, has been considered in the context of each
project in the portfolio.
The Directors also considered the Company's policy for
monitoring, managing and mitigating its exposure to these
risks.
The Directors have assessed the prospects of the Company over a
longer period than the twelve months from the date of signing the
report required by the going concern provision. The Board has
conducted this review for a period covering the next five years as,
over this period, it believes the risk of changes in UK Government
policy that would result in retrospective adjustments to public
sector backed cash flows is low.
This assessment involved an evaluation of the potential impact
on the Company of these risks occurring. Where appropriate, the
Company's financial model was subject to a sensitivity analysis
involving flexing a number of key assumptions in the underlying
financial forecasts in order to analyse the effect on the Company's
net cash flows and other key financial ratios. The assumptions used
to model these scenarios included:
-- an increase in the cost of debt by 3% over the all-in margin or operating expenses of 50%;
-- the impact of a significant proportion of the portfolio, 50%,
not yielding, which is a worst case scenario and would require a
number of the principal risks materialising in parallel; and
-- the potential impact of a short-term increase in electricity
prices over the period to maturity of the financial derivatives by
a 99% worst case scenario and, in particular, the consequent cash
requirements of the Company's hedging programme.
Alongside this analysis, reverse stress testing was carried out
in order to further assess the Company's viability.
The sensitivity analysis was based on a number of assumptions,
including that the Company's RCF is refinanced in advance of the
date of expiry and it remains in place to provide short-term
finance.
Given the projects that the Company's investments are secured
against are all UK infrastructure projects that generate
long-dated, public sector backed cash flows, the Board considers
the revenue of the Company over that period to be dependable. This
is supported by a diversified portfolio of investments, reducing
exposure to risks affecting a single sector.
Additionally, the Company primarily invests in long-dated UK
infrastructure debt that earns a fixed rate of interest and is
repaid over time according to a pre-determined amortisation
schedule. As such, assuming that the underlying projects perform as
expected, the Company's cash inflows are predictable.
Based on this assessment of the principal risks facing the
Company, stress testing and reverse stress testing undertaken to
assess the Company's prospects, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the five year period
of assessment.
Approval
The strategic report has been approved by the Board and signed
on its behalf by:
Andrew Didham
Chairman
12 December 2023
1.APM - for definition and calculation methodology, refer to the
APMs section below.
Statement of Directors' responsibilities
In respect of the annual report and financial statements
The Directors are responsible for preparing the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under Jersey Company Law they
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the EU and applicable law.
Under Jersey Company Law, the Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing
these financial statements, the Directors are required to:
- select suitable accounting policies and apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with Jersey Company Law. They are
responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open
to them to safeguard the assets of the Company and to prevent and
detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Jersey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions where the financial statements
are published on the internet.
Directors' responsibility statement
In accordance with the FCA's Disclosure Guidance and
Transparency Rules, each of the Directors on the Board at the date
of this report, whose names are set out in the full annual report
on the Company's website, confirms that to the best of his or her
knowledge:
- the financial statements have been prepared in accordance with
IFRS as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
- the strategic report, including the Directors' report,
includes a fair, balanced review of the development and performance
of the business and the position of the Company, together with a
description of the principal risks and uncertainties that the
Company faces.
The annual report and financial statements, taken as a whole,
are considered by the Board to be fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company's position and performance, business model and
strategy.
On behalf of the Board
Andrew Didham
Chairman
12 December 2023
Independent Auditor's report
To the members of GCP Infrastructure Investments Limited
Our opinion is unmodified
We have audited the financial statements of GCP Infrastructure
Investments Limited (the "Company"), which comprise the statement
of financial position as at 30 September 2023, the statements of
comprehensive income, changes in equity and cash flows for the year
then ended, and notes, comprising significant accounting policies
and other explanatory information.
In our opinion, the accompanying financial statements:
- give a true and fair view of the financial position of the
Company as at 30 September 2023, and of the Company's financial
performance and cash flows for the year then ended;
- are prepared in accordance with International Financial
Reporting Standards as adopted by the EU; and
- have been properly prepared in accordance with the Companies (Jersey) Law, 1991.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of, the Company in
accordance with UK ethical requirements, including the FRC Ethical
Standard as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key audit matters: our assessment of the risks of material
misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matter was as follows (unchanged
from 2022):
Key audit The risk Our response
matters
Valuation of Basis: Our audit procedures
financial included:
assets at fair
value
through profit
or loss
----------------------------------------------------------- ---------------------------------------------------------------
GBP1,046,568,000 98.3% of the Company's Internal controls:
or total assets is represented We tested the design,
98.3% of total by the fair value of implementation and operating
assets a portfolio of unquoted effectiveness of the
(30 September infrastructure investments controls adopted by
2022: domiciled in the United the Company over the
GBP1,087,331,000 Kingdom (the 'Investments'). valuation of the Investments.
or The Company's estimation
98.5% of total of the fair value of Evaluating experts
assets). the Investments primarily engaged by management:
involves using a discounted We performed enquiries
Refer to the cash flow methodology, of the Investment Adviser
Audit where the inputs and and Valuation Agent
and Risk assumptions, such as to update our knowledge
committee the amounts and timings of the valuation process
report in the of cash flows, the use and methodology and
full of appropriate discount reassessed its appropriateness
annual report on rates and the selection against industry practice
the of appropriate assumptions and IFRS.
Company's surrounding uncertain
website, future events are subjective. We evaluated the competency
note 2.2 - of the Company's third-party
significant Valuation Agent in the
accounting context of their ability
judgements to appropriately challenge
and estimates, and review the fair
and value of the Investments
note 11 - prepared by the Company,
financial by assessing their professional
assets at fair qualifications, experience
value and independence from
through profit the Company.
or loss
and note 19 - Use of KPMG specialists:
financial We challenged, with
instruments the support of our KPMG
valuation specialist,
the reasonableness of
discount rates applied
in the valuation by
benchmarking these to
independent market data,
including discount rates
used by peers, recent
market transactions
and our KPMG valuation
specialist's experience
in valuing similar investments.
----------------------------------------------------------- ---------------------------------------------------------------
Risk:
----------------------------------------------------------- ---------------------------------------------------------------
There is a risk of error Challenging managements'
associated with: assumptions and inputs:
* estimating the timing and amounts of long -- term We performed substantive
forecasted cash flows; and procedures in relation
to the Company's determination
of fair value on a risk-based
* the selection and application of appropriate selection of Investments,
assumptions, such as discount rates and other inp which included:
uts.
* for new Investments during the year, compared the
long-term forecasted cash flows included in the
discounted cash flow model to the terms of the loan
Changes to long-term agreements, such as the repayment profile, prepayment
forecasted cash flows premium, loan term and the coupon;
and/or the selection
and application of different
assumptions and inputs * assessed the recoverability of outstanding cash flows
may result in a materially by considering financial performance of underlying
different fair value assets, the general economic environment and
being attributed to reviewing the repayment history;
the Investments.
* assessed the reasonableness of key general and
project -- specific inputs and assumptions into the
cash flow projections for equity linked loan notes,
to corroborate key revenues and costs with reference
to relevant market data, underlying contracts,
agreements and management information; and
* assessed the reliability of the Company's cash flow
forecasts included in the valuation models by
appraising the completeness and accuracy of the
retrospective review analysis performed by the
Investment Adviser.
Assessing disclosures:
We considered the adequacy
of the Company's disclosures
in note 19.3 in respect
of the fair value of
Investments for compliance
with IFRS, specifically
the estimates and judgements
made by the Company
in arriving at that
fair value and the disclosure
of the degree of sensitivity
of the fair value to
a reasonably possible
change in the discount
rate.
----------------------------------------------------------- ---------------------------------------------------------------
Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
GBP11,200,000, determined with reference to a benchmark of total
assets of GBP1,064,275,000, of which it represents approximately
1.0% (30 September 2022: 1.0%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance
materiality for the Company was set at 75% (30 September 2022: 75%)
of materiality for the financial statements as a whole, which
equates to GBP8,400,000. We applied this percentage in our
determination of performance materiality because we did not
identify any factors indicating an elevated level of risk.
We reported to the Audit and Risk committee any corrected or
uncorrected identified misstatements exceeding GBP560,000, in
addition to other identified misstatements that warranted reporting
on qualitative grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Going concern
The Directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or to cease its operations, and as they have concluded, that the
Company's financial position means that this is realistic. They
have also concluded that there are no material uncertainties that
could have cast significant doubt over its ability to continue as a
going concern for at least a year from the date of approval of the
financial statements (the 'going concern period').
In our evaluation of the Directors' conclusions, we considered
the inherent risks to the Company's business model and analysed how
those risks might affect the Company's financial resources or
ability to continue operations over the going concern period. The
risks that we considered most likely to affect the Company's
financial resources or ability to continue operations over this
period were:
- availability of capital to meet operating costs and other financial commitments;
- availability of credit facilities and the ability of the
Company to comply with debt covenants;
- the ability to successfully refinance or repay debt which is due to mature; and
- the recoverability of financial assets subject to credit risk.
We considered whether these risks could plausibly affect the
liquidity in the going concern period by comparing severe, but
plausible downside scenarios that could arise from these risks
individually and collectively against the level of available
financial resources indicated by the Company's financial
forecasts.
Our procedures also included:
- we performed enquiries of the Investment Adviser and Directors
of the Company in relation to the existing credit facility and the
current status of plans to repay or renew this facility;
- we inspected signed head of terms with the lenders for a new
credit facility at a reduced amount of GBP150.0 million to replace
the existing credit facility;
- we inspected a draft credit facility agreement with the
lenders to assess the progress of the credit renewal negotiations
and the terms of the draft credit facility agreement for any
restrictions on the use of funds and non -- standard terms which
may impact the going concern conclusion; and
- we assessed the completeness of the going concern disclosures in the financial statements.
We considered whether the going concern disclosure in note 2.1
to the financial statements gives a full and accurate description
of the Directors' assessment of going concern.
Our conclusions based on this work:
- we consider that the Directors' use of the going concern basis
of accounting in the preparation of the financial statements is
appropriate;
- we have not identified, and concur with the Directors'
assessment that there is not, a material uncertainty related to
events or conditions that, individually or collectively, may cast
significant doubt on the Company's ability to continue as a going
concern for the going concern period; and
- we have nothing material to add or draw attention to in
relation to the Directors' statement in the notes to the financial
statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the
Company's use of that basis for the going concern period, and that
statement is materially consistent with the financial statements
and our audit knowledge.
However, as we cannot predict all future events or conditions,
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the above conclusions are not a guarantee that the
Company will continue in operation.
Fraud and breaches of laws and regulations - ability to
detect
Identifying and responding to risks of material misstatement due
to fraud
To identify risks of material misstatement due to fraud ('fraud
risks'), we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to
commit fraud. Our risk assessment procedures included:
- enquiring of management as to the Company's policies and
procedures to prevent and detect fraud, as well as enquiring
whether management have knowledge of any actual, suspected or
alleged fraud;
- reading minutes of meetings of those charged with governance; and
- using analytical procedures to identify any unusual or unexpected relationships.
As required by auditing standards, we perform procedures to
address the risk of management override of controls, in particular
the risk that management may be in a position to make inappropriate
accounting entries. On this audit we do not believe there is a
fraud risk related to revenue recognition because the Company's
revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources
or agreements with little or no requirement for estimation from
management. We did not identify any additional fraud risks.
We performed procedures including
-- identifying journal entries and other adjustments to test
based on risk criteria and comparing any identified entries to
supporting documentation; and
-- incorporating an element of unpredictability in our audit procedures.
Identifying and responding to risks of material misstatement due
to non -- compliance with laws and regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the financial
statements from our sector experience and through discussion with
management (as required by auditing standards), and from inspection
of the Company's regulatory and legal correspondence, if any, and
discussed with management the policies and procedures regarding
compliance with laws and regulations. As the Company is regulated,
our assessment of risks involved gaining an understanding of the
control environment, including the entity's procedures for
complying with regulatory requirements.
The Company is subject to laws and regulations that directly
affect the financial statements, including financial reporting
legislation and taxation legislation, and we assessed the extent of
compliance with these laws and regulations as part of our
procedures on the related financial statement items.
The Company is subject to other laws and regulations where the
consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance
through the imposition of fines or litigation or impacts on the
Company's ability to operate. We identified financial services
regulation as being the area most likely to have such an effect,
recognising the regulated nature of the Company's activities and
its legal form. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and
regulations to enquiry of management and inspection of regulatory
and legal correspondence, if any. Therefore, if a breach of
operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance
with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remains a higher risk of
non-detection of fraud, as this may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the annual
report but does not include the financial statements and our
auditor's report thereon. Our opinion on the financial statements
does not cover the other information and we do not express an audit
opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer-term
viability
We are required to perform procedures to identify whether there
is a material inconsistency between the Directors' disclosures in
respect of emerging and principal risks and the viability
statement, and the financial statements and our audit knowledge. We
have nothing material to add or draw attention to in relation
to:
- the Directors' confirmation within the Going Concern
Assessment and Viability Statement above that they have carried out
a robust assessment of the emerging and principal risks facing the
Company, including those that would threaten its business model,
future performance, solvency or liquidity;
- the emerging and principal risks disclosures describing these
risks and explaining how they are being managed or mitigated;
and
- the Directors' explanation in the Going Concern Assessment and
Viability Statement above as to how they have assessed the
prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to review the Going Concern Assessment and
Viability Statement, set out above, under the Listing Rules. Based
on the above procedures, we have concluded that the above
disclosures are materially consistent with the financial statements
and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the Directors' corporate
governance disclosures and the financial statements and our audit
knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements
and our audit knowledge:
- the Directors' statement that they consider that the annual
report and financial statements taken as a whole is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy;
- the section of the annual report describing the work of the
Audit and Risk committee, including the significant issues that the
Audit and Risk committee considered in relation to the financial
statements, and how these issues were addressed; and
- the section of the annual report that describes the review of
the effectiveness of the Company's risk management and internal
control systems.
We are required to review the part of Corporate Governance
Statement relating to the Company's compliance with the provisions
of the UK Corporate Governance Code specified by the Listing Rules
for our review. We have nothing to report in this respect.
We have nothing to report on other matters on which we are
required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Jersey) Law 1991 requires us to report to you
if, in our opinion:
- adequate accounting records have not been kept by the Company; or
- the Company's financial statements are not in agreement with the accounting records; or
- we have not received all the information and explanations we require for our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out above, the
Directors are responsible for: the preparation of the financial
statements, including being satisfied that they give a true and
fair view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with Article 113A of the Companies (Jersey) Law 1991
and, in respect of any further matters on which we have agreed to
report, on terms we have agreed with the Company. Our audit work
has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's
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 and the Company's members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Andrew Quinn
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors Jersey
12 December 2023
Statement of comprehensive income
For the year ended 30 September 2023
Year Year ended
ended
30 September 30 September
2023 2022
Notes GBP'000 GBP'000
-------------------------------------------------------------------------------- ------ ------------- -------------
Income
Net income/gains on financial assets at fair value through profit or loss 3 29,301 157,039
Net gains on derivative financial instruments at fair value through profit or
loss 3 12,860 386
Other income 3 9,544 60
-------------------------------------------------------------------------------- ------ ------------- -------------
Total income 51,705 157,485
-------------------------------------------------------------------------------- ------ ------------- -------------
Expenses
Investment advisory fees 20 (8,670) (8,558)
Operating expenses 5 (2,752) (3,892)
-------------------------------------------------------------------------------- ------ ------------- -------------
Total expenses (11,422) (12,450)
-------------------------------------------------------------------------------- ------ ------------- -------------
Total operating profit before finance costs 40,283 145,035
Finance costs 6 (9,378) (4,716)
-------------------------------------------------------------------------------- ------ ------------- -------------
Total profit and comprehensive income for the year 30,905 140,319
-------------------------------------------------------------------------------- ------ ------------- -------------
Basic and diluted earnings per share (pence) 10 3.50 15.88
-------------------------------------------------------------------------------- ------ ------------- -------------
All of the Company's results are derived from continuing
operations.
The accompanying notes below form an integral part of these
financial statements.
Statement of financial position
As at 30 September 2023
As of As of
30 September 30 September
2023 2022
Notes GBP'000 GBP'000
----------------------------------------------------------------------- ------- ------------- -------------
Assets
Cash and cash equivalents 14 16,867 15,981
Other receivables and prepayments 12 575 185
Derivative financial instruments at fair value through profit or loss 18 265 -
Financial assets at fair value through profit or loss 11, 19 1,046,568 1,087,331
----------------------------------------------------------------------- ------- ------------- -------------
Total assets 1,064,275 1,103,497
----------------------------------------------------------------------- ------- ------------- -------------
Liabilities
Other payables and accrued expenses 13 (4,048) (3,570)
Derivative financial instruments at fair value through profit or loss 18 - (3,861)
Interest bearing loans and borrowings 15 (103,674) (98,009)
----------------------------------------------------------------------- ------- ------------- -------------
Total liabilities (107,722) (105,440)
----------------------------------------------------------------------- ------- ------------- -------------
Net assets 956,553 998,057
----------------------------------------------------------------------- ------- ------------- -------------
Equity
Share capital 16 8,712 8,848
Share premium 16 861,118 871,606
Capital redemption reserve 17 101 101
Retained earnings 86,622 117,502
----------------------------------------------------------------------- ------- ------------- -------------
Total equity 956,553 998,057
----------------------------------------------------------------------- ------- ------------- -------------
Ordinary shares in issue (excluding treasury shares) 16 871,232,650 884,797,669
----------------------------------------------------------------------- ------- ------------- -------------
NAV per ordinary share (pence per share) 109.79 112.80
----------------------------------------------------------------------- ------- ------------- -------------
The financial statements were approved and authorised for issue
by the Board of Directors on 12 December 2023 and signed on its
behalf by:
Andrew Didham Steven Wilderspin FCA
Chairman Director
The accompanying notes below form an integral part of these
financial statements.
Statement of changes in equity
For the year ended 30 September 2023
Capital
Share Share redemption Retained Total
capital premium(1) reserve earnings equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------- ------ -------- ----------- ----------- --------- ---------
At 1 October 2021 8,822 868,867 101 39,009 916,799
---------------------------------------------------- ------ -------- ----------- ----------- --------- ---------
Total profit and comprehensive income for the year - - - 140,319 140,319
Equity shares issued 16 26 2,793 - - 2,819
Share issue costs 16 - (54) - - (54)
Dividends 9 - - - (61,826) (61,826)
---------------------------------------------------- ------ -------- ----------- ----------- --------- ---------
At 30 September 2022 8,848 871,606 101 117,502 998,057
---------------------------------------------------- ------ -------- ----------- ----------- --------- ---------
Total profit and comprehensive income for the year - - - 30,905 30,905
Share repurchases 16 (136) (10,467) - - (10,603)
Share repurchase costs 16 - (21) - - (21)
Dividends 9 - - - (61,785) (61,785)
---------------------------------------------------- ------ -------- ----------- ----------- --------- ---------
At 30 September 2023 8,712 861,118 101 86,622 956,553
---------------------------------------------------- ------ -------- ----------- ----------- --------- ---------
1.The share premium reserve is a distributable reserve in
accordance with Jersey Company Law. Refer to note 9 for further
information.
The accompanying notes below form an integral part of these
financial statements.
Statement of cash flows
For the year ended 30 September 2023
Year Year ended
ended
30 September 30 September
2023 2022
Notes GBP'000 GBP'000
-------------------------------------------------------------------------------- ------ ------------- -------------
Cash flows from operating activities
Total operating profit before finance costs 40,283 145,035
Adjustments for:
Loan interest income 3 (80,750) (74,479)
Net losses/(gains) on financial assets at fair value through profit or loss 3 51,449 (82,560)
Net gains on derivative financial instruments at fair value through profit or
loss 3 (12,860) (386)
(Decrease)/increase in other payables and accrued expenses (33) 357
Increase in other receivables and prepayments (390) (69)
-------------------------------------------------------------------------------- ------ ------------- -------------
Total (2,301) (12,102)
-------------------------------------------------------------------------------- ------ ------------- -------------
Loan interest received 3 58,791 52,079
Purchase of financial assets at fair value through profit or loss 11 (66,739) (39,917)
Repayment of financial assets at fair value through profit or loss 11 78,012 154,101
Proceeds/(settlement) on derivative financial instruments at fair value through
profit or
loss 3 8,734 (16,604)
-------------------------------------------------------------------------------- ------ ------------- -------------
Net cash flows generated from operating activities 76,497 137,557
-------------------------------------------------------------------------------- ------ ------------- -------------
Cash flows from financing activities
Proceeds from revolving credit facility 15 55,000 11,000
Repayment of revolving credit facility 15 (50,000) (77,000)
Share issue costs 16 - (54)
Share repurchases (10,090) -
Share repurchase costs (20) -
Dividends paid 9 (61,785) (59,007)
Finance costs paid (8,716) (3,985)
-------------------------------------------------------------------------------- ------ ------------- -------------
Net cash flows used in financing activities (75,611) (129,046)
-------------------------------------------------------------------------------- ------ ------------- -------------
Increase in cash and cash equivalents 886 8,511
Cash and cash equivalents at beginning of the year 15,981 7,470
Cash and cash equivalents at end of the year 14 16,867 15,981
-------------------------------------------------------------------------------- ------ ------------- -------------
Net cash flows used in operating activities includes:
Loan fee income 3 9,143 51
Deposit interest received 3 401 9
-------------------------------------------------------------------------------- ------ ------------- -------------
The accompanying notes below form an integral part of these
financial statements.
Notes to the financial statements
For the year ended 30 September 2023
1. General information
GCP Infrastructure Investments Limited is a public company
incorporated and domiciled in Jersey on 21 May 2010 with
registration number 105775. The Company is governed by the
provisions of Jersey Company Law and the CIF Law.
The Company is a closed-ended investment company and its
ordinary shares are traded on the Main Market of the LSE.
The Company makes infrastructure investments, typically by
acquiring interests in debt instruments issued by infrastructure
Project Companies, their owners or their lenders and related and/or
similar assets which provide regular and predictable long -- term
cash flows.
2. Significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies,
except for those changes discussed in this note, have been
consistently applied throughout the years presented.
2.1 Basis of preparation
These financial statements are prepared in accordance with IFRS
as adopted by the EU. The financial statements have been prepared
under the historical cost convention, as modified by the
revaluation of financial assets and liabilities held at fair value
through profit or loss.
New standards, amendments and interpretations adopted in the
year
In the current year the Company has applied amendments to IFRS
issued by the IASB. These include annual improvements to IFRS,
changes in standards, legislative and regulatory amendments,
changes in disclosure and presentation requirements.
This incorporated:
- onerous contracts - cost of fulfilling a contract (amendments to IAS 37);
- annual improvements to IFRS standards;
- disclosure of accounting policies (amendments to IAS 1 and IFRS Practice Statement 2); and
- definition of accounting estimates (amendments to IAS 8).
The adoption of the changes to accounting standards has had no
material impact on these or prior periods' financial
statements.
There are amendments to IFRS that will apply from 1 January 2024
as follows:
- classification of liabilities as current or non -- current (amendments to IAS 1); and
- non-current liabilities with covenants (amendments to IAS 1).
The Directors do not anticipate that the adoption of these will
have a material impact on the financial statements. Other than
those detailed above, there are no new IFRS or IFRIC
interpretations that are issued but not effective that would be
expected to have a material impact on the Company's financial
statements.
Functional and presentation currency
Items included in the financial statements of the Company are
measured in the currency of the primary economic environment in
which the Company operates, which is Pound Sterling.
The financial statements are presented in Pound Sterling and all
values have been rounded to the nearest thousand pounds (GBP'000)
except where otherwise indicated.
Going concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has the resources to continue in business for the foreseeable
future and for a period of twelve months from the date of approval
of these financial statements.
The Investment Adviser has prepared cash flow forecasts which
were challenged and approved by the Directors and included
consideration of: cash flow forecasts and stress scenarios,
including:
- the potential impact of continuing volatility in power prices
and, in particular, the consequent cash requirements of the
Company's hedging programme;
- revenues and costs incurred by the Company and how these may
change in the future given the variables to which they are exposed;
and
- the availability of the Company's RCF.
The Company has in place a RCF which is due to expire in March
2024. The Investment Adviser has liaised with the existing lending
group and post year end, in December 2023, signed heads of terms
with Lloyds, AIB, Mizuho and Clydesdale for a new reduced facility
of GBP150.0 million in line with the Board's stated intention to
reduce leverage by the end of 2024.
The Directors are therefore satisfied that the Company will be
able to refinance its RCF as it has done in previous years and that
the refinance does not cause significant doubt from a going concern
perspective.
Furthermore, the Directors are not aware of any material
uncertainties that may cast doubt upon the Company's ability to
continue as a going concern. Therefore, the financial statements
have been prepared on a going concern basis.
2.2 Significant accounting judgements and estimates
The preparation of financial statements in accordance with IFRS
requires the Directors of the Company to make judgements, estimates
and assumptions that affect the application of accounting policies
and the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future.
(a) Critical accounting estimates and assumptions
Fair value of instruments not quoted in an active market
The valuation process is dependent on assumptions and estimates
which are significant to the reported amounts recognised in the
financial statements taking into account the structure of the
Company and the extent of its investment activities (refer to note
19 for further information).
(b) Critical judgements
Assessment as an investment entity
The Directors have determined that the SPVs through which the
Company invests fall under the control of the Company in accordance
with the control criteria prescribed by IFRS 10 and therefore meet
the definition of subsidiaries. In addition, the Directors continue
to hold the view that the Company meets the definition of an
investment entity and therefore can measure and present the SPVs at
fair value through profit or loss. This process requires a
significant degree of judgement taking into account the complexity
of the structure of the Company and extent of investment activities
(refer to note 11 for further information).
Segmental information
For management purposes, the Company is organised into one main
operating segment. All of the Company's activities are interrelated
and each activity is dependent on the others. Accordingly, all
significant operating decisions by the Board (as the chief
operating decision maker) are based upon analysis of the Company as
one segment. The financial results from this segment are equivalent
to the financial statements of the Company as a whole. The
following table analyses the Company's underlying operating income
per geographical location. The basis for attributing the operating
income is the place of incorporation of the underlying
counterparty.
30 September 30 September
2023 2022
GBP'000 GBP'000
----------------- ------------- -------------
Channel Islands 401 9
United Kingdom 51,304 157,476
----------------- ------------- -------------
Total 51,705 157,485
----------------- ------------- -------------
Significant shareholders are disclosed in the Directors' report
in the full annual report on the Company's website
3. Operating income
The table below analyses the Company's operating income for the
year by investment type:
30 September 30 September
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------------- ------------- -------------
Interest on cash and cash equivalents 401 9
Loan fee income 9,143(1) 51
---------------------------------------------------------------------------------------- ------------- -------------
Other income 9,544 60
Net changes in fair value of financial instruments at fair value through profit or loss 42,161 157,425
---------------------------------------------------------------------------------------- ------------- -------------
Total 51,705 157,485
---------------------------------------------------------------------------------------- ------------- -------------
1.Includes prepayment fees of GBP8,715,000 and restructuring fee
income of GBP375,000.
The table below analyses the Company's net changes in fair value
of financial assets and financial liabilities at fair value through
profit or loss:
30 September 30 September 30 September 30 September
2023 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------------- ------------- ------------- ------------- -------------
Loan interest received 58,791 52,079
Loan interest capitalised 21,959 22,400
---------------------------------------------------------- ------------- ------------- ------------- -------------
Total loan interest income 80,750 74,479
---------------------------------------------------------- ------------- ------------- ------------- -------------
Unrealised gains on financial assets at fair value
through profit or loss 15,017 89,606
Unrealised losses on financial assets at fair value
through profit or loss (66,603) (12,540)
---------------------------------------------------------- ------------- ------------- ------------- -------------
Total net unrealised (losses)/gains on financial assets
at fair value through profit or loss (51,586) 77,066
Net realised gains on disposal of financial assets at
fair value through profit or loss 137 5,494
---------------------------------------------------------- ------------- ------------- ------------- -------------
Total net (losses)/gains on financial assets at fair
value through profit or loss (51,449) 82,560
---------------------------------------------------------- ------------- ------------- ------------- -------------
Total net income/gains on financial assets at fair value
through profit or loss 29,301 157,039
---------------------------------------------------------- ------------- ------------- ------------- -------------
Unrealised gains on derivative financial instruments at
fair value through profit or loss 4,126 16,990
Realised gains/(losses) on settlement of derivative
financial instruments at fair value through
profit or loss 8,734 (16,604)
---------------------------------------------------------- ------------- ------------- ------------- -------------
Total net gains on derivative financial instruments at
fair value through profit or loss 12,860 386
---------------------------------------------------------- ------------- ------------- ------------- -------------
Net changes in fair value of financial instruments at
fair value through profit or loss 42,161 157,425
---------------------------------------------------------- ------------- ------------- ------------- -------------
Accounting policy
Interest income and interest expense, other than interest income
received on financial assets at fair value through profit or loss,
are recognised on an accruals basis in the statement of
comprehensive income. Interest income on financial assets is
included in net income/gains on financial assets at fair value
through profit or loss in the statement of comprehensive
income.
Gains or losses on disposal of financial assets at fair value
through profit or loss represent the difference between the
proceeds received on the repayment of loan notes and the carrying
value of loan notes at the time of sale or disposal. Net gains or
losses on disposal of financial assets at fair value through profit
or loss are included in net income/gains on financial assets at
fair value through profit or loss in the statement of comprehensive
income.
Other operating income includes unscheduled (early) prepayment
fees which are recognised in the financial statements when the
contractual provisions are met and the amounts become due.
The Company holds derivative financial instruments comprising a
commodity swap to hedge its exposure to the volatility of the
electricity prices in the market. It is not the Company's policy to
trade in derivative financial instruments. Commodity swaps are held
at fair value through profit or loss, being the difference between
the fixed legs with a fixed price and floating legs that are
indexed. The Company does not apply hedge accounting and
consequently all gains or losses in the fair value of the
derivative financial instruments are recognised in the statement of
comprehensive income, refer to note 18.
4. Auditor's remuneration
30 September 30 September
2023 2022
GBP'000 GBP'000
--------------------------------------------------------------------------- ------------- -------------
Audit fees 169 145
Non-audit fees - review of half -- yearly report and financial statements 47 47
--------------------------------------------------------------------------- ------------- -------------
Total 216 192
--------------------------------------------------------------------------- ------------- -------------
5. Operating expenses
30 September 30 September
2023 2022
GBP'000 GBP'000
---------------------------------------------- ------------- -------------
Corporate administration and Depositary fees 1,034 1,021
Legal and professional fees 18 1,019
Independent Valuation Agent fees 260 290
Directors' remuneration and expenses(1) 432 421
Advisory fees 114 96
Registrar fees 74 69
Other expenses 820 976
---------------------------------------------- ------------- -------------
Total 2,752 3,892
---------------------------------------------- ------------- -------------
1.Refer to note 7 for further information.
Key service providers other than the Investment Adviser (refer
to note 20 for disclosures in respect of the Investment
Adviser)
Administrator and Company Secretary
The Company has appointed Apex Financial Services (Alternative
Funds) Limited as Administrator and Company Secretary. Fund
accounting, administration services and company secretarial
services are provided to the Company pursuant to an agreement dated
31 January 2014 and amended and restated on 20 November 2023. All
Directors have access to the advice and services of the Company
Secretary, who provides guidance to the Board, through the
Chairman, on governance matters. The fee for the provision of
administration and company secretarial services during the year was
GBP735,000 (30 September 2022: GBP727,000), of which GBP182,000
remains payable at year end (30 September 2022: GBP187,000).
Depositary
Depositary services are provided to the Company by Apex
Financial Services (Corporate) Limited pursuant to an agreement
dated 21 July 2014. The fee for the provision of these services
during the year was GBP299,000 (30 September 2022: GBP294,000) of
which GBP74,000 remains payable at year end (30 September 2022:
GBP76,000).
Accounting policy
All operating expenses are charged to the statement of
comprehensive income and are accounted for on an accruals
basis.
6. Finance costs
30 September 30 September
2023 2022
GBP'000 GBP'000
--------------- ------------- -------------
Finance costs 9,378 4,716
--------------- ------------- -------------
Accounting policy
Finance expenses in the statement of comprehensive income
comprise loan arrangement fees, loan commitment fees, loan interest
expense and agency fees which are accounted for on an accruals
basis along with interest accrued on the facility incurred in
connection with the borrowing of funds. Arrangement fees are
amortised over the life of the facility.
7. Directors' remuneration
The Directors of the Company are remunerated on the following
basis:
30 September 30 September
2023 2022
GBP'000 GBP'000
--------------------- ------------- -------------
Andrew Didham 92 62
Ian Reeves CBE(1) 5 79
Julia Chapman 58 56
Michael Gray 72 69
Steven Wilderspin 70 67
Dawn Crichard 70 59
Paul De Gruchy(2) - 12
Alex Yew(3) 55 -
--------------------- ------------- -------------
422 404
--------------------- ------------- -------------
Directors' expenses 10 17
--------------------- ------------- -------------
Total 432 421
--------------------- ------------- -------------
1.Ian Reeves CBE stepped down as Chairman of the Company
effective from 20 June 2022 and retired from the Board on 31
October 2022.
2.Paul De Gruchy retired as a Director of the Company on 17
December 2021.
3.Alex Yew joined as a non-executive Director and became a
member of the Investment committee, the Management Engagement
committee and the ESG committee on 1 November 2022.
Full details of the Directors' remuneration policy can be found
in the Directors' remuneration report on page 116 of the full
annual report on the Company's website.
8. Taxation
Profits arising in the Company for the year ended 30 September
2023 are subject to tax at the standard rate of 0% (30 September
2022: 0%) in accordance with the Income Tax (Jersey) Law 1961, as
amended.
9. Dividends
Dividends for the year ended 30 September 2023 were 7.0 pence
per share (30 September 2022: 7.0 pence per share) as follows:
30 September 30 September
2023 2022
Quarter ended Dividend Pence GBP'000 GBP'000
------------------------ --------------------- ------ ------------- -------------
Current year dividends
30 September 2023 2023 fourth interim 1.75 - -
dividend
2023 third interim
30 June 2023 dividend 1.75 15,365 -
2023 second interim
31 March 2023 dividend 1.75 15,452 -
2023 first interim
31 December 2022 dividend 1.75 15,484 -
------------------------ --------------------- ------ ------------- -------------
Total 7.0 46,301 -
----------------------------------------------- ------ ------------- -------------
Prior year dividends
2022 fourth interim
30 September 2022 dividend 1.75 15,484 -
2022 third interim
30 June 2022 dividend 1.75 - 15,474
2022 second interim
31 March 2022 dividend 1.75 - 15,464
2022 first interim
31 December 2021 dividend 1.75 - 15,449
------------------------ --------------------- ------ ------------- -------------
Total 7.0 15,484 46,387
----------------------------------------------- ------ ------------- -------------
2021 fourth interim
30 September 2021 dividend 1.9 - 15,439
------------------------ --------------------- ------ ------------- -------------
Dividends in statement
of changes in equity 61,785 61,826
Dividends settled in
shares(1) - (2,819)
----------------------------------------------- ------ ------------- -------------
Dividends in cash flow
statement 61,785 59,007
----------------------------------------------- ------ ------------- -------------
On 2 November 2023, the Company declared a fourth interim
dividend of 1.75 pence per share amounting to GBP15.2 million,
which was paid on 5 December 2023 to ordinary shareholders on the
register at 10 November 2023.
For the forthcoming financial year, the Directors have concluded
the Company will target(2) a dividend of 7.0 pence per share.
The Board, at its discretion, has suspended the scrip dividend
alternative as a result of the likely discount between any scrip
dividend reference price of the shares and the NAV per share of the
Company. The Board intends to keep the offer of future scrip
dividends under review.
Accounting policy
In accordance with the Company's constitution, in respect of the
ordinary shares, the Company will distribute the income it receives
to the fullest extent that is deemed appropriate by the
Directors.
In declaring a dividend, the Directors consider the payment
based on a number of factors, including accounting profit, fair
value treatment of investments held, future investments, buybacks,
reserves, cash balances and liquidity. The payment of a dividend is
considered by the Board and is declared on a quarterly basis.
Dividends are a form of distribution and, under Jersey Company Law,
a distribution may be paid out of capital. Therefore, the Directors
consider the share premium reserve to be a distributable reserve.
Dividends due to the Company's shareholders are recognised when
they become payable.
1.The dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
2.The dividend target set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
10. Earnings per share
Basic and diluted earnings per share are calculated by dividing
total profit and comprehensive income for the year attributable to
ordinary equity holders of the Company by the weighted average
number of ordinary shares in issue during the year.
Weighted
average
number
Total of ordinary Pence
profit shares per share
GBP'000
----------------------------------------------- ---------- ------------- ------------
Year ended 30 September 2023
Basic and diluted earnings per ordinary share 30,905 881,850,353 3.50
----------------------------------------------- ---------- ------------- ------------
Year ended 30 September 2022
Basic and diluted earnings per ordinary share 140,319 883,394,897 15.88
----------------------------------------------- ---------- ------------- ------------
11. Financial assets at fair value through profit or loss
The table below analyses the movements in financial assets at
fair value through profit or loss during the year by the type of
movement:
30 September 30 September
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------------- ------------- -------------
Opening balance 1,087,331 1,096,555
---------------------------------------------------------------------------------------- ------------- -------------
Purchases of financial assets at fair value through profit of loss 138,698 127,380
Repayments of financial assets at fair value through profit of loss (128,012) (219,164)
Net realised gains on disposal of financial assets at fair value through profit or
loss(1) 137 5,494
Unrealised gains on financial assets at fair value through profit or loss(2) 15,017 89,606
Unrealised losses on financial assets at fair value through profit or loss (66,603) (12,540)
---------------------------------------------------------------------------------------- ------------- -------------
Closing balance 1,046,568 1,087,331
---------------------------------------------------------------------------------------- ------------- -------------
1.The GBP137,000 in the current year related to principal
indexation.
2.Includes principal indexation of GBP4.0 million (30 September
2022: GBP1.9 million) applied to certain loans.
All portfolio assets are held as security against the RCF (refer
to note 15).
The tables below show the reconciliation of purchases and
repayments of financial assets at fair value through profit or loss
to the statement of cash flows:
30 September 30 September
2023 2022
Purchases GBP'000 GBP'000
---------------------------------------------------------------------------------------- ------------- -------------
Purchases of financial assets at fair value through profit or loss (138,698) (127,380)
Loan interest capitalised 21,959 22,400
Non-cash internal transfers 50,000(1) 65,063
---------------------------------------------------------------------------------------- ------------- -------------
Purchases of financial assets at fair value through profit or loss in statement of cash
flows (66,739) (39,917)
---------------------------------------------------------------------------------------- ------------- -------------
30 September 30 September
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------------- ------------- -------------
Repayments
Repayments of financial assets at fair value through profit or loss 128,012 219,164
Non-cash internal transfers (50,000)(1) (65,063)
---------------------------------------------------------------------------------------- ------------- -------------
Repayments of financial assets at fair value through profit or loss in statement of
cash flows 78,012 154,101
---------------------------------------------------------------------------------------- ------------- -------------
1.The non-cash items relate to the repayment of loans as part of
the refinance of two biomass projects, refer above for further
information.
Accounting for subsidiaries
The Company's investments are made through a number of SPVs
(refer to note 24) which are domiciled in the UK. The Company owns
100% of the loan notes issued by the SPVs with the exception of GCP
Rooftop Solar 6 plc (37.2%), GCP Rooftop Solar Finance plc (30.8%)
and FHW Dalmore (Salford Pendleton Housing) plc (13.6%).
The Directors have made an assessment in regard to whether the
Company, as an investor, controls or has significant influence in
the SPVs under the criteria within IFRS 10 and IAS 28, and whether
the SPVs meet the definition of subsidiary or associate companies
in accordance with IFRS 10 and IAS 28.
The Directors are of the opinion that the Company demonstrates
all three of the criteria for all SPVs to be considered subsidiary
companies within the definition of control in IFRS 10, with the
exception of GCP Rooftop Solar 6 plc, GCP Rooftop Solar Finance plc
and FHW Dalmore (Salford Pendleton Housing) plc, which are
considered to be associates within the definition of IAS 28, as the
Company has significant influence over the relevant activities of
the SPVs through similar arrangements. Associates are measured at
fair value through profit or loss, as permitted by IAS 28.
Assessment as an investment entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their investments in subsidiaries
at fair value through profit or loss rather than consolidate the
subsidiary companies. The criteria which define an investment
entity are as follows:
- an entity that obtains funds from one or more investors for
the purpose of providing those investors with investment
services;
- an entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
- an entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Directors have concluded that the Company continues to meet
the characteristics of an investment entity, in that it has more
than one investor and its investors are not related parties; it
holds a portfolio of investments, predominantly in the form of loan
securities which generate returns through interest income and
capital appreciation; and the Company reports to its investors via
quarterly investor information and to its management, via internal
management reports, on a fair value basis.
Accounting policy
The loan notes held by the Company are shown as financial assets
at fair value through profit or loss in the statement of financial
position, which in the opinion of the Directors represents the fair
value of the SPVs, as any other net assets held in the SPVs at year
end are immaterial.
Principal indexation is applied to certain loan notes where
applicable. The indexation is a contractually allowable
inflationary adjustment to loan principal calculated where
permitted by a predefined mechanism in a loan agreement. The effect
of the adjustment is to increase or decrease the fair value of
certain loan notes in line with the indexation factor which takes
account of the rate of inflation against a stipulated inflation
threshold of each relevant loan.
The Company recognises a financial asset or a financial
liability when, and only when, it becomes a party to the
contractual provisions of the instrument. Purchases or sales of
financial assets that require delivery of assets within the time
frame generally established by regulation or convention in the
marketplace are recognised on the trade date, i.e. the date that
the Company commits to purchase or sell the asset. A financial
asset (or, where applicable, a part of a financial asset or part of
a group of similar financial assets) is derecognised where:
- the rights to receive cash flows from the asset have expired;
- the Company has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
pass-through arrangement; and
- either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of
the asset but has transferred control of the asset.
When the Company transfers a portion of its rights to receive
cash flows from an asset or has entered into a pass-through
arrangement and has neither transferred nor retained substantially
all the risks and rewards of the asset nor transferred control of
the asset, the asset is recognised to the extent of the Company's
continuing involvement in the asset. The Company derecognises a
financial liability when the obligation under the liability is
discharged, cancelled or expired.
Financial assets and financial liabilities at fair value through
profit or loss are recorded in the statement of financial position
at fair value. All transaction costs for such instruments are
recognised directly in the statement of comprehensive income.
After initial measurement, the Company measures financial
instruments which are classified as fair value through profit or
loss at fair value. Subsequent changes in the fair value of those
financial instruments are recorded in profit or loss in the
statement of comprehensive income.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. For all other
financial instruments not traded in an active market, the fair
value is determined by using appropriate valuation techniques.
Valuation techniques used by the independent Valuation Agent
include using recent arm's length market transactions, referenced
to appropriate current market data, and discounted cash flow
analysis, at all times making as much use of available and
supportable market data as possible.
An analysis of fair values of financial instruments and further
details as to how they are measured are provided in note 19.
12. Other receivables and prepayments
30 September 30 September
2023 2022
GBP'000 GBP'000
----------------------------------- ------------- -------------
Other receivables and prepayments 575 185
----------------------------------- ------------- -------------
Accounting policy
Receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less any provision for impairment. The Company
recognises a loss allowance for expected credit losses on other
receivables where necessary.
13. Other payables and accrued expenses
30 September 30 September
2023 2022
GBP'000 GBP'000
------------------------------------- ------------- -------------
Investment advisory fees 2,132 2,234
Other payables and accrued expenses 1,916 1,336
------------------------------------- ------------- -------------
Total 4,048 3,570
------------------------------------- ------------- -------------
Accounting policy
Payables are recognised initially at fair value including
transaction costs and subsequently measured at amortised cost using
the effective interest method.
14. Cash and cash equivalents
Cash held by financial institutions at the year end is shown in
the table below:
30 September 30 September
2023 2022
GBP'000 GBP'000
-------------------------------------- ------------- -------------
Barclays account 8,482 8
BNYM account - 511
Lloyds Money Market Call account - 11,977
RBSI Capital and Interest account(1) 4,435 -
RBSI Cash Management account 3,950 3,485
-------------------------------------- ------------- -------------
Total 16,867 15,981
-------------------------------------- ------------- -------------
1.The GBP4,435,000 in the current year relates to capital and
interest received on 29 September 2023 which was transferred to the
Barclays account on 2 October 2023.
Cash is held at a number of financial institutions in order to
spread credit risk. Cash awaiting investment is held on behalf of
the Company at banks carrying a minimum rating of A-1, P-1 or F1
from Standard & Poor's, Moody's or Fitch respectively, or in
one or more similarly rated money market or short-dated gilt funds.
Cash is generally held on a short-term basis, pending subsequent
investment. The amount of working capital that may be held at RBSI
is limited to the higher of GBP4.0 million or one quarter of the
Company's running costs. Any excess uninvested/surplus cash is held
at other financial institutions with minimum credit ratings
described above. The maximum amount to be held at any one of these
other financial institutions is GBP25.0 million or 25% of total
cash balances, whichever is the larger. It is also recognised that
with the advent of the ring-fenced bank concept, it has become more
difficult to interact with sufficiently well-rated counterparty
banks.
Accounting policy
Cash and cash equivalents in the statement of financial position
and statement of cash flows comprise cash on hand, demand deposits,
short-term deposits in financial institutions with original
maturities of three months or less and short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in
value.
15. Interest bearing loans and borrowings
30 September 30 September
2023 2022
GBP'000 GBP'000
------------------------------ ------------- -------------
Revolving credit facility 104,000 99,000
Unamortised arrangement fees (326) (991)
------------------------------ ------------- -------------
Total 103,674 98,009
------------------------------ ------------- -------------
The table below analyses the movement for the year:
30 September 30 September
2023 2022
GBP'000 GBP'000
----------------------------------------- ------------- -------------
Balance at the start of the year 98,009 163,412
Changes from cash flows
----------------------------------------- ------------- -------------
Proceeds from revolving credit facility 55,000 11,000
Repayment of revolving credit facility (50,000) (77,000)
Loan arrangement fees - (54)
----------------------------------------- ------------- -------------
Non-cash changes
Amortisation of loan arrangement fees 665 651
----------------------------------------- ------------- -------------
Balance at the end of the year 103,674 98,009
----------------------------------------- ------------- -------------
Revolving credit facility
The Company entered into a RCF agreement dated 29 March 2021, as
amended and restated on 29 June 2021, and with an additional
commitment side letter dated 24 February 2022, with RBSI, Lloyds,
AIB, Mizuho and Clydesdale. The RCF has GBP190.0 million total
commitments and will expire on 29 March 2024. The Investment
Adviser has liaised with the existing lending group and post year
end, in December 2023, signed heads of terms with Lloyds, AIB,
Mizuho and Clydesdale for a new reduced facility of GBP150.0
million in line with the Board's stated intention to reduce
leverage by the end of 2024.
The current facility is secured against the portfolio assets
held by the Company of GBP1.0 billion and cash and cash equivalents
of GBP16.9 million. The interest on amounts drawn is charged at
SONIA plus 2.00% per annum and a commitment fee of 0.70% is payable
on the undrawn amounts. At 30 September 2023, the total amount
drawn on the RCF was GBP104.0 million (30 September 2022: GBP99.0
million). All amounts drawn under the RCF are to be used in or
towards the making of investments in accordance with the Company's
investment policy. The facility provides the Company with continued
access to flexible debt finance, enabling it to take advantage of
investment opportunities as they arise, and may also be used to
manage the Company's working capital requirements from time to
time.
The RCF includes loan to value(1) and interest cover(1)
covenants that are measured at Company level. The Company has
maintained sufficient headroom against all measures throughout the
financial period and is in full compliance with all loan covenants
at 30 September 2023.
Leverage
For the purposes of the UK AIFM Regime, leverage is any method
which increases the Company's exposure, including the borrowing of
cash and the use of derivatives. It is expressed as a ratio between
the Company's exposure and its NAV and is calculated under the
gross and commitment methods, in accordance with the UK AIFM
Regime.
The Company is required to state its maximum and actual leverage
levels, calculated as prescribed by the UK AIFM Regime, at 30
September 2023; the figures are as follows:
30 September 30 September
2023 2022
Maximum Actual Actual
Leverage exposure limit exposure exposure
------------------- -------- ------------- -------------
Gross method 1.20 1.10 1.10
Commitment method 1.20 1.11 1.12
------------------- -------- ------------- -------------
The leverage figures disclosed above represent leverage
calculated under the UK AIFM Regime methodology as follows:
30 September 30 September 30 September 30 September
2023 2023 2022 2022
Gross Commitment Gross Commitment
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------------------- ------------- ------------- ------------- -------------
Financial assets at fair value through profit or loss 1,046,568 1,046,568 1,087,331 1,087,331
Cash and cash equivalents - 16,867 - 15,981
Derivative financial instruments at fair value through
profit or loss(2) 2,324 2,324 15,235 15,235
---------------------------------------------------------- ------------- ------------- ------------- -------------
Total exposure under the UK AIFM Regime 1,048,892 1,065,759 1,102,566 1,118,547
---------------------------------------------------------- ------------- ------------- ------------- -------------
Total shareholders' funds (net assets) 956,553 956,553 998,057 998,057
---------------------------------------------------------- ------------- ------------- ------------- -------------
Leverage (ratio) 1.10 1.11 1.10 1.12
---------------------------------------------------------- ------------- ------------- ------------- -------------
The Company's leverage limit under the UK AIFM Regime is 1.20,
which equates to a gearing limit of 20%. The Company has maintained
sufficient headroom against the limit throughout the year.
Accounting policy
Borrowings are recognised initially at fair value, less
attributable costs. Borrowings are subsequently stated at amortised
cost. Any difference between the proceeds (net of transaction
costs) and the redemption value is recognised in the statement of
comprehensive income over the period of the borrowings using the
effective interest method. Transaction costs are spread over the
term of the RCF.
1.APM - for definition and calculation methodology, refer to the
APMs section below.
2.Refer to note 18 for further information on derivative
financial instruments at fair value through profit or loss.
16. Authorised and issued share capital
30 September 30 September
2023 2022
Number Number
Share capital of shares GBP'000 of shares GBP'000
-------------------------------------------------------- ------------- -------- ------------ --------
Ordinary shares issued and fully paid
Opening balance 884,797,669 8,848 882,210,228 8,822
Equity shares issued through:
Dividends settled in shares(1) - - 2,587,441 26
-------------------------------------------------------- ------------- -------- ------------ --------
Total shares in issue 884,797,669 8,848 884,797,669 8,848
-------------------------------------------------------- ------------- -------- ------------ --------
Treasury shares
Opening balance - - - -
Shares repurchased (13,565,019) (136) - -
-------------------------------------------------------- ------------- -------- ------------ --------
Total shares repurchased and held in treasury (13,565,019) (136) - -
Total ordinary share capital excluding treasury shares 871,232,650 8,712 884,797,669 8,848
-------------------------------------------------------- ------------- -------- ------------ --------
Share capital represents the nominal amount of the Company's
ordinary shares in issue. The Company is authorised in accordance
with its Memorandum of Association to issue 1.5 billion ordinary
shares, 300 million C shares and 300 million deferred shares, each
having a par value of one pence per share.
The Company's share capital is represented by one class of
ordinary shares. Quantitative information about the Company's share
capital is provided in the statement of changes in equity.
The ordinary shares carry the right to dividends out of the
profits available for distribution attributable to each share
class, if any, as determined by the Directors. Each holder of an
ordinary share is entitled to attend meetings of shareholders and,
on a poll, to one vote for each share held.
30 September 30 September
2023 2022
Share premium GBP'000 GBP'000
-------------------------------------------------- ------------- -------------
Premium on ordinary shares issued and fully paid
Opening balance 871,606 868,867
Premium on equity shares issued through:
Dividends settled in shares(1) - 2,793
Share issue costs charged to premium - (54)
Share repurchases(2) (10,467) -
Share repurchase costs(2) (21) -
-------------------------------------------------- ------------- -------------
Total 861,118 871,606
-------------------------------------------------- ------------- -------------
1.The dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
2.At 30 September 2023, GBP10,089,000 of consideration
(GBP9,961,000 of share premium and GBP128,000 of share capital) in
respect of share repurchases had been paid, with GBP513,000
(GBP505,000 of share premium and GBP8,000 of share capital)
outstanding. At the same date, GBP20,000 of ordinary share
repurchase costs had been paid, with GBP1,000 outstanding.
Share premium represents amounts subscribed for share capital in
excess of the nominal value less associated costs of the issue,
less dividend payments charged to premium as and when appropriate.
Share premium is a distributable reserve in accordance with Jersey
Company Law.
Accounting policy
The Directors of the Company continually assess the
classification of the ordinary shares. If the ordinary shares cease
to have all the features or meet all the conditions set out to be
classified as equity, they will be reclassified as financial
liabilities and measured at fair value at the date of
reclassification, with any differences from the previous carrying
amount recognised in equity. Transaction costs incurred by the
Company in issuing, acquiring or reselling its own equity
instruments are accounted for as a deduction from equity to the
extent that they are incremental costs directly attributable to the
equity transaction that otherwise would have been avoided. No gain
or loss is recognised in the statement of comprehensive income on
the purchase, sale, issuance or cancellation of the Company's own
equity instruments.
17. Capital redemption reserve
30 September 30 September
2023 2022
GBP'000 GBP'000
---------------------------- ------------- -------------
Capital redemption reserve 101 101
---------------------------- ------------- -------------
The Company is required by Jersey Company Law to establish and
maintain this reserve on the redemption of its own shares.
18. Derivative financial instruments at fair value through
profit or loss
On 13 July 2022, the Company entered into a new commodity swap
agreement with Axpo Solutions AG under the ISDA master agreement
for risk management purposes, which includes full right of set off.
The derivative financial instrument comprises a commodity swap on
electricity/baseload for the purpose of hedging electricity price
market movements, in cases where the Company has stepped into
projects and/or has direct exposure through its investment
structure. The commodity swap agreement expired on 31 March 2023
and was settled in April 2023 in line with the contractual
terms.
On 15 February 2023, the Company entered into a new a commodity
swap agreement with Axpo Solutions AG under the same terms which
expired on 30 September 2023. On 28 September 2023, the Company
entered into a new commodity swap agreement with Axpo Solutions AG
under the same terms, which is due to expire on 31 March 2024.
The Company has been granted a credit line of GBP50.0 million by
Axpo Solutions AG in order to mitigate the need for regular cash
flows associated with the hedge.
The table below sets out the valuation of the swap held by the
Company at year end provided by Axpo Solutions AG:
Total notional Notional quantity per
Derivative Maturity quantity hour
------------------------------------------------------- ------------------ --------------- ----------------------
Commodity swap - electricity/baseload 'winter 2023/24' 31 March 2024 21,960 MWh 5 MW
Commodity swap - electricity/baseload 'summer 2023' 30 September 2023 4,320 MWh 6 MW
Commodity swap - electricity/baseload 'winter 2022/23' 31 March 2023 26,208 MWh 6 MW
------------------------------------------------------- ------------------ --------------- ----------------------
30 September 30 September
2023 2022
GBP'000 GBP'000
------------------------------------------- ------------------------------------------- ------------- -------------
Fixed
Fixed price:
Winter 2022/23 (maturity 31 March 2023) GBP434.0/MWh - 11,374
Summer 2023 (maturity 30 September 2023) GBP140.50/MWh 607 -
Winter 2023/24 (maturity 31 March 2024) GBP106.5/MWh 2,339 -
------------------------------------------- ------------------------------------------- ------------- -------------
Floating
Commodity Reference Price Index: summer Electricity N2EX UK Power Index
2023 Day Ahead (357) (15,235)
Commodity Reference Price Index: winter Electricity N2EX UK Power Index (2,324) -
2023/24 Day Ahead
------------------------------------------- ------------------------------------------- ------------- -------------
Fair value 265 (3,861)
---------------------------------------------------------------------------------------- ------------- -------------
Accounting policy
Recognition of derivative financial assets and liabilities takes
place when the derivative contracts are entered into. They are
initially recognised and subsequently measured at fair value;
transactions costs, where applicable, are included directly in
finance costs. The Company does not apply hedge accounting and
consequently all gains or losses are recognised in the statement of
comprehensive income in net gains/(losses) on derivative financial
instruments at fair value through profit or loss.
19. Financial instruments
The table below sets out the classifications of the carrying
amounts of the Company's financial assets and financial liabilities
into categories of financial instruments under IFRS 9. The carrying
amount of the financial assets and financial liabilities at
amortised cost approximates their fair value.
30 September 30 September
2023 2022
Notes GBP'000 GBP'000
----------------------------------------------------------------------- ------ ------------- -------------
Financial assets
Cash and cash equivalents 14 16,867 15,981
Other receivables and prepayments 12 575 185
----------------------------------------------------------------------- ------ ------------- -------------
Financial assets at amortised cost 17,442 16,166
Financial assets at fair value through profit or loss 11 1,046,568 1,087,331
Derivative financial instruments at fair value through profit or loss 18 265 -
----------------------------------------------------------------------- ------ ------------- -------------
Total 1,064,275 1,103,497
----------------------------------------------------------------------- ------ ------------- -------------
Financial liabilities
Other payables and accrued expenses 13 (4,048) (3,570)
Interest bearing loans and borrowings 15 (103,674) (98,009)
----------------------------------------------------------------------- ------ ------------- -------------
Financial liabilities measured at amortised cost (107,722) (101,579)
Derivative financial instruments at fair value through profit or loss 18 - (3,861)
----------------------------------------------------------------------- ------ ------------- -------------
Total (107,722) (105,440)
----------------------------------------------------------------------- ------ ------------- -------------
19.1 Capital management
The Company is funded from equity balances, comprising issued
ordinary share capital (as detailed in note 16) and retained
earnings, as well as the RCF, as detailed in note 15.
The Company may seek to raise additional capital from time to
time to the extent that the Directors and the Investment Adviser
believe the Company will be able to make suitable investments, with
consideration also given to the alternatives of share buybacks and
a reduction in leverage.
The Company raises capital on a highly conservative basis only
when it has a clear view of a robust pipeline of highly advanced
investment opportunities. The Company may borrow up to 20% of its
NAV at the time any such borrowings are drawn down. At the year
end, the Company remains modestly geared with loan to value(1) of
11% (30 September 2022: 10%).
1.APM - for definition and calculation methodology, refer to the
APMs section below.
19.2 Financial risk management objectives
The Company has an investment policy and strategy, as summarised
above, that sets out its overall investment strategy and its
general risk management philosophy and has established processes to
monitor and control these in a timely and accurate manner. These
guidelines are the subject of regular operational reviews
undertaken by the Investment Adviser to ensure that the Company's
policies are adhered to as it is the Investment Adviser's duty to
identify and assist in the control of risk. The Investment Adviser
reports regularly to the Directors, who have ultimate
responsibility for the overall risk management approach.
The Investment Adviser and the Directors ensure that all
investment activity is performed in accordance with the investment
guidelines. The Company's investment activities expose it to
various types of risks that are associated with the financial
instruments and markets in which it invests. Risk is inherent in
the Company's activities and it is managed through a process of
ongoing identification, measurement and monitoring. The financial
risks to which the Company is exposed include market risk (which
includes other price risk) and interest rate risk, credit risk and
liquidity risk. Further, the Company is exposed to a number of
shareholder interests, c.9% of the portfolio by value, either as a
result of the specific targeting of these positions or through
enforcing its security as a result of the occurrence of defaults.
Such exposures are more sensitive to changes in market factors,
such as electricity prices, and the operational performance of
projects and are therefore likely to result in increased volatility
in the valuation of the portfolio.
Geopolitical and market uncertainties
There has been significant political and economic uncertainty
this year post year end, driving high inflation and a
cost-of-living crisis. The Company's infrastructure investments are
generally low -- volatility investments with stable,
pre-determined, very long -- term, public sector backed revenues;
41% of the Company's investment portfolio is exposed to some form
of inflation protection mechanism.
The war in Ukraine continues to be monitored by the Board and
the Investment Adviser for any potential impacts on the Company.
The uncertainty around the conflict, and the associated global
response through sanctions, has resulted in increased market
volatility, in particular in energy and commodity markets. The
Israel-Hamas war post year end has created further uncertainty and
therefore additional volatility in short-term power prices.
In November 2022, the UK Government announced the introduction
of an Electricity Generator Levy to tax certain renewable energy
generating assets from 1 January 2023. The impacts of this levy
were initially estimated and reported in the 2022 annual report,
with the actual levy applied to the valuation of the portfolio once
full details were published by the UK Government in December 2022.
Whilst the levy will impact the profitability potential of certain
investments, it does not adversely impact their viability and these
assets still benefit from increased output over and above the
original forecasts.
Climate risk
For the second consecutive year, the Investment Adviser carried
out a climate risk assessment for each underlying portfolio asset
to assess the actual and potential impacts of climate-related risks
and opportunities across the portfolio. The analysis considered
both physical and transition risks for each asset. The data
collated was based upon publicly available data on flood risk and
EPC ratings, supplemented by inputs from the Investment Adviser's
portfolio management team and its investment management team.
Further information is given above. Based on the climate risk
analysis undertaken, the Investment Adviser does not currently
propose to make any material changes to financial forecasts due to
climate risk.
19.3 Market risk
There is a risk that market movements in interest rates, credit
markets and observable yields may decrease or increase the fair
value of the Company's financial assets without regard to the
assets' underlying performance. The fair value of the Company's
financial assets is measured and monitored on a quarterly basis by
the Investment Adviser with the assistance of the independent
Valuation Agent.
The valuation principles used are based on a discounted cash
flow methodology, where applicable. A fair value for each asset
acquired by the Company is calculated by applying a relevant market
discount rate to the contractual cash flows expected to arise from
each asset. At the year end, all investments were classified as
Level 3; refer to note 19.7 for additional information.
The independent Valuation Agent determines the discount rates
that it believes the market would reasonably apply to each
investment taking into account, inter alia, the following
significant inputs:
- Pound Sterling interest rates;
- movements of comparable credit markets; and
- observable yields on other comparable instruments.
In addition, the following are also considered as part of the
overall valuation process:
- general infrastructure market activity and investor sentiment; and
- changes to the economic, legal, taxation or regulatory environment.
The independent Valuation Agent exercises its judgement in
assessing the expected future cash flows from each investment.
Given that the investments of the Company are generally
fixed-income debt instruments (in some cases with elements of
inflation protection) or other investments with a similar economic
effect, the focus of the independent Valuation Agent is on
assessing the likelihood of any interruptions to the debt service
payments, in light of the operational performance of the underlying
asset as confirmed by the Investment Adviser. Where appropriate,
the independent Valuation Agent will also consider long-term
assumptions that have a direct impact on valuation, such as
electricity prices, inflation and availability. Given fluctuating
electricity prices, the Investment Adviser has continued with a
hedging programme to reduce volatility in the portfolio. Further
information can be found above.
The table below shows how changes in discount rates affect the
changes in the valuation of financial assets at fair value through
profit or loss. The range of discount rates used reflects the
Investment Adviser's view of a reasonable expectation of valuation
movements across the portfolio in a twelve month period.
30 September 2023
Change in discount rates 0.50% 0.25% - (0.25%) (0.50%)
---------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Value of financial assets at fair value (GBP'000) 1,016,759 1,031,449 1,046,568 1,062,134 1,078,166
Change in valuation of financial assets at fair value
through profit or loss (GBP'000) (29,809) (15,119) - 15,566 31,598
---------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
At 30 September 2023, the discount rates used in the valuation
of financial assets ranged from 6.58% to 13.00%, with a rate of
20.00% being applied to one financial asset due to changes in the
perceived risk associated with one project, representing 0.58% of
the portfolio.
30 September 2022
Change in discount rates 0.50% 0.25% - (0.25%) (0.50%)
---------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Value of financial assets at fair value (GBP'000) 1,056,545 1,071,707 1,087,331 1,103,437 1,120,047
Change in valuation of financial assets at fair value
through profit or loss (GBP'000) (30,786) (15,624) - 16,106 32,716
---------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
At 30 September 2022, the discount rates used in the valuation
of financial assets ranged from 6.08% to 10.38%.
19.4 Interest rate risk
Interest rate risk has the following effect:
Fair value of financial assets
Interest rates are one of the factors which the independent
Valuation Agent takes into account when valuing the financial
assets. Interest rate risk is incorporated by the independent
Valuation Agent into the discount rate applied to the financial
assets at fair value through profit or loss. Discount rate
sensitivity analysis is disclosed in note 19.3.
Future cash flows
The Company primarily invests, through its SPVs, in senior and
subordinated debt instruments of infrastructure Project Companies.
The financial assets have fixed interest rate coupons, albeit with
some inflation protection and, as such, movements in interest rates
will not directly affect the future cash flows payable to the
Company.
Interest rate hedging may be carried out to seek to provide
protection against falling interest rates in relation to assets
that do not have a minimum fixed rate of return acceptable to the
Company in line with its investment policy and strategy.
Where the debt instrument is subordinated, the Company is
indirectly exposed to the gearing of the infrastructure Project
Companies. The Investment Adviser ensures as part of its due
diligence that the Project Company debt ranking senior to the
Company's investment has been, where appropriate, hedged against
movement in interest rates, through the use of interest rate swaps.
At 30 September 2023, the Company had not entered into any interest
rate swap contracts (30 September 2022: none).
Exposure
The Company had exposure to Sterling LIBOR on certain
investments in the portfolio. During the prior year, the Company
transitioned all relevant debt instruments in the portfolio
impacted by the discontinuation of LIBOR from 1 January 2022 to the
replacement reference rate SONIA.
Borrowings
During the year, the Company made use of its RCF to finance
investments made by the Company. Details of the RCF are given in
note 15.
The drawn amount under the RCF at 30 September 2023 was GBP104.0
million (30 September 2022: GBP99.0 million).
The following tables show an estimate of the sensitivity of the
drawn amounts under the RCF to interest rate changes of 100, 200
and 300 basis points in a twelve month period, with all other
variables being held constant.
30 September 2023 Change in interest rates 3.0% 2.0% 1.0% - (1.0%) (2.0%) (3.0%)
---------------------------------------------- ------- ------- ------- ------- --------- --------- ---------
Value of interest expense (GBP'000) 10,594 9,554 8,514 7,474 6,434 5,394 4,354
Changes in interest expense (GBP'000) 3,120 2,080 1,040 - (1,040) (2,080) (3,120)
---------------------------------------------- ------- ------- ------- ------- --------- --------- ---------
30 September 2022 Change in interest rates 3.0% 2.0% 1.0% - (1.0%) (2.0%) (3.0%)
-------------------------------------------- ------- ------- ------- ------- --------- --------- ---------
Value of interest expense (GBP'000) 7,118 6,128 5,138 4,148 3,158 2,168 1,178
Changes in interest expense (GBP'000) 2,970 1,980 990 - (990) (1,980) (2,970)
-------------------------------------------- ------- ------- ------- ------- --------- --------- ---------
Other financial assets and liabilities
Bank deposits and payables and accrued expenses are exposed to
and affected by fluctuations in interest rates. However, the impact
of interest rate risk on these assets and liabilities is not
considered material.
19.5 Credit risk
Credit risk refers to the risk that the counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company. The assets
classified at fair value through profit or loss do not have a
published credit rating; however, the Investment Adviser monitors
the financial position and performance of the Project Companies on
a regular basis to ensure that credit risk is appropriately
managed.
The Company is exposed to differing levels of credit risk on all
its assets. Per the statement of financial position, the Company's
total exposure to credit risk is GBP1,064 million (30 September
2022: GBP1,103 million) being the balance of total assets less
prepayments. As a matter of general policy, cash is held at a
number of financial institutions to spread credit risk, with cash
awaiting investment being held on behalf of the Company at banks
which carry a minimum rating of A-1, P-1 or F1 from Standard &
Poor's, Moody's or Fitch respectively or in one or more similarly
rated money market or short-dated gilt funds. Cash is generally
held on a short-term basis, pending subsequent investment. The
amount of working capital that may be held at RBSI is limited to
the higher of GBP4.0 million or the value of one quarter of the
Company's running costs. Any excess uninvested/surplus cash is held
at other financial institutions with the minimum credit ratings
described above. The maximum amount to be held at any one of these
other financial institutions is GBP25.0 million or 25% of total
cash balances, whichever is the larger. It is also recognised that
with the advent of ring-fenced banking, it has become more
difficult to interact with sufficiently well-rated counterparty
banks.
Before an investment decision is made, the Investment Adviser
performs extensive due diligence complemented by professional third
party advisers, including technical advisers, financial and legal
advisers, and valuation and insurance experts. After an investment
is made, the Investment Adviser primarily uses detailed cash flow
forecasts to assess the continued creditworthiness of Project
Companies and their ability to pay all costs as they fall due. The
forecasts are regularly updated with information provided by the
Project Companies in order to monitor ongoing financial
performance.
The Project Companies receive a significant proportion of
revenue from Government departments and public sector or local
authority clients.
The Project Companies are also reliant on their subcontractors,
particularly facilities managers, continuing to perform their
service delivery obligations such that revenues are not disrupted.
The credit standing of each significant subcontractor is monitored
by the Investment Adviser on an ongoing basis and significant
exposures are reported to the Directors quarterly.
The concentration of credit risk to any individual project did
not exceed 10% of the Company's portfolio at the year end, which is
the maximum amount permissible per the Company's investment policy.
The Investment Adviser regularly monitors the concentration of risk
based upon the nature of each underlying project to ensure
appropriate diversification and risk remains within acceptable
parameters.
The concentration of credit risk associated with counterparties
is deemed to be low due to asset and sector diversification. The
underlying counterparties are typically public sector entities
which pay pre-determined, long-term, public sector backed revenues
in the form of subsidy payments for renewables transactions (i.e.
FiT and ROCs payments), unitary charge payments for PFI
transactions and lease payments for social housing projects. In the
view of the Investment Adviser and the Board, the public sector
generally has both the ability and willingness to support the
obligations to these entities.
As noted in the Company's 2022 annual report, there has been an
increase in the volatility of electricity market prices. These
dynamics have resulted in the collapse of some energy suppliers.
The Company has exposure to certain electricity suppliers through
offtake arrangements with renewables project borrowers. To date,
the Company has not directly been impacted by any suppliers that
have collapsed.
Through its usual systems and processes, the Investment Adviser
monitors the credit standing of all customers and suppliers and
believes that where offtakers have supply businesses they remain in
a strong position to continue such arrangements. In any case, the
Investment Adviser considers the offtake market for renewable
projects to be a liquid and competitive sector, meaning any
arrangements that are terminated as part of an offtaker collapse
could be easily replaced by a continuing third party.
The credit risk associated with each Project Company is further
mitigated because the cash flows receivable are secured over the
assets of the Project Company, which in turn has security over the
assets of the underlying projects. The debt instruments in the
portfolio are held by the Company at fair value, and the credit
risk associated with these investments is one of the factors which
the independent Valuation Agent takes into account when valuing the
financial assets.
Changes in credit risk affect the discount rates. The
sensitivity of the fair value of the financial assets at fair value
through profit or loss is disclosed in note 19.3. The Directors
have assessed the credit quality of the portfolio at the year end
and based on the parameters set out above, are satisfied that the
credit quality remains within an acceptable range for long-dated
debt.
On 13 July 2022, the Company entered into a commodity swap
agreement with Axpo Solutions AG under the ISDA's master agreement
for risk management purposes. The ISDA master agreement is an
internationally agreed document which is used to provide certain
legal and credit protection for parties who enter into financial
derivatives transactions. It includes standard terms which detail
what happens if a default occurs to one of the parties and how
derivative transactions are terminated following a default,
including the grounds under which one of the parties can force
close-out due to the occurrence of a default event by the other
party. The agreement also includes full right of set off. This
commodity swap agreement expired on 30 September 2023 and was fully
settled in October 2023 in line with the contractual terms. On 28
September 2023, the Company entered into a new a commodity swap
agreement with Axpo Solutions AG under the same terms.
The Company has not been required to post collateral in respect
of the commodity swap agreement. There is potential for credit risk
in relation to the arrangement depending on whether the arrangement
is an asset or a liability at any point in time. At the date of the
report, the Company's exposure to credit risk relating to the
commodity swap agreement is GBP265,000 as the arrangement is an
asset. Axpo Solutions AG is a Swiss -- based energy supply and
trading business and, together with its partners, operates over 100
power stations as the largest renewable generator in Switzerland.
The business has over 5,000 employees and operates in 30 countries.
Axpo Solutions AG is wholly owned by the cantons and cantonal
utilities of North -- eastern Switzerland. The Directors are
satisfied that the credit risk associated with Axpo Solutions AG as
a counterparty is minimal and remains within the Company's risk
appetite.
Further information on derivative financial instruments is given
in note 18.
19.6 Liquidity risk
Liquidity risk is defined as the risk that the Company will
encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or
another financial asset. Exposure to liquidity risk arises because
of the possibility that the Company could be required to pay its
liabilities earlier than expected. The Company's objective is to
maintain a balance between continuity of funding and flexibility
through the use of bank deposits and interest bearing loans and
borrowings.
The following table analyses all of the Company's assets and
liabilities into relevant maturity groupings based on the remaining
period from 30 September 2023 to the contractual maturity date. The
Directors have elected to present both assets and liabilities in
the liquidity disclosure below to illustrate the net liquidity
exposure of the Company.
All cash flows in the table below are on an undiscounted
basis.
Less One to Three Greater
than one three to twelve than twelve
month months months months Total
30 September 2023 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------------------- ---------- -------- ----------- ------------- ----------
Non-derivative financial assets
Cash and cash equivalents 16,867 - - - 16,867
Other receivables and prepayments - - 575 - 575
Financial assets at fair value through profit or loss - 3,498 107,523 1,785,689 1,896,710
-------------------------------------------------------- ---------- -------- ----------- ------------- ----------
Derivative financial assets at fair value through
profit or loss
-------------------------------------------------------- ---------- -------- ----------- ------------- ----------
Inflows 607 - 2,339 - 2,946
Outflows (357) - (2,324) - (2,681)
-------------------------------------------------------- ---------- -------- ----------- ------------- ----------
Total financial assets 17,117 3,498 108,113 1,785,689 1,914,417
-------------------------------------------------------- ---------- -------- ----------- ------------- ----------
Financial liabilities
Other payables and accrued expenses - (4,048) - - (4,048)
Interest bearing loans and borrowings - (2,040) (105,951) - (107,991)
-------------------------------------------------------- ---------- -------- ----------- ------------- ----------
Total financial liabilities - (6,088) (105,951) - (112,039)
-------------------------------------------------------- ---------- -------- ----------- ------------- ----------
Net exposure 17,117 (2,590) 2,162 1,785,689 1,802,378
-------------------------------------------------------- ---------- -------- ----------- ------------- ----------
Less than One to Three Greater
one month three to twelve than twelve
months months months Total
30 September 2022 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------- ----------- -------- ----------- ------------- ----------
Financial assets
Cash and cash equivalents 15,981 - - - 15,981
Other receivables and prepayments - - 185 - 185
Financial assets at fair value through profit or loss 11,828 60,122 125,801 1,732,787 1,930,538
------------------------------------------------------- ----------- -------- ----------- ------------- ----------
Total financial assets 27,809 60,122 125,986 1,732,787 1,946,704
------------------------------------------------------- ----------- -------- ----------- ------------- ----------
Non-derivative financial liabilities at fair value
through profit or loss
Other payables and accrued expenses - (3,570) - - (3,570)
Interest bearing loans and borrowings - (1,045) (3,099) (101,032) (105,176)
------------------------------------------------------- ----------- -------- ----------- ------------- ----------
Derivative financial liabilities
------------------------------------------------------- ----------- -------- ----------- ------------- ----------
Inflows - - 11,374 - 11,374
Outflows - - (15,235) - (15,235)
------------------------------------------------------- ----------- -------- ----------- ------------- ----------
Total financial liabilities - (4,615) (6,960) (101,032) (112,607)
------------------------------------------------------- ----------- -------- ----------- ------------- ----------
Net exposure 27,809 55,507 119,026 1,631,755 1,834,097
------------------------------------------------------- ----------- -------- ----------- ------------- ----------
19.7 Fair values of financial assets and financial
liabilities
Basis of determining fair value
Financial assets
Loan notes
The independent Valuation Agent carries out quarterly valuations
of the financial assets of the Company. These valuations are
reviewed by the Investment Adviser and the Directors. The
subsequent NAV produced is reviewed and approved by the Directors
on a quarterly basis. The basis for the independent Valuation
Agent's valuations is described in note 19.3.
Financial liabilities
Derivative financial instruments
The valuation principles used are based on inputs from
observable market data, being a commonly quoted electricity price
index, which most closely reflects a Level 2 input. The fair value
of the derivative financial instrument is derived from its
mark-to-market ("MtM") valuation provided by Axpo Solutions AG on a
quarterly basis. The MtM value is calculated based on the fixed leg
of the commodity swap offset by the market price of the floating
leg which is indexed to the 'Electricity N2EX UK Power Index Day
Ahead'. The Investment Adviser monitors the exposure internally
using its own valuation system. Further information on derivative
financial instruments is given in note 18.
Fair value measurements
Investments measured and reported at fair value are classified
and disclosed in one of the following fair value hierarchy levels
depending on whether their fair value is based on:
- Level 1: quoted prices in active markets for identical assets or liabilities;
- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices); and
- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
An investment is always categorised as Level 1, 2 or 3 in its
entirety. In certain cases, the fair value measurement for an
investment may use a number of different inputs that fall into
different levels of the fair value hierarchy. In such cases, an
investment level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgement and is
specific to the investment.
The Company recognises transfers between levels of the fair
value hierarchy at the end of the reporting year during which the
change has occurred.
The table below analyses all investments held by the Company by
the level in the fair value hierarchy into which the fair value
measurement is categorised:
30 September 30 September
Fair value 2023 2022
hierarchy GBP'000 GBP'000
----------------------------------------------------------------------- ------------ ------------- -------------
Financial assets at fair value through profit or loss
Level
Loan notes 3 1,046,568 1,087,331
Derivative financial instruments at fair value through profit or loss Level 265 -
2
Financial liabilities at fair value through profit or loss
Level
Derivative financial instruments at fair value through profit or loss 2 - (3,861)
----------------------------------------------------------------------- ------------ ------------- -------------
Discount rates between 6.58% and 13.00%, with a rate of 20.00%
being applied to one financial asset due to changes in the
perceived risk associated with one project, representing 0.58% of
the portfolio (30 September 2022: 6.08% and 10.38%) were applied to
the investments categorised as Level 3.
The Directors have classified financial instruments depending on
whether or not there is a consistent data set comparable and
observable transactions and discount rates. The Directors have
classified all loan notes as Level 3. No transfers were made
between levels in the year.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and end of the year:
30 September 30 September
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------------------------------- ------------- -------------
Opening balance 1,087,331 1,096,555
Purchases of financial assets at fair value through profit or loss(1) 138,698 127,380
Repayments of financial assets at fair value through profit or loss(1) (128,012) (219,164)
Net realised gains on disposal of financial assets at fair value through profit or loss 137 5,494
Unrealised gains on financial assets at fair value through profit or loss 15,017 89,606
Unrealised losses on financial assets at fair value through profit or loss (66,603) (12,540)
---------------------------------------------------------------------------------------- ------------- -------------
Closing balance 1,046,568 1,087,331
---------------------------------------------------------------------------------------- ------------- -------------
1.Refer to note 11 for a reconciliation to the statement of cash
flows.
For the Company's financial instruments categorised as Level 3,
changing the discount rates used to value the underlying
instruments alters the fair value. A change in the discount rate
used to value the Level 3 investments would have the effect on the
valuation as shown in the table in note 19.3. Refer to note 11 for
movements in financial assets at fair value through profit or loss
throughout the year.
In determining the discount rates for calculating the fair value
of financial assets at fair value through profit or loss, movements
in Pound Sterling, interest rates, comparable credit markets and
observable yield on comparable instruments could give rise to
changes in the discount rate.
The Directors consider the inputs used in the valuation of
investments and the appropriateness of their classification in the
fair value hierarchy. Should the valuation approach change, causing
an investment to meet the characteristics of a different level of
the fair value hierarchy, it will be reclassified accordingly.
20. Related party disclosures
As defined by IAS 24 Related Party Disclosures, parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions.
Directors
The non-executive Directors of the Company are considered to be
the key management personnel of the Company. Directors'
remuneration including expenses for the year totalled GBP432,000
(30 September 2022: GBP421,000). At 30 September 2023, liabilities
in respect of these services amounted to GBP106,000 (30 September
2022: GBP42,000).
At 30 September 2023, the Directors, together with their family
members, held the following shares in the Company:
30 September 2023 30 September 2022
------------------- ----------------------- --------------------------
Shares % of total Shares % of total
Director held voting rights held voting rights
------------------- ------- -------------- ---------- --------------
Andrew Didham 93,024 0.011 73,165 0.008
Dawn Crichard 75,261 0.009 75,261 0.009
Julia Chapman 60,446 0.007 - -
Alex Yew 20,000 0.002 10,000(1) 0.001
Steven Wilderspin 15,000 0.002 15,000 0.002
------------------- ------- -------------- ---------- --------------
1.Mr Yew's indirect holding prior to joining the Board on 1
November 2022.
Andrew Didham is an executive vice chairman at Rothschild &
Co, presently on a part-time basis. Rothschild & Co is engaged
by the Company to provide ongoing investor relations support. The
Company and Rothschild & Co maintain procedures to ensure that
Mr Didham has no involvement in either the decisions concerning the
engagement of Rothschild & Co or the provision of investor
relations services to the Company.
Investment Adviser
The Company is party to an Investment Advisory Agreement with
the Investment Adviser, which was most recently amended and
restated on 26 January 2023, pursuant to which the Company has
appointed the Investment Adviser to provide advisory services
relating to the management of assets on a day -- to -- day basis in
accordance with its investment objectives and policies, subject to
the overall supervision and direction of the Board of Directors. As
a result of the responsibilities delegated under this agreement,
the Company considers it to be a related party by virtue of being
'key management personnel'.
Under the terms of the Investment Advisory Agreement, the notice
period of the termination of the Investment Adviser by the Company
is 24 months. The remuneration of the Investment Adviser is set out
below.
For its services to the Company, the Investment Adviser receives
an annual fee at the rate of 0.9% (or such lesser amount as may be
demanded by the Investment Adviser at its own absolute discretion)
multiplied by the sum of:
- the NAV of the Company; less
- the value of the cash holdings of the Company pro rata to the
period for which such cash holdings have been held.
The Investment Adviser is also entitled to claim for expenses
arising in relation to the performance of certain duties and, at
its discretion, 1% of the value of any transactions entered into by
the Company (where possible, the Investment Adviser seeks to charge
this fee to the borrower).
The Investment Adviser receives a fee of 0.25% of the aggregate
gross proceeds from any issue of new shares in consideration for
the provision of marketing and investor introduction services.
The Company's Investment Adviser is authorised as an AIFM by the
FCA under the UK AIFM Regime. The Company has provided disclosures
on its website incorporating the requirements of the UK AIFM
Regime. The Investment Adviser receives an annual fee of GBP70,000
in relation to its role as the Company's AIFM, increased annually
at the rate of the RPI. The fee paid to the Investment Adviser for
the year was GBP83,000 (30 September 2022: GBP74,000).
During the year, the Company expensed GBP8,670,000 (30 September
2022: GBP8,558,000) in respect of investment advisory fees,
marketing fees and transaction management and documentation
services, and GBP17,000 (30 September 2022: GBP16,000) in respect
of expenses. At 30 September 2023, liabilities in respect of these
services amounted to GBP2,132,000 (30 September 2022:
GBP2,234,000).
The directors and employees of the Investment Adviser also sit
on the boards of, and control, several SPVs through which the
Company invests. The Company has delegated the day-to-day
operations of these SPVs to the Investment Adviser through the
Investment Advisory Agreement.
While not related parties under IAS 24 Related Party
Disclosures, for transparency, the Investment Adviser has disclosed
the shareholdings of key management personnel. At 30 September
2023, the key management personnel of the Investment Adviser,
together with their family members, directly or indirectly held
1,017,800 ordinary shares in the Company, equivalent to 0.115% of
the issued share capital (30 September 2022: 952,614 ordinary
shares, 0.108% of the issued share capital).
21. Contingent liabilities
At 30 September 2023, there were GBPnil contingent liabilities
(30 September 2022: GBPnil).
22. Subsequent events after the report date
The Company declared, on 2 November 2023, a fourth interim
dividend of 1.75 pence per ordinary share, amounting to GBP15.2
million, which was paid on 5 December 2023 to ordinary shareholders
who were recorded on the register at the close of business on 10
November 2023.
Since the year end, one advancement of GBP0.1 million was made
under an existing facility. The Company also received repayments
totalling GBP5.6 million in respect of 14 investments.
Post year end, Andrew Didham, Alex Yew and Dawn Crichard,
together with their family members, purchased a further 39,872,
20,000 and 5,202 shares in the Company, respectively.
Post year end, in December 2023, the Company signed heads of
terms for a new debt facility of GBP150.0 million with Lloyds, AIB,
Mizuho and Clydesdale.
Post year end, the Company repurchased a further 3.4 million
ordinary shares, which are held in treasury.
23. Ultimate controlling party
It is the view of the Directors that there is no ultimate
controlling party.
24. Non-consolidated SPVs
The following SPVs have not been consolidated in these financial
statements due to the Company meeting the criteria of an investment
entity and therefore, applying the exemption to consolidation under
IFRS 10, it has measured its financial interests in these SPVs at
fair value through profit or loss.
Refer to note 11 for the details of contractual arrangements
between the Company and the SPVs and to the risk disclosures in
note 19 for details of events or conditions that could expose the
Company to losses.
During the year and prior year, the Company did not provide
financial support to the unconsolidated SPVs.
All of the below non-consolidated SPVs are incorporated and
domiciled in the United Kingdom.
30 September 30 September 2022
2023
------------------------------ ------------------------------
SPV company name Ownership Classification(1) Ownership Classification(1)
interest interest
in loan in loan
notes notes
---------- ---------- ------------------
GCP Cardale PFI Limited 100% Subsidiary 100% Subsidiary
FHW Dalmore (Salford Pendleton Housing) plc 13.6% Associate 13.6% Associate
GCP Asset Finance 1 Limited 100% Subsidiary 100% Subsidiary
GCP Biomass 1 Limited 100% Subsidiary 100% Subsidiary
GCP Biomass 2 Limited 100% Subsidiary 100% Subsidiary
GCP Biomass 3 Limited 100% Subsidiary 100% Subsidiary
GCP Biomass 4 Limited 100% Subsidiary 100% Subsidiary
GCP Bridge Holdings Ltd 100% Subsidiary 100% Subsidiary
GCP Education 1 Limited 100% Subsidiary 100% Subsidiary
GCP Green Energy 1 Limited 100% Subsidiary 100% Subsidiary
GCP Healthcare 1 Limited 100% Subsidiary 100% Subsidiary
GCP Onshore Wind 3 Limited 100% Subsidiary 100% Subsidiary
GCP Programme Funding 1 Limited 100% Subsidiary 100% Subsidiary
GCP RHI Boiler 1 Limited 100% Subsidiary 100% Subsidiary
GCP Rooftop Solar 5 Limited 100% Subsidiary 100% Subsidiary
GCP Rooftop Solar 6 plc 37.2% Associate 38.8% Associate
GCP Rooftop Solar Finance plc 30.8% Associate 31.5% Associate
GCP Social Housing 1 Limited 100% Subsidiary 100% Subsidiary
Gravis Asset Holdings Limited 100% Subsidiary 100% Subsidiary
Gravis Solar 1 Limited 100% Subsidiary 100% Subsidiary
Gravis Solar 2 Limited 100% Subsidiary 100% Subsidiary
GCP Geothermal Funding 1 Limited 100% Subsidiary 100% Subsidiary
--------------------------------------------- ---------- ------------------ ---------- ------------------
1.Refer to note 11 for further details.
Alternative performance measures
The Board and the Investment Adviser assess the Company's
performance using a variety of measures that are not defined under
IFRS and are therefore classed as APMs.
Where possible, reconciliations to IFRS are presented from the
APMs to the most appropriate measure prepared in accordance with
IFRS. All items listed below are IFRS financial statement line
items unless otherwise stated.
APMs should be read in conjunction with the statement of
comprehensive income, statement of financial position, statement of
changes in equity and statement of cash flows, which are presented
in the financial statements section of this report. The APMs may
not be directly comparable with measures used by other
companies.
Adjusted earnings cover
Ratio of the Company's adjusted net earnings(1) per share to the
dividend per share. This metric seeks to show the Company's right
to receive future net cash flows by way of interest income from the
portfolio of investments, by removing: (i) the effect of
pull-to-par and; (ii) any upward or downward revaluations of
investments, which are functions of accounting for financial assets
at fair value under IFRS 9, and that do not contribute to the
Company's ability to generate cash flows.
30 Sep 30 Sep
2023 2022
Pence Pence
-------------------------------- ------- -------
Adjusted earnings per share(1) 8.58 8.30
Dividend per share 7.0 7.0
-------------------------------- ------- -------
Times covered 1.23 1.19
-------------------------------- ------- -------
Adjusted earnings per share
The Company's adjusted net earnings(1) divided by the weighted
average number of shares.
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
------------------------------------- ------------ ------------
Adjusted net earnings(1) 75,655 73,254
Weighted average number of shares 881,850,353 883,394,897
------------------------------------- ------------ ------------
Adjusted earnings per share (pence) 8.58 8.33
------------------------------------- ------------ ------------
Adjusted loan interest capitalised
In respect of a period, a measure of loan interest capitalised
adjusted for amounts subsequently paid as part of repayments.
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
---------------------------------------------------------------- --------- ---------
Capitalised (planned) 18,253 15,421
Capitalised (unscheduled) 3,706 6,979
---------------------------------------------------------------- --------- ---------
Loan interest capitalised 21,959 22,400
Capitalised amounts subsequently settled as part of repayments (10,822) (13,408)
---------------------------------------------------------------- --------- ---------
Adjusted loan interest capitalised 11,137 8,992
---------------------------------------------------------------- --------- ---------
Adjusted loan interest received
In respect of a period, a measure of loan interest received
adjusted for loan interest capitalised and subsequently paid as
part of repayments or disposal proceeds.
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
----------------------------------------------------------------------------- -------- --------
Loan interest received 58,791 52,079
Capitalised amounts settled as part of final repayment or disposal proceeds - 9,727
Capitalised amounts subsequently settled as part of repayments 10,822 13,408
----------------------------------------------------------------------------- -------- --------
Adjusted loan interest received 69,613 75,214
----------------------------------------------------------------------------- -------- --------
Adjusted net earnings
In respect of a period, a measure of loan interest accrued(1) by
the portfolio less total expenses and finance costs. This metric is
used in the calculation of adjusted earnings cover(1) .
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
-------------------------------------------------------------------------------------- --------- ----------
Total profit and comprehensive income/loss 30,905 140,319
Less: income/gains on financial assets at fair value through profit or loss (29,301) (157,039)
Less: gains on derivative financial instruments at fair value through profit or loss (12,860) (386)
Add: loan interest accrued(1) 86,911 90,360
-------------------------------------------------------------------------------------- --------- ----------
Adjusted net earnings 75,655 73,254
-------------------------------------------------------------------------------------- --------- ----------
Aggregate downward revaluations since IPO (annualised)
A measure of the Company's ability to preserve the capital value
of its investments over the long term. It is calculated as total
aggregate downward revaluations divided by total invested capital
since IPO expressed as a time weighted annual percentage.
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
------------------------------------------------- ---------- ----------
Total aggregate downward revaluations since IPO (88,996) (37,254)
Total invested capital since IPO 1,920,237 1,713,053
------------------------------------------------- ---------- ----------
Percentage (annualised) (0.36) (0.18)
------------------------------------------------- ---------- ----------
Average NAV
The average of the twelve net asset valuations calculated
monthly over the financial year.
Cash earnings cover
Ratio of total net cash received per share to the dividend per
share.
30 Sep 30 Sep
2023 2022
Pence Pence
-------------------------------------- ------- -------
Total net cash received per share(1) 5.65 6.72
Dividend per share(1) 7.00 7.00
-------------------------------------- ------- -------
Times covered 0.81 0.96
-------------------------------------- ------- -------
Discount
The price at which the shares of the Company trade below the NAV
per share.
Dividend yield
A measure of the quantum of dividends paid to shareholders
relative to the market value per share. It is calculated by
dividing the dividend per share for the year by the share price at
the year end.
Earnings cover
Ratio of the Company's earnings per share to the dividend per
share.
30 Sep 30 Sep
2023 2022
Pence Pence
-------------------- ------- -------
Earnings per share 3.50 15.88
Dividend per share 7.00 7.00
-------------------- ------- -------
Times covered 0.50 2.27
-------------------- ------- -------
Interest cover
The ratio of total loan interest income to finance costs
expressed as a percentage.
Loan interest accrued
The measure of the value of interest accruing on a loan in
respect of a period, calculated based on the contractual interest
rate stated in the loan documentation.
Loan interest accrued(1) differs from net income/gains on
financial assets at fair value through profit or loss, as
recognised under IFRS 9, as loan interest accrued(1) is not
impacted by movements of:
-- the impact of realised and unrealised gains and losses on
financial assets at fair value through profit or loss;
-- the impact of 'pull-to-par' in the unwinding of discount rate
adjustments over time (where the weighted average discount rate
used to value financial assets differs from the interest rate
stated in the loan documentation);
-- the impact of cash flows from loan interest received;
-- the impact of loan interest capitalised; and
-- the impact of loan principal indexation applied.
This metric is used in the calculation of adjusted net
earnings(1) .
Loan to value
A measure of the indebtedness of the Company at the year end,
expressed as interest bearing loans and borrowings as a percentage
of net assets.
NAV total return
A measure showing how the NAV per share has performed over a
period of time, taking into account both capital returns and
dividends paid to shareholders, expressed as a percentage.
It assumes that dividends paid to shareholders are reinvested at
NAV at the time the shares are quoted ex-dividend. This is a
standard performance metric across the investment industry and
allows comparability across the sector.
Source: Bloomberg
Ongoing charges
Ongoing charges is a measure of the annual percentage reduction
in shareholder returns as a result of recurring operational
expenses assuming markets remain static and the portfolio is not
traded.
This is a standard performance metric across the investment
industry and allows comparability across the sector; it is
calculated in accordance with the AIC's recommended
methodology.
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
------------------------- -------- --------
Ongoing charges
Investment Adviser 8,670 8,558
Directors' fees 432 421
Administration expenses 2,320 3,471
------------------------- -------- --------
Total expenses 11,422 12,450
Non-recurring expenses (127) (1,283)
------------------------- -------- --------
Total 11,295 11,167
Average NAV(1) 988,537 974,319
------------------------- -------- --------
Ongoing charges ratio 1.1% 1.1%
------------------------- -------- --------
Premium
The price at which the shares of the Company trade above the NAV
per share.
Total expenses paid
In respect of the year, the cash outflows from the Company in
order to settle operating costs. This metric is used in the
calculation of total net cash received.
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
------------------------------------------------------ -------- --------
Total expenses per statement of comprehensive income 11,422 12,450
Adjustment for expense accruals (406) (357)
------------------------------------------------------ -------- --------
Total expenses paid 11,016 12,093
------------------------------------------------------ -------- --------
Total net cash received
In respect of a period, the cash inflows from investments,
comprising adjusted loan interest received(1) less total expenses
paid and finance costs paid. This metric is used in the calculation
of cash earnings cover(1) .
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
------------------------------------ --------- ---------
Adjusted loan interest received(1) 69,613 75,214
Total expenses paid(1) (11,016) (12,093)
Finance costs paid (8,716) (3,985)
------------------------------------ --------- ---------
Total net cash received 49,881 59,136
------------------------------------ --------- ---------
Total net cash received per share
The Company's total net cash received(1) divided by the weighted
average number of shares.
30 Sep 30 Sep
2023 2022
GBP'000 GBP'000
------------------------------------------- ------------ ------------
Total net cash received(1) 49,881 59,136
Weighted average number of shares 881,850,353 883,394,897
------------------------------------------- ------------ ------------
Total net cash received per share (pence) 5.65 6.72
------------------------------------------- ------------ ------------
Total shareholder return
A measure of the performance of a Company's shares over time. It
combines share price movements and dividends to show the total
return to the shareholder expressed as a percentage. It assumes
that dividends are reinvested in the shares at the time the shares
are quoted ex -- dividend.
This is a standard performance metric across the investment
industry and allows comparability across the sector.
Source: Bloomberg
Weighted average annualised yield
The weighted average yield on the investment portfolio
calculated based on the yield of each investment weighted by the
principal balance outstanding on such investment, expressed as a
percentage. It is calculated including borrower company leverage
but before any Company level leverage.
The yield forms a component of investment cash flows used for
the valuation of financial assets at fair value through profit or
loss under IFRS 9.
1.APM - refer to relevant APM for further information.
Glossary of key terms
Adjusted earnings cover
Refer to APMs section above
Adjusted loan interest capitalised
Refer to APMs section above
Adjusted loan interest received
Refer to APMs section above
Adjusted net earnings
Refer to APMs section above
Aggregate downward revaluations since IPO (annualised)
Refer to APMs section above
AGM
The Annual General Meeting of the Company
AIB
AIB Group (UK)
AIC
Association of Investment Companies
AIC Code
AIC Code of Corporate Governance
AIF
Alternative Investment Fund
AIFM
Alternative Investment Fund Manager
APMs
Alternative performance measures
Average life
The weighted average term of the loans in the investment
portfolio
BNYM
Bank of New York Mellon
Borrower
Owners of the Project Companies to which the Company advances
loans
BPA-free
Bisphenol A free
Capture price
The actual electricity price achieved by a generator in the
market
Cash earnings cover
Refer to APMs section above
CBFs
Community Benefit Funds
CfD
Contract-for-difference
CIF Law
Collective Investment Funds (Jersey) Law 1988
Clydesdale
Clydesdale Bank plc
C shares
A share class issued by the Company from time to time.
Conversion shares are used to raise new funds without penalising
existing shareholders. The funds raised are ring-fenced from the
rest of the Company until they are substantially invested
Deferred shares
Redeemable deferred shares of GBP0.01 each in the capital of the
Company arising from C share conversion
Discount
Refer to APMs section above
Dividend cover
Earnings (under IFRS, adjusted or cash) for the year compared to
the dividend for the year
Dividend yield
Refer to APMs section above
Earnings cover
Refer to APMs section above
EEA
European Economic Area
EPC
Energy Performance Certificate
ESG
Environmental, social and governance
EU
European Union
FCA
Financial Conduct Authority
FiT
Feed-in tariff
FRC
Financial Reporting Council
FTE
Full-time equivalent
FY22
Full year 2022
FY23
Full year 2023
GB market
UK electricity market
GCP Asset Backed
GCP Asset Backed Income Fund Limited
GHG Protocol
Greenhouse gas protocol
GRESB
Global Real Estate Sustainability Benchmark
GWh
Gigawatt hours
IFRS
International Financial Reporting Standards
Interest cover
Refer to APMs section above
IPO
Initial public offering
IRR
Internal rate of return
ISDA
International Swaps and Derivatives Association
ISO
International Organisation for Standardisation
ISSB
International Sustainability Standards
Jersey Company Law
The Companies (Jersey) Law 1991 (as amended)
JFSC
Jersey Financial Services Commission
KPIs
Key performance indicators
KPMG
KPMG Channel Islands Limited
LIBOR
London Interbank offered rate
Lloyds
Lloyds Group plc
Loan interest accrued
Refer to APMs section above
Loan to value
Refer to APMs section above
LSE
London Stock Exchange
MEES
Minimum Energy Efficiency Standards
Mizuho
Mizuho Bank
MW
Megawatt
NAV
Net asset value
NAV total return
Refer to APMs section above
OBR
The Office for Budget Responsibility
Official List
The Official List of the FCA
Ongoing charges ratio
Refer to APMs section above
Ordinary shares
The ordinary share capital of the Company
PFI
Private finance initiative
PPA
Power purchase agreement
PPP
Public-private partnership
PPS
Pence per share
Premium
Refer to APMs section above
Project Company
A special purpose company which owns and operates an asset
Public sector backed
All revenues arising from UK central Government or local
authorities or from entities themselves substantially funded by UK
central Government or local authorities, obligations of NHS Trusts,
UK registered social landlords and universities and revenues
arising from other Government-sponsored or administered initiatives
for encouraging the usage of renewable or clean energy in the
UK
Pull-to-par
The effect on income recognised in future periods from the
application of a new discount rate to an investment
RBSI
Royal Bank of Scotland International Limited
RCF
Revolving credit facility with RBSI, AIB, Lloyds, Clydesdale and
Mizuho
REGOs
Renewable Energy Guarantees of Origin
RHI
Renewable heat incentive
RNS
Regulatory News Service
ROCs
Renewable obligation certificates
Rothschild & Co
NM Rothschild and Sons Ltd
RPs
Registered Providers
RSH
Regulator of Social Housing
SASB
Sustainability Accounting Standards Board
Scheme
Proposed combination of the Company with GCP Asset Backed
SEM
Irish Single Electricity Market
Senior ranking security
Security that gives a loan priority over other debt owed by the
issuer in terms of control and repayment in the event of default or
issuer bankruptcy
SFDR
The Sustainable Finance Disclosure Regulation
SONIA
Sterling Overnight Interbank Average rate
SPV
Special purpose vehicle through which the Company invests
Strike price
A pre-agreed electricity price level agreed by a generator as
part of a CfD, reflecting the return needed to make that technology
financially viable
TCFD
Task Force on Climate-related Financial Disclosures
The Company
GCP Infrastructure Investments Limited
TNFD
Taskforce on Nature-related Financial Disclosures
Total expenses paid
Refer to APMs section above
Total net cash received
Refer to APMs section above
Total shareholder return
Refer to APMs section above
UK Code
UK Corporate Governance Code published in 2018
UK AIFM Regime
Together, The Alternative Investment Fund Managers Regulations
2013 (as amended by The Alternative Investment Fund Managers
(Amendment etc.) (EU Exit) Regulations 2019) and the Investment
Funds sourcebook forming part of the FCA Handbook, as amended from
time to time
UK ETS
UK Emissions Trading Scheme
UN SDGs
United Nations Sustainable Development Goals
Weighted average annualised yield
Refer to APMs section above
Weighted average discount rate
A rate of return used in valuation to convert a series of future
anticipated cash flows to present value under a discounted cash
flow approach. It is calculated with reference to the relative size
of each investment
UN SDGs and targets
SDG 3
Good health and well-being
UN SDG target 3.8
Achieve universal health coverage, including financial risk
protection, access to quality essential healthcare services and
access to safe, effective, quality and affordable essential
medicines and vaccines for all.
SDG 4
Quality education
UN SDG target 4.1
By 2030, ensure that all girls and boys complete free, equitable
and quality primary and secondary education leading to relevant and
effective learning outcomes.
SDG 5
Gender equality
UN SDG target 5.5
Ensure women's full and effective participation and equal
opportunities for leadership at all levels of decision-making in
political, economic and public life.
SDG 7
Affordable and clean energy
UN SDG target 7.2
By 2030, increase substantially the share of renewable energy in
the global energy mix.
SDG 8
Decent work and economic growth
UN SDG target 8.3
Promote development-oriented policies that support productive
activities, decent job creation, entrepreneurship, creativity and
innovation, and encourage the formalisation and growth of micro,
small and medium-sized enterprises, including through access to
financial services.
SDG 9
Industry, innovation and infrastructure
UN SDG target 9.3
Increase the access of small-scale industrial and other
enterprises, in particular in developing countries, to financial
services, including affordable credit, and their integration into
value chains and markets.
UN SDG target 9.4
By 2030, upgrade infrastructure and retrofit industries to make
them sustainable, with increased resource -- use efficiency and
greater adoption of clean and environmentally sound technologies
and industrial processes, with all countries taking action in
accordance with their respective capabilities.
SDG 11
Sustainable cities and communities
UN SDG target 11.1
By 2030, ensure access for all to adequate, safe and affordable
housing and basic services and upgrade slums.
SDG 15
Life on land
UN SDG target 15.5
Take urgent and significant action to reduce the degradation of
natural habitats, halt the loss of biodiversity and, by 2020,
protect and prevent the extinction of threatened species.
SDG 17
Partnerships for the goals
UN SDG target 17.17
Encourage and promote effective public, public -- private and
civil society partnerships, building on the experience and
resourcing strategies of partnerships.
Shareholder information
Key dates for 2024
February
Annual General Meeting
March
Company's half-year end
Payment of first interim dividend
May
Half-yearly results announced
June
Payment of second interim dividend
September
Company's year end
Payment of third interim dividend
November
Payment of fourth interim dividend
December
Annual results announced
Frequency of NAV publication
The Company's NAV is released to the LSE via RNS on a quarterly
basis and is published on the Company's website.
Sources of further information
Copies of the Company's annual and half -- yearly reports, stock
exchange announcements, investor reports and further information on
the Company can be obtained from the Company's website.
Warning to users of this report
This report is intended solely for the information of the person
to whom it is provided by the Company, the Investment Adviser or
the Administrator. This report is not intended as an offer or
solicitation for the purchase of shares in the Company and should
not be relied on by any person for the purpose of accounting, legal
or tax advice or for making an investment decision. The payment of
dividends and the repayment of capital are not guaranteed by the
Company. Any forecast, projection or target is indicative only and
not guaranteed in any way, and any opinions expressed in this
report are not statements of fact and are subject to change, and
neither the Company nor the Investment Adviser is under any
obligation to update such opinions.
Past performance is not a reliable indicator of future
performance, and investors may not get back the original amount
invested. Unless otherwise stated, the sources for all information
contained in this report are the Investment Adviser and the
Administrator. Information contained in this report is believed to
be accurate at the date of publication, but none of the Company,
the Investment Adviser and the Administrator gives any
representation or warranty as to the report's accuracy or
completeness. This report does not contain and is not to be taken
as containing any financial product advice or financial product
recommendation. None of the Company, the Investment Adviser and the
Administrator accepts any liability whatsoever for any loss
(whether direct or indirect) arising from any use of this report or
its contents.
Corporate information
The Company
GCP Infrastructure Investments Limited
IFC 5
St Helier
Jersey JE1 1ST
Contact: jerseyinfracosec@apexgroup.com
Corporate website: www.gcpinfra.com
Directors
Andrew Didham (Chairman)
Julia Chapman (Senior Independent Director)
Michael Gray
Steven Wilderspin
Dawn Crichard
Ian Reeves CBE (retired on 31 October 2022)
Alex Yew (appointed on 1 November 2022)
Administrator, Company Secretary and Registered Office of the
Company
Apex Financial Services (Alternative Funds) Limited
IFC 5
St Helier
Jersey JE1 1ST
Tel: +44 (0)20 4549 0700
Adviser on English law
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Adviser on Jersey law
Carey Olsen
47 Esplanade
St Helier
Jersey JE1 0BD
Depositary
Apex Financial Services (Corporate) Limited
IFC 5
St Helier
Jersey JE1 1ST
Financial PR
Quill PR (Buchanan Communications)
107 Cheapside
London EC2V 6DN
Independent Auditor
KPMG Channel Islands Limited
37 Esplanade
St Helier
Jersey JE4 8WQ
Investment Adviser, AIFM and Security Trustee
Gravis Capital Management Limited
24 Savile Row
London W1S 2ES
Tel: +44 (0)20 3405 8500
Joint brokers
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
Tel: +44 (0)20 7710 7600
RBC Capital Markets
100 Bishopsgate
London EC2N 4AA
Operational bankers
Barclays Bank PLC, Jersey Branch
13 Library Place
St Helier
Jersey JE4 8NE
BNY Mellon
1 Piccadilly Gardens
Manchester M1 1RN
Lloyds Bank International Limited
9 Broad Street
St Helier
Jersey JE4 8NG
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
Registrar
Link Market Services (Jersey) Limited
IFC 5
St Helier
Jersey JE1 1ST
Valuation Agent
Mazars LLP
Tower Bridge House
St Katharine's Way
London E1W 1DD
For further information, please contact:
Gravis Capital Management Limited
Philip Kent
Ed Simpson
Max Gilbert +44 (0)20 3405 8500
RBC Capital Markets
Matthew Coakes
Elizabeth Evans +44 (0)20 7653 4000
Stifel Nicolaus Europe Limited
Edward Gibson-Watt
Jonathan Wilkes-Green +44 (0)20 7710 7600
Buchanan/Quill
Helen Tarbet
Sarah Gibbons-Cook
Henry Wilson +44 (0)20 7466 5000
Notes to the Editor
About GCP Infra
GCP Infra is a closed-ended investment company and FTSE-250
constituent, its shares are traded on the main market of the London
Stock Exchange. The Company's objective is to provide shareholders
with regular, sustained, long-term distributions and to preserve
capital over the long term by generating exposure to UK
infrastructure debt and related and/or similar assets.
The Company primarily targets investments in infrastructure
projects with long term, public sector-backed, availability-based
revenues. Where possible, investments are structured to benefit
from partial inflation protection. GCP Infra is advised by Gravis
Capital Management Limited.
GCP Infra has been awarded with the London Stock Exchange's
Green Economy Mark in recognition of its contribution to positive
environmental outcomes.
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.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR DDBDDSDBDGXD
(END) Dow Jones Newswires
December 13, 2023 02:00 ET (07:00 GMT)
Gcp Infrastructure Inves... (LSE:GCP)
Historical Stock Chart
From Apr 2024 to May 2024
Gcp Infrastructure Inves... (LSE:GCP)
Historical Stock Chart
From May 2023 to May 2024
