TIDMSEIT
RNS Number : 8404H
SDCL Energy Efficiency Income Tst
08 December 2020
8 December 2020
SDCL Energy Efficiency Income Trust plc
("SEEIT" or the "Company")
Announcement of Interim Results for the six-month period ended
30 September 2020
SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or
the "Company") today announced its financial results for the period
ended 30 September 2020.
Highlights
-- Net asset value ("NAV")(1) of GBP434.5 million at 30
September 2020, up from GBP323.5 million at 31 March 2020
-- NAV per share at 30 September 2020 of 102.0p, up from 101.0p at 31 March 2020
-- Total return on a NAV basis(2) : in the period of 4.8% and 7.3% annualised since IPO
-- Profit before tax of GBP17.2m in the period to 30 September
2020 (September 2019: GBP2.3 million)
-- Earnings per share in the period of 4.6p (September 2019: 1.4p)
-- Interim Dividends: consistent with the move to quarterly
payment and in line with guidance an interim dividend of 1.375p
paid for quarter ended 30 June 2020 and 1.375p declared for quarter
ended 30 September 2020
-- Target aggregate dividend: on track to deliver 5.5p per share
for year ending 31 March 2021(3)
-- Investment cashflows from the portfolio during the period of
GBP22.7 million(4) were in line with expectations, providing cash
cover of 1.44 times for interim dividends paid during the
period
-- Portfolio Valuation of GBP319 million at 30 September 2020(5)
(GBP320 million at 31 March 2020)
-- New acquisitions and commitments of GBP55 million in period.
Since 30 September, additional acquisitions of GBP109 million.
-- Successful capital raisings of GBP110 million in June 2020
and GBP105 million in October 2020 with proceeds used to repay debt
and commit to new investments during and after the period
Tony Roper, Chairman of SEEIT, said : "We are very pleased with
our portfolio's performance and resilience over the last six
months. Although it has been an exceptionally challenging period
for global markets, the Company has continued to perform in line
with expectations as well as grow and diversify by technology,
sector and geography. We are very grateful for the continued
support from new and existing investors."
Jonathan Maxwell, CEO of SDCL, the Investment Manager said :
"SEEIT's portfolio continues to perform and exhibit resilience,
delivering cheaper, cleaner and more reliable energy solutions to
its expanding client base. The energy efficiency market in Europe,
the US and the UK is set for further growth following increased
commitments to decarbonise, the launch of the European Commission's
Renovation Wave and with the incoming Biden Administration putting
energy efficiency in buildings and transport at the centre of its
ambitious climate plans. We are very well positioned to benefit
from this environment through our existing portfolio and through
our pipeline by making new investments where we can secure value
for shareholders."
For Further Information
Sustainable Development Capital T: +44 (0) 20 7287 7700
LLP
Jonathan Maxwell
Purvi Sapre
Eugene Kinghorn
Keith Driver
Jefferies International Limited T: +44 (0) 20 7029 8000
Tom Yeadon
Gaudi le Roux
TB Cardew T: +44 (0) 20 7930 0777
Ed Orlebar M: +44 (0) 7738 724 630
Joe McGregor E: SEEIT@tbcardew.com
1. Chairman's Interim statement
On behalf of the Board, I am pleased to present the Interim
Results of SDCL Energy Efficiency Income Trust Plc ("SEEIT" or "The
Company") for the six months to 30 September 2020.
The Company holds a single investment in a subsidiary through
which SEEIT's portfolio of energy efficient investments are held.
The portfolio performed as expected during the period, which was
exceptionally challenging for global markets. Net asset value
("NAV") per share increased from 101.0p at 31 March 2020 to 102.0p
at 30 September 2020. The Company delivered earnings per share of
4.6p in the period to 30 September 2020 (September 2019: 1.4p).
Since 31 March 2020 SEEIT has made four new investments and
commitments of approximately GBP164 million and raised GBP215
million through two capital raises. SEEIT's portfolio has increased
in size and diversification, now comprising 34 investments across
the UK, North America, Europe and Singapore.
Investment activity and capital raising
SEEIT made one investment and one investment commitment in the
period and two additional investments after the period. The
Investment Manager has successfully committed equity capital in a
timely manner following each of our fundraisings.
The GBP110 million Placing in June 2020 was allocated to
pipeline opportunities, including EV Networks, GET Solutions and
Singapore Energy Efficiency and also provided the Company with the
funds to repay in full an Acquisition Facility that matured in July
2020 and the amounts drawn under the Revolving Credit Facility
("RCF") held by its subsidiary, SEEIT HoldCo Ltd.
In August 2020, SEEIT entered into a commitment to invest in
rapid and ultra-fast electric vehicle ("EV") charging stations
across the UK for a total investment of up to GBP50 million, to be
drawn down in tranches to fund the implementation. Once
operational, revenues for the EV charging stations are expected to
be long-term, availability based and predominantly associated with
investment grade or equivalent off takers.
In September 2020, SEEIT announced a commitment to acquire a
portfolio of UK energy efficiency projects from GET Solutions for a
total cash consideration of approximately GBP5 million, of which
GBP1.7 million has been invested to date. There is also the
opportunity to acquire an estimated GBP12 million follow-on
pipeline of projects.
Since the end of the period, in October 2020 the Company raised
further equity through a GBP105 million placing and expanded and
drew down on its credit facilities to fund the acquisition of
Gasnätet, an operational and regulated gas distribution network in
Stockholm, Sweden for c.GBP107 million. Gasnätet supplies and
distributes gas, 70% of which is currently biogas, to over 58,000
residential, commercial, industrial and transportation customers in
Stockholm. In November 2020, SEEIT completed the acquisition of
Singapore Energy Efficiency, a portfolio of six operational energy
efficiency projects installed at the Singapore premises of five
leading industrial counterparties for GBP2 million.
These investments help diversify SEEIT's portfolio, in terms of
investment stage, geography, technology and counterparty.
In July 2020, the Company increased its RCF, held by its
subsidiary, SEEIT HoldCo Ltd, with Investec Bank plc from GBP25
million to GBP40 million on existing terms. The RCF expires in June
2022 and includes an accordion function for a further GBP25 million
increase on an uncommitted basis. After the period end the RCF was
expanded to include a GBP30 million acquisition facility which,
along with the RCF, was substantially utilised to acquire
Gasnätet.
As of 7 December 2020, the group's gearing is approximately 25%
of the Company's NAV on the basis of a look through consolidated
debt in the group, within the Company's gearing limit of 50% of
NAV.
The Board is pleased with the progress in the period with
additional acquisitions and commitments of assets in essential
economic sectors, with limited correlation to the broader equity
markets. The investments are consistent with SEEIT's targeted
technologies and geographic markets and demonstrate the Investment
Manager's ability to source and secure attractive investments that
meet the investment policy and strategy and that are accretive to
the portfolio.
Portfolio
Performance across the operational assets in the portfolio has
been substantially in line with expectations. The Investment
Manager continues to monitor any impact resulting from COVID-19
restrictions. The impact to date on the value of the portfolio has
not been material, although in a limited number of instances there
have been and continue to be some short-term impacts on operational
and financial performance due to the COVID-19 pandemic.
The largest single impact on the Company's investment in Primary
Energy as a result of COVID-19 occurred when the Ironside project
was not required to deliver energy services during the idling of a
steel production facility that was temporarily idled in April 2020.
This was as a result of the COVID-19 related steel production
slowdown although the facility came back online in August 2020 and
is now fully operational again. However, we are also pleased to
report that re-contracting negotiations for this specific project
were successfully concluded whilst the project was idled, extending
the contract for a further 10 years.
In the first half of the year, the Oliva Spanish Cogeneration
investment's financial performance was behind previous projections,
however the investments are governed by a regulatory regime that
substantially mitigates the overall financial impact of lower
market energy prices during this period.
Commissioning of two of the construction stage assets in the
portfolio has been impacted by COVID-19 but without a material
impact on the Company's financial performance. Commissioning works
at Huntsman Energy Centre have now restarted and the project is
expected to be operational in the first half of 2021. The
installation of rooftop solar projects across Tesco's estate in the
Supermarket Solar UK project was also temporarily paused during
lock-down but has now restarted with seven of the initial batch of
installations now operational and income generative.
Please see the Investment Manager's Report Section for further
details.
Governance
The Company's Annual Report for the year ended 31 March 2020 was
published on 18 June 2020 and copies were posted to shareholders
who elected to receive a printed copy.
On 19 June 2020, the Company implemented a new Share Issuance
Programme and Prospectus, providing for the issue of up to 500
million shares. The Share Issuance Programme provides the Company
with the ability to raise further capital over the 12 months from
the date of publication of the Prospectus.
The Company held an Annual General Meeting on 31 July 2020. 11
Resolutions were put forward to be voted on with all resolutions
tabled being approved. In line with corporate governance best
practice, the existing Directors offered themselves for re-election
at the Annual General Meeting and were duly re-elected.
On 21 October 2020, the Board appointed Emma Griffin as a fourth
independent Non-Executive Director of the Company. Emma brings a
wealth of experience from existing positions on the boards of both
UK FTSE 100 and North American companies.
Environmental, Social and Governance ("ESG")
On 1 October 2020, the Company published its first ESG Report
for the year ended 31 March 2020. SEEIT is dedicated to
accelerating the global transition to a net-zero carbon economy and
over the reporting period delivered energy solutions that saved
156,000 tonnes of CO2 emissions and produced 113,000 MWh of
renewable energy, as well as saving another 44,500 MWh via demand
side energy efficiency measures. In total, SEEIT's portfolio
projects provided 3.6 million 'negawatts' of demand side energy
reduction capacity and supported nearly 1,300 jobs in this crucial
sector of the economy.
A full copy of the ESG report is available from the Company's
website.
Financial performance and distributions
At 30 September 2020, SEEIT's NAV was GBP434.5 million (March
2020: GBP323.5 million) and 102.0 pence per share (March 2020:
101.0p). The Investment Portfolio was valued at GBP319 million as
at 30 September 2020 (GBP320 million at 31 March 2020), which,
after adjusting for cash received from investments, foreign
exchange and new investments made in the period, increased by 7.1%.
The Company's acquisitions of Singapore Energy Efficiency and
Gasnätet were completed after the period and are not reflected in
the Financial Review section of this report and were not included
in the 30 September 2020 Portfolio Valuation.
Investment cashflows from the portfolio during the period of
GBP22.7 million (on a Portfolio Basis - see section 2.4 for further
detail) were in line with expectations, providing cash cover of
1.44 times for interim dividends paid during the period. In the
period, the Company paid a second interim dividend of 2.5 pence per
share in respect of the year ended 31 March 2020 and having
transitioned to paying quarterly interim dividends from 1 April
2020, a first interim dividend of 1.375 pence per share in respect
of the quarter ended 30 June 2020. In November 2020 the Company
declared an interim dividend of 1.375p per share in respect of the
quarter ended 30 September 2020. See Section 2.4 for further
details.
As previously indicated, the Company is targeting total
dividends of 5.5p per share for the year ending March 2021 and
growing the dividend progressively thereafter.
Key Risks
The Investment Manager continues to work closely with project
level management teams, key subcontractors and co-shareholders and
to actively monitor the performance of all the projects in the
Company's portfolio in light of the COVID-19 pandemic and is
pleased with the performance of the portfolio as a whole. The
resilience of the portfolio's performance during the pandemic is
supported by the investment strategy of targeting investments that
supply energy services over the long term through contracts across
a diversified range of counterparties, geographies, sectors and
technologies.
The Investment Manager's own business continuity plans have been
implemented successfully, with those team members able to work from
home doing so.
The key risk within the portfolio relates to the credit risk of
contracted counterparties. The Investment Manager's monitoring of
key credit risks arising within the portfolio has not raised any
specific matters to address in this regard, but the Investment
Manager continues to monitor any changes in the credit risk profile
of the Company's counterparties. Further information on
counterparty credit risk can be found in Section 2.3.
We consider the risks posed to the Company by the UK's potential
'no deal' Brexit scenario to be limited. The Investment Manager
will continue to monitor economic and market stresses which may
increase counterparty risks as outlined above.
The currency hedging strategy that SEEIT has in place has
continued to effectively mitigate volatility in NAV from material
currency fluctuations.
Further details of the Key Risks can be found in the Investment
Manager's Report.
Shareholder engagement
The Company seeks to communicate and continue the dialogue with
investors regarding its strategic objectives and how they are
executed. During the period, the Company engaged, directly or via
the Investment Manager, with shareholders through meetings, market
announcements and various written materials.
As part of good governance, the Board met with shareholders who
wanted to meet us and in the process received invaluable feedback.
The Board plans to continue to engage with shareholders in
future.
Outlook
Growth in the SEEIT's target markets is expected to continue,
with widespread support from the private and increasingly the
public sector in appreciating the crucial and growing role that
energy efficiency has to play in transitioning the global energy
market from traditional forms of energy generation to a net-zero
carbon based system.
The energy efficiency market in Europe is set for substantial
growth following the launch of the European Commission's Renovation
Wave policies. This wide-ranging and ambitious plan seeks to
implement energy efficiency measures in 35 million buildings across
Europe in the coming decade. This marks what we believe will be a
very significant increase in the policy tailwinds for energy
efficiency and should ensure that the sector remains front and
centre of public planning around future energy policy.
The United States is one of the largest and most dynamic markets
for investment in clean energy and energy efficiency and can be
expected to gain further momentum under the incoming Biden
administration which has put energy efficiency at the forefront of
its climate policies. There is a strong case and tendency for
American business to prioritise greater efficiency and to
transition towards carbon neutrality. At a sub-national level, many
states have prioritised achieving net zero by 2050, providing
substantial momentum and commitments. The case for cheaper, cleaner
and more reliable energy solutions also remains commercially
compelling in the UK.
The Investment Manager is focused on improvements to the
existing portfolio to maximise value, as well as seeking new
investment opportunities that can deliver attractive risk-adjusted
returns for investors.
I would like to thank shareholders for their continued support
of the Company which is well placed to deliver upon our stated
investment objectives.
Tony Roper
Chair
7 December 2020
2. Investment Manager's Report
SEEIT is focused primarily on investments in operational energy
efficiency assets located in the UK, Continental Europe, North
America and selectively, other jurisdictions.
The Company's investment objective is to generate an attractive
total return for investors comprising stable dividend income and
capital preservation, with the opportunity for capital growth.
SEEIT's investments are held directly or indirectly by its sole
direct subsidiary and main investment vehicle, SEEIT Holdco Limited
which holds investments in multiple jurisdictions. At project level
the investments are managed by third party service providers or
in-house management teams.
Sustainable Development Capital LLP acts as the Investment
Manager to the Company.
2.1 Market Outlook and Strategy
Market review and outlook
The marketplace in which SEEIT is investing has been continuing
to grow, driven to date by the persistent need for cost effective,
low carbon and reliable energy solutions for buildings and
transport. Opportunities to reduce the inefficiencies and costs
associated with traditional energy supply, as well as in the way it
is used have been key commercial drivers for the market. SEEIT has
been able to identify a number of opportunities and to make
investment selectively in new projects as well as in acquiring
existing operational assets and portfolios.
In addition to increasing levels of interest and actions from
commercial and industrial counterparties directly, governments are
now increasingly turning to energy efficiency as a source of
post-COVID recovery, economic productivity and growth, as well as a
pathway to substantial and lower cost of greenhouse gas emission
reductions. While a vindication of the Company's approach, this
provides the encouraging prospect of policy support as an
additional driver of market growth for the 2020s in Europe and,
prospectively, in the UK (which aims to cut carbon emissions by at
least 68% of what they were in 1990 by the end of 2030), the United
States and other markets.
The European Union is leading the way so far, with $840 billion
in stimulus packages to help member states recover from the
pandemic, with cleaner and more efficient power positioned as a
central component. Around 37% of this capital will be invested
directly in clean energy technologies. The International Energy
Agency (IEA) anticipates that a significant part of this allocation
will be allocated to energy efficiency in buildings and industry,
for instance through the "Renovation Wave".(6) As of the end of
October 2020, other governments around the world have announced
$470 billion worth of energy-related stimulus packages targeting
production and consumption. The largest share of support is aimed
at raising the energy efficiency of existing buildings (through
renovations) and industrial processes. Renewable heat technologies
are also expected to benefit from measures targeting energy
efficiency.(7)
The Investment Manager welcomes the policy tailwinds and
stimulus packages but note it will remain important to continue to
find investment opportunities arising from these positive changes
on behalf of SEEIT that fits its investment policy and is accretive
to its investment objective. The Investment Manager also expects
that over time it will observe more competitive pricing for
investments that it assesses for SEEIT.
Strategy
Although SEEIT's portfolio is diverse, it is bound together by
the fact that its investments seek to deliver cheaper, cleaner and
more reliable energy solutions to end users in the built
environment, in industry and prospectively in transport. The
projects involve the supply and distribution of energy or helping
to manage or reduce the demand for energy at the point of use. The
Investment Manager believes that it is important to maintain
flexibility in terms of which technologies to employ in order both
to address client needs and to secure appropriate returns on
investment. This also makes it possible for SEEIT to invest in
different markets and sub-sectors, ensuring a suitably wide
investable universe for SEEIT.
The Company defines an Energy Efficiency Project as a project,
the objective of which is to achieve one or more of the following
criteria:
-- Reduce energy consumed and/or related GHG emissions arising
from: supply, transmission, distribution, consumption
-- Reduce Scope 1 or Scope 2 Greenhouse Gas ("GHG") emissions: as defined by the GHG Protocol
-- Increase the supply of renewable energy generated on the
premises of a Counterparty; or generated at a site directly
connected to the premises of a Counterparty
The full Investment Policy is available in the June 2020
Prospectus available on the Company's website.
The Investment Manager believes that given the scale of the
market opportunity in energy efficiency, driven by long term
fundamentals and the potential for accelerated growth with
international policy support, there is an opportunity for SEEIT to
continue to grow further through return enhancing investments,
active asset management by the Investment Manager and selective new
acquisitions. New investments add to the diversification of the
portfolio, the opportunity for investment outperformance and
establish new client and counterparty relationships. The Investment
Manager seeks to deliver the best available energy services to
existing clients and to provide additional innovative and
differentiated services over the long term.
At the same time as building and expanding on SEEIT's existing
portfolio, the Investment Manager has been focussed on asset
management, ensuring that the best teams and resources are
available both at the level of the portfolio investments and at the
level of the Investment Manager itself. The Investment Manager
benefits from one of the most experienced and largest investment
teams focused on energy efficiency, based in London, New York,
Dublin and Hong Kong and has now established a presence for SEEIT
in Madrid, Singapore and Stockholm to support portfolio
investments. The Investment Manager's energy efficiency investment
management team continues to grow and now consists of around 30
professionals. SEEIT's portfolio investments now involve more than
60 employees, working on-site at project level, plus a large number
of sub-contractors and partners.
Pipeline
The Investment Manager remains focussed on identifying new
investment opportunities to be accretive to the existing portfolio
and provide further diversification of the portfolio over time. The
Investment Manager has identified a substantial pipeline of new
opportunities, the majority of which has been secured via bilateral
or private negotiation or selective participation in organised
divestiture processes. Much of the pipeline has been developed
organically via direct new business development or follow-on
investment opportunities associated with the existing portfolio,
whether to expand on positions or to improve asset performance. As
evidenced in the acquisitions to date, the Investment Manager is
best placed in situations where it can add value and expertise as
well as providing capital, leveraging its in-house practical,
project management and operational experience and wide industry,
client and public sector network. The Investment Manager actively
engages its project counterparties and the wider ecosystem of
commentators, suppliers, clients, delivery partners and policy
makers to maintain the knowledge and to support innovation and
leadership.
2.2 Activity in the Period
Portfolio update
SEEIT's portfolio has grown significantly from a gross asset
value ("GAV") of c. GBP100 million at IPO to c. GBP600 million
today, which is substantially allocated. In executing SEEIT's
investment strategy, the Investment Manager has invested in a
portfolio of assets that provides broad diversification by
counterparty, sector, technology and geography and that provide
predictable and long-term contracted income. SEEIT is invested
predominantly in the UK, Europe and North America. During the
period, SEEIT further leveraged the Investment Manager's
international footprint and established a presence in Asia through
its first investment in Singapore.
SEEIT now has a portfolio of 34 investments that deliver cost
effective, reliable and low carbon energy solutions to tens of
thousands of contracted clients internationally. The portfolio is
being constructed carefully to secure income from operational
assets to cover dividend targets, for the current financial year
and for long term progressive growth over future years. With income
for the Company being delivered by the large number of operational
projects in the portfolio, SEEIT is now in a position to seek
capital growth by selectively targeting attractive returns from
late-stage development and construction phase investments. Such
investments are selected on the basis that the Investment Manager
is confident that they can be completed sufficiently quickly and at
sufficiently low levels of risk as to support SEEIT's total return
targets.
The Investment Manager continues to exercise a high degree of
discipline in the selection of investments for the SEEIT portfolio.
During the period, investment opportunities with a combined value
of at least GBP600 million were not concluded due to investment
considerations concerning valuation, counterparty credit analysis
and market competition, some of which were due to identified
COVID-19 specific risks.
The substantial majority of the portfolio's revenues are
associated with investment grade groups or equivalent
counterparties and the Investment Manager monitors the portfolio to
ensure that appropriate security and risk mitigations are in place
for the remainder. The majority of the portfolio's revenues are
contracted and derived from availability, regulated or
pre-determined sources, while the remainder are underpinned by
debt-like characteristics or benefit from a clear and sustainable
route to market. The Company continues to seek to minimise exposure
to unmitigated demand or energy market price risks.
The majority of projects in the portfolio are mature and
well-established operating assets, while in different sectors by
geography, technology and underlying client or industry. For
example, the portfolio features projects that have been providing
essential services for many years to the steel industry in the
United States (Primary Energy) and to the olive agricultural
industry in Spain (Oliva Spanish Cogeneration). The investment in
Gasnätet made after the end of the period features increasing
levels of biogas distributed to the city of Stockholm.
By technology, the portfolio features projects that generate
clean energy on site with well-established and proven technology
such as turbines, engines, boilers and solar panels. The portfolio
also features projects that save energy using LEDs, air
conditioning, building management systems and controls. The Company
looks forward to playing a role, through its investments, in the
scaling up of EV charging infrastructure in the UK, energy storage
and other key solutions for the energy transition and a net-zero
carbon economy.
The energy services that the Company provides are most often
essential to clients, which are themselves most often essential to
their economies or communities. This explains much of the
resilience that the portfolio has demonstrated to date in the
enduring disruption associated with the COVID-19 pandemic. The
pandemic did however cause some disruption to operational and
financial performance of certain investments which are further
described in Section 2.3.
With a portfolio of increasing scale, now servicing a large and
multi-national portfolio of buildings and customers, the Company
can offer a track record that is encouraging to new clients and
projects.
Portfolio development
The Company started the period with a portfolio value of GBP320
million and approximately GBP71 million of cash (both alternative
performance measurements shown on Portfolio Basis - see Section 2.4
and 2.5 for details). Since then it raised a further GBP215 million
through two capital raisings and made cash investments of GBP111
million to four new investments.
After allowing for dividends paid, investment cash inflows,
drawings under credit facilities and working capital movements
since March 2020, at the date of this Interim Report (7 December
2020) the Company's gross assets consists of an investment
portfolio value of approximately GBP435 million and GBP175 million
of cash (both alternative performance measurements shown on
Portfolio Basis) that is substantially committed to existing
investment commitments and allocations to projects not yet signed
but in exclusivity or bilateral negotiation.
Fundraising
In June 2020, the Company implemented a new Share Issuance
Programme and launched an Initial Issue of new Ordinary Shares. The
oversubscribed Placing raised GBP110 million, which was used for
new commitments identified in the June 2020 prospectus, as well as
to repay existing debt facilities.
Since the end of the period, in October 2020 the Company raised
a further GBP105 million through an oversubscribed placing of
ordinary shares. These proceeds were used, almost immediately, to
help fund the acquisition of Gasnätet.
Financing
To allow flexibility with making new investments, in July 2020,
the Company, increased the RCF with Investec Bank plc that it holds
through its wholly owned subsidiary, SEEIT HoldCo Limited, from
GBP25 million to GBP40 million on existing terms. The RCF expires
in June 2022 and includes an accordion function for a further GBP25
million increase on an uncommitted basis.
Since the end of the period, an additional GBP30 million
short-term acquisition facility was added to SEEIT's current GBP40
million revolving credit facility. The debt facilities and existing
cash resources were used to fund the acquisition of Gasnätet in
local currency in October 2020.
Investment Activity since 31 March 2020
Project Investment Date Counterparty Technology Location Commitment
EV Networks August 2020 Various (counterparties EV charging UK Up to
to be confirmed) station GBP 50m
equipment
GET Solutions September 2020 Hotels owned CHP UK GBP 5 million
and operated (additional
by International GBP 12m
Hotels Group pipeline)(8)
EV Networks UK
In August, SEEIT entered into an agreement to invest in up to
112 rapid and ultra-fast Electric Vehicle ("EV") charging stations
across the UK from EV Networks ("EVN") for a potential total
consideration in the future of up to GBP50 million, subject to
meeting certain set criteria.
This represents further diversification in SEEIT's portfolio and
the opportunity for capital growth and long-term contracted
revenues with utility counterparties through its first investment
in EV charging infrastructure. The investment has been structured
to provide SEEIT with availability revenues, contracted with
creditworthy counterparties, once operational.
The EV stock in the UK has doubled year-on-year since 2012 and
significant expansion in the UK's EV charging infrastructure is
required to meet this increased demand. The Investment Manager has
been tracking the EV charging infrastructure market for several
years and, as highlighted in the June 2020 Prospectus, SEEIT has
been actively pursuing potential investments in the EV charging
infrastructure market.
Development and construction of the EV charging sites is
undertaken by EVN, while the construction period for most projects
is expected to be relatively short, consistent with SEEIT's
approach of seeking investment in construction stage assets that
can become operational quickly and at sufficiently low levels of
risk. The operational EV charging sites will be contracted through
up to 20-year, fixed price, CPI inflated energy service agreements
to charge point operators, which are typically investment grade
utility companies. The EV charging sites will also enter into
long-term land-lease agreements with the site-owners, which are
typically large, established forecourt or car park operators.
The commitment of up to GBP50 million will be drawn down in
tranches, subject to meeting certain set criteria, to fund the
implementation of projects, with the first capital drawn down
expected to take place later this financial year with the full
balance of up to GBP50 million targeted to be deployed over the
next 12-18 months.
In addition to the initial 112 sites, EVN has plans to develop a
further c.380 EV charging sites, requiring an additional c.GBP150
million in the next 36 months, for which SEEIT has a right of first
negotiation.
GET Solutions
GET Solutions is an investment into a portfolio of 15 CHP
projects consisting of, four operating projects, two installed
projects and nine ready to build projects supplying electricity and
heat to hotels in UK. This portfolio was identified in the June
2020 Prospectus and was acquired for an initial consideration of
GBP5 million, drawn down in tranches over the coming months. The
investment also provides the option to invest in a pipeline of up
to an estimated GBP12 million of additional pipeline projects. This
investment provides SEEIT with long-term, contractual revenues and
additional sector diversification in the UK market, with the
opportunity for capital growth and expansion. The projects have
been contracted under 15 year, RPI-linked energy supply
arrangements with no demand or commodity risk applicable to
SEEIT.
The investment was sourced on a bilateral basis from GET
Solutions, a leading developer of CHP projects in the UK.
The projects provide on-site electricity and heat, generated by
good-quality CHP equipment, at a price lower than that available
from the grid at Holiday Inn and Crowne Plaza hotels, which are
both brands of the Intercontinental Hotel Group. The hotels are
owned by a leading US private equity group and are managed by
Interstate Hotels and Resorts, a leading hotel operator.
Diligence and negotiation on the project began in Q1 2020 and
appropriate measures have been undertaken to mitigate risks
associated with COVID-19. The vendors have provided cash collateral
and guarantees to protect SEEIT, should any of the hotel sites meet
financial challenges for two years following acquisition. The
equipment has been provided by 2G, a well-known supplier of CHP
plants. 2G have provided a comprehensive EPC and maintenance
package backed by a parent company guarantee.
SEEIT has also negotiated a right of first refusal over GET's
extensive pipeline of further UK projects which includes CHP in 51
hotels, totalling GBP12 million of further potential investment,
plus solar and storage with other clients of another GBP30
million.
Investment activity since period end
Project Investment Counterparty Technology Location Commitment
Date
Singapore Energy September 5 International Energy Efficiency Singapore GBP 2m
Efficiency 2020 manufacturers and Cooling
Measures
Gasnätet October 2020 58,000 customers Gas Distribution Sweden GBP 107m
Network
New investments since period end
Since the period end, the Company made two new investments. The
investments were targeted by the Investment Manager to provide
further geographical and technological diversification to the
investment portfolio and the projected future cash flows of these
investments support the Company's objective of generating an
attractive total return to shareholders.
Gasnätet
SEEIT has made an investment in Gasnätet which is responsible
for the distribution and supply of gas (currently c. 70% biogas)
for the City of Stockholm. The grid is an essential service,
providing localised energy to businesses and residents across the
city and also supports the growth and viability of the green
transport sector in the city, through making clean transport fuel
in the form of biogas available. The grid is an essential component
of an integrated system, aligned with national and regional
strategies to attain carbon neutrality by 2040.
The project cashflows which are primarily regulated, are
predominantly based on set tariffs with relatively low sensitivity
to customer demand or consumption. The investment increases the
investment portfolio's exposure to the distribution of clean energy
to the point of use.
The Investment Manager and the in-house management team of
Gasnätet are looking at a number of ways to unlock further value
and secure revenue growth, creating further value for SEEIT,
through improvement to operations, adding services downstream given
the existing 58,000 strong customer base and exploring investment
opportunities upstream, for example in biogas production.
Singapore Energy Efficiency
Identified in the June 2020 Prospectus, Singapore Energy
Efficiency is an investment into a portfolio of six operating
assets, including chillers and bespoke energy-efficient air
compressors that are installed at the premises of five leading
industrial counterparties in Singapore. The GBP2 million
acquisition is consistent with SEEIT's targeting of markets which
can provide attractive assets on a risk-adjusted basis. The
acquisition represents SEEIT's first energy efficiency investment
in Singapore and, together with the Investment Manager's presence
in the region, provides a platform for future opportunities in this
and other jurisdictions in the region.
The acquisition constituted a smaller related party transaction,
falling within the scope of Listing Rule 11.1.10R, as the
Investment Manager and its associates have an interest in the
vendor. The Board of Directors of the Company took independent
valuation advice and were required to approve the acquisition in
line with the reserved matters set by the Company that requires
Directors' approval.
Portfolio Counterparties
SEEIT's portfolio principally comprises projects with private
and public sector credit counterparties. As of 7 December, SEEIT's
counterparty credit exposure has over 80% by value(9) in projects
with revenues associated with investment grade or equivalent
counterparties(10) . Once the sale of ArcelorMittal USA to
Cleveland Cliffs as described in Section 2.3 completes, the
exposure will be over 60%.
Generally, the Investment Manager seeks to ensure that the
majority of revenues from projects that the Company invests in are
associated with investment grade or equivalent counterparties.
However, the portfolio mix may change over time, as a result of
decisions taken by the Investment Manager in selecting new
investment opportunities, or as a result of changes in the credit
standing of existing counterparties. As such, in making investment
decisions, the Investment Manager takes into account a number of
factors that are relevant to predictability or security of
revenues, as well as risk mitigation techniques including those
described below.
Credit risk mitigation
SEEIT seeks to invest in projects that provide critical and
essential services to counterparties with low and mitigated credit
risk and the Investment Manager recognises the importance of credit
risk mitigation to protect value for shareholders and help SEEIT to
achieve its investment objectives.
Key mitigants to counterparty credit risk include:
-- Investing in a well diversified portfolio that spreads the
credit risk across counterparties, geographies and sectors
-- Investing in projects related to buildings or services that
play an important role in their economy or community and/or that
have a value that may endure beyond their existing owner, e.g.
datacentres, industrial or agricultural facilities, such as Oliva
Spanish Cogeneration
-- Identifying investments with a strategic importance that
extends beyond the use of the existing counterparty, e.g. providing
emmissions management services via Primary Energy projects
-- Diversification of credit risk where there is no single
counterparty in an investment, e.g. Gasnätet which has over 58,000
customers in Stockholm and Spark US Energy Efficiency investment
with 250 underlying counterparties across more than 30 states in
the USA
-- Ownership or security over project assets that have
substantial value or a security package from counterparties
involving satisfactory obligations for them to make payments
-- Negotiated credit protections such as parent company
guarantees, cash collateral and financial guarantees
Distributions
In June 2020, the Company paid a second interim dividend of 2.5
pence per share in respect of the year ended 31 March 2020. From 1
April 2020 the Company transitioned to paying quarterly interim
dividends, a first interim dividend of 1.375 pence per share in
respect of the quarter ended 30 June 2020 was paid in September
2020. After the end of the period, in November 2020 the Company
declared an interim dividend of 1.375p per share in respect of the
quarter ended 30 September 2020. The Company remains on track to
deliver the target aggregate dividend of 5.5p per share for the
year ending March 2021.
Key risks
The principal risks faced by the Company remain largely
unchanged from those described in full in the March 2020 Annual
Report and the June 2020 prospectus, including the mitigants
identified by the Company and the Investment Manager. The Company
and the Investment Manager consider these risks on a regular basis
and detailed reviews are held to consider the risks and mitigants
available to the Company, including but not limited to the review
of stress testing that considers the potential impact on the
Company and its ability to achieve its investment objective. Apart
from the heightened risk on increased taxation described below, no
new key risks have been identified during the period or as a result
of investment activity after the period. The key risks are
summarised below.
COVID-19
Risks related to the global COVID-19 pandemic include the risk
of interruption to operation, or construction, of energy efficiency
projects leading to a reduction of the value of investments through
a loss of income. Mitigants to the risks include the
diversification of the portfolio across multiple jurisdictions and
sectors, supported by a substantial part of the investment
portfolio that provides essential services to counterparties which
has to date largely mitigated the Company from a material
operational and financial underperformance. Further mitigants
include the RoRi regulatory regime in Spain that mitigates the
medium to long term impact of fluctuations of revenues and
costs.
The global COVID-19 pandemic prompted an immediate review by the
Investment Manager, and the Board, of the operating issues arising
directly from the pandemic (including health and safety related
impacts) and the longer-term impacts in relation to portfolio
investments.
The Investment Manager continues to monitor the impact of the
COVID-19 pandemic on the workforce at each of the investments and
their ability to deliver the critical energy services to each of
SEEIT's counterparties. The Investment Manager also continues to
consider and discuss with the Directors the uncertainty relating to
potential emerging risks, linked to COVID-19 and the economic
implications therefrom, in respect both of the existing portfolio
and prospective pipeline investments. This includes the potential
for a rise in corporation taxes across multiple jurisdictions and
the potential impact on the Company's investment objective.
Counterparty credit risk
The key credit risks arising within the portfolio relate to
applicable off-take counterparties. There are no specific material
credit events or impairments to highlight in this respect
currently, although it is recognised that COVID-19 has had various
impacts across different economic sectors and the Investment
Manager will consider this through its portfolio construction
process.
Increased taxation
It is anticipated that as national governments look to fund
economic stimulus and recovery packages as a result of the impact
of the COVID-19 pandemic, corporate and other taxes may be subject
to significant increases in the short to medium term which may
affect the income generated from investments in the future which
will adversely affect the overall portfolio valuation.
No-deal Brexit Scenario
In view of the continuing uncertainty surrounding the terms of
Brexit, there may be additional execution risk with regard to the
UK project pipeline, however this may be offset by the positive
investment environment for energy efficiency opportunities
elsewhere, notably including North America. There may be potential
for operational disruption resulting from limited or delayed cross
border activity that could affect counterparties, including the
sub-contractors at project level. However, this is not expected to
have a material impact on the portfolio's operational or financial
performance on the basis that the projects in the UK currently do
not rely heavily on such cross-border activity.
Operational risk
Operational risk inevitably varies by project, but risks will
inherently tend to be higher within development/construction
projects, than with stable operating assets, which benefit from
established operation and maintenance regimes, high levels of
automation and contingency plans and procedures. Within the current
portfolio, a construction project, Huntsman Energy Centre, has been
subject to construction delays, this highlights an additional risk
in construction stage assets.
2.3 Investment Portfolio
Operational Performance
Operational performance is in-line with expectations during the
period. Managing the existing and evolving risk associated with
COVID-19 remains a key consideration for the Investment Manager and
will continue to be monitored and appropriately mitigated, as
required. The critical services provided by the projects within the
portfolio ensure that demand and operations have remained largely
undisrupted.
Oliva Spanish Cogeneration Portfolio
The projects in the Oliva Spanish Cogeneration portfolio
continued to operate throughout the period despite Spain being
heavily impacted by COVID-19. The financial performance overall was
lower than previously projected, mainly due to less revenues as a
result of lower electricity sales to the Spanish energy market -
this is however expected to be materially mitigated by the RoRi
regulatory regime which compensates in the medium to long term for
fluctuations in revenues and costs.
Mechanical repairs have been required on a set of turbine blades
at the Celvi project. This is currently being undertaken by the
original equipment manufacturer, GE and is expected to be completed
over the next two months. This is a relatively minor operational
item and as a result, has not had a material impact on the
operations or revenues in the Oliva portfolio.
During the due diligence process for the Oliva Spanish
Cogeneration portfolio, one key area of operational improvement and
significant cost reduction identified was in fuel procurement. The
Investment Manager is currently in the process of working with the
in-house management team at project level and the O&M provider
to bring gas procurement capabilities (currently outsourced to a
third-party supplier) in-house at project level. All relevant
permits and permissions have been obtained and the key employees
have been recruited. The procurement procedure is purely
administrative, with no trading or exposure to the gas markets. The
initiative is projected to bring significant cost savings to the
project, with procurement activities expected to commence in Q1
2021.
Primary Energy Portfolio
The revenues generated from the Primary Energy assets during the
period were below those previously forecast, predominantly due to
the idling issue described below which can be attributed to
COVID-19 and also due to substantial repair works that required
downtime or affected energy services.
Primary Energy - Ironside: In April 2020, the site that Ironside
provides heat and power to - Blast Furnace 4 - was temporarily
idled given low demand for steel linked to the COVID-19 pandemic.
Operations at Blast Furnace 4 re-started in August 2020. During the
period in which the blast furnace was idled, re-contracting
negotiations for the Ironside project were concluded, extending the
contract for a further 10 years to 2030. The successful
re-contracting validates the view of the Company that the risks
associated with re-contracting for Primary Energy's projects are
mitigated by the fact that the projects provide essential and cost
effective services to their client's operations, including critical
energy supply and environmental benefits.
At the Northlake project, a turbine blade became inoperable,
taking the turbine offline for a few weeks in July and August 2020,
whilst the turbine blade was replaced. At the Cokenergy project,
repair works undertaken by the counterparty resulted in a reduction
of energy services required. Due to guarantees and mitigants in
place, the equipment being offline for a short period of time and
asset repair works did not have a material impact on the operations
or revenue generated by SEEIT.
On 28 September 2020, Cleveland-Cliffs ("CC") announced the
purchase of ArcelorMittal USA, the owner of four of the five
projects for which the Primary Energy portfolio provides energy
services.
Although a lower credit rating than the existing owner, CC's
acquisition provides vertical integration of the supply of raw
materials and the production of steel, with the potential to lower
costs and increase profitability on the sites at which Primary
Energy provides power and heat. The Investment Manager believes
that the Primary Energy linked assets will continue to play a
critical role in CC's operations.
Huntsman Energy Centre
The engineering procurement contractor continues progressing the
commissioning of the plant. The natural gas boiler is nearly
complete and the two vent gas boilers commissioning is in process.
Steam-on date for the project, the point where revenue is
generated, is anticipated in the first half of 2021.
2.4 Financial Review
Financial information
As described in detail in the March 2020 Annual Report, the
Company carries investments at fair value as it meets the
conditions of being an Investment Entity in accordance with IFRS
10.
In order to provide shareholders with more transparency into the
Company's capacity for investment, ability to make distributions,
operating costs and gearing levels, results have been reported in
the pro forma tables below on a non-statutory "Portfolio Basis" to
include the impact if SEEIT Holdco Limited ("Holdco") were to be
consolidated by the Company on a line-by-line basis.
The Directors consider the non-statutory Portfolio Basis to be a
more helpful basis for users of the accounts to understand the
performance and position of the Company. This is because key
balances such as cash and debt balances carried in Holdco and all
expenses incurred in Holdco, including debt financing costs, are
shown in full rather than being netted off.
The impact of including Holdco is shown in the Holdco
reallocation column which reconciles back to the statutory
financial statements ("IFRS") and constitutes a reallocation
between line items rather than affecting NAV and Earnings.
NAV per share and Earnings per share are the same under the
Portfolio Basis and the IFRS basis.
Summary Financial Statements
Portfolio Basis Summary Income Statement
6 Month period to 30 September 2020 6 Month period to 30 September
2019
---------------------------------------------------------------------------------------------------------- --------------------------------------------------------
GBP'000 Portfolio Holdco IFRS Portfolio Holdco IFRS
Basis reallocation (Company) Basis reallocation (Company)
--------------- ---------------------------- -------------------------------- ------------------------- ---------- -------------------------------- ----------
Total income 20,413 (1,054) 19,359 4,746 (1,148) 3,598
Expenses &
Finance Costs (3,242) 1,054 (2,188) (2,380) 1,082 (1,298)
Profit/(loss)
before Tax 17,171 - 17,171 2,366 (66) 2,300
Tax - - - (66) 66 -
--------------- ---------------------------- -------------------------------- ------------------------- ---------- -------------------------------- ----------
Earnings 17,171 - 17,171 2,300 - 2,300
--------------- ---------------------------- -------------------------------- ------------------------- ---------- -------------------------------- ----------
Earnings per
share (pence) 4.6 - 4.6 1.4 - 1.4
--------------- ---------------------------- -------------------------------- ------------------------- ---------- -------------------------------- ----------
On the Portfolio Basis, Total Income of GBP20,413k (September
2019: GBP4,746k) represents the return from the portfolio
recognised as income comprising dividends, interest and valuation
movements. Further detail on the valuation movements is given in
Section 2.5.
The significant increase in Total Income in the six months to 30
September 2020 as compared to the six months to 30 September 2019
reflect the increase in the size of the portfolio and therefore the
absolute returns generated from the underlying portfolio of
investments. Although COVID-19 has impacted the financial
performance of certain investments as described in Section 2.3 and
2.5, the overall impact on the Company has not been material.
On an IFRS basis, both Total Income and Expenses & Finance
Costs are lower than on the Portfolio Basis, as costs incurred by
the Holdco are included within Total Income under IFRS, not under
Expenses & Finance Costs. On an IFRS basis total income of
GBP19,359k (September 2019: GBP3,598k) comprises income received by
the Company and valuation movements in its investment.
Profit before tax of GBP17,171k (September 2019: GBP2,300k)
included net foreign exchange gains incurred by Holdco of GBP675k
(September 2019: GBP45k loss) comprising a GBP1,686k gain on
hedging offset by losses of GBP1,011k on revaluing of non-GBP
investments at 30 September 2020.
Total fees accruing to the Investment Manager were GBP1,550k
(September 2019: GBP737k) for the period, comprising the 0.9% p.a.
management fee for assets up to GBP750m.
In the period, the Company and Holdco incurred GBP375k
(September 2019: GBP469k) of acquisition costs on unsuccessful bids
and bids in progress (mainly legal, technical and tax due
diligence).
Neither the Investment Manager nor any of its affiliates
receives other fees from the Company's portfolio of
investments.
On both the Portfolio Basis and IFRS basis, Earnings were
GBP17,171k (September 2019: GBP2,300k) and Earnings per share were
4.6p (September 2019: 1.4p)
Portfolio Basis Balance Sheet
30 September 2020 31 March 2020
----------------------------------------------------------------------------------------------- --------------------------------------------------------
GBP'000 Portfolio Holdco IFRS (Company) Portfolio Holdco reallocation IFRS
Basis reallocation Basis (Company)
-------------- ---------------------------- -------------------------------- --------------- ---------- -------------------------------- ----------
Investments
at fair
value 318,967 2,379 321,346 319,802 (65,707) 254,095
Working
capital (1,908) 1,897 (11) (4,209) 5,465 1,256
Debt - - - (62,826) 62,826 -
Net cash 117,432 (4,277) 113,156 70,763 (2,584) 68,179
Net assets
attributable
to Ordinary
Shares 434,491 - 434,491 323,530 - 323,530
-------------- ---------------------------- -------------------------------- --------------- ---------- -------------------------------- ----------
NAV per share 102.0 - 102.0 101.0 - 101.0
-------------- ---------------------------- -------------------------------- --------------- ---------- -------------------------------- ----------
On a Portfolio Basis, Investments at fair value are GBP318,967k
(March 2020: GBP319,802k), representing the Portfolio Valuation.
Further detail on the movement in Investments at fair value is
given in Section 2.5.
On a Portfolio Basis, net cash at 30 September 2020 was
GBP117,432k (March 2020: GBP70,763k); mainly reflecting cash from
equity capital raised net of cash used for acquisitions. As at 30
September 2020, the available cash was fully committed to specific
assets identified in the pipeline, including the acquisition of the
Gasnätet which occurred after the period ended.
The debt outstanding under the RCF as at 31 March 2020 of
approximately GBP63 million was repaid in full in June 2020 from
existing cash resources and the GBP110 million proceeds of equity
capital raised in June 2020.
An analysis of net cash movement is shown in the cash flow
analysis below.
On an IFRS basis, Investments at fair value were GBP321,346k
(March 2020: GBP254,095k), reflecting the Portfolio Basis
Investments at fair value, cash held by Holdco and working capital
in Holdco.
Net assets grew by GBP110,960k in the period. The Company raised
GBP107,740k after share issue costs during the period and generated
earnings of GBP17,171k in the period. Dividends paid in the period
total GBP13,869k.
NAV per share was 102.0p (March 2020: 101.0p). NAV per share has
increased by 1.0p since the year end, reflecting the earnings per
share in the period of 4.6p and the NAV accretive share issue of
0.3p in June 2020 less the 3.9p interim dividends per share paid in
June 2020 and September 2020.
Portfolio Basis Cash Flow Statement
30 September 2020 30 September 2019
-------------------------------------------------------------------------------------------------------- -------------------------------------
GBP'000 Portfolio Holdco reallocation IFRS (Company) Portfolio Holdco IFRS
Basis Basis reallocation (Company)
------------- ---------------------------- -------------------------------- ------------------------- ---------- ------------- ----------
Cash from
investments 22,729 (5,469) 17,260 3,533 (531) 3,003
Operating
and
finance
costs
outflow (2,752) 721 (2,031) (1,154) 317 (837)
------------- ---------------------------- -------------------------------- ------------------------- ---------- ------------- ----------
Net cash
inflow
before
capital
movements 19,977 (4,748) 15,229 2,379 (214) 2,165
------------- ---------------------------- -------------------------------- ------------------------- ---------- ------------- ----------
Cost of new
investments
including
acquisition
costs (2,349) (63,154) (65,503) (21,328) (5,872) (27,200)
Share
capital
raised net
of costs 107,500 - 107,500 70,870 - 70,870
Movement in
borrowings (64,490) 64,490 -
Movement in
capitalised
debt costs
and FX
hedging (99) 1,719 1,620 (1,011) - -
Dividend
paid (13,869) - (13,869) (1,713) - (1,713)
------------- ---------------------------- -------------------------------- ------------------------- ---------- ------------- ----------
Movement in
the year 46,669 (1,693) 44,977 49,198 (5,075) 44,123
Net cash at
start of
the
period 70,763 (2,584) 68,179 39,569 - 38,007
------------- ---------------------------- -------------------------------- ------------------------- ---------- ------------- ----------
Net cash at
end of the
period 117,432 (4,277) 113,156 88,766 (5,075) 82,130
------------- ---------------------------- -------------------------------- ------------------------- ---------- ------------- ----------
Cash inflows from the portfolio on a Portfolio Basis were
GBP22,729k (September 2019: GBP3,533), in line with expectations.
The increase in cash inflows period on period reflects the increase
in the size of portfolio.
The cost of new investments by the SEEIT group on a Portfolio
Basis of GBP2,349k (September 2019: GBP21,328k) includes the
initial investment into GET Solutions of c. GBP1.7 million, and
c.0.9 million of acquisition costs paid in relation to acquisitions
in this period and the previous.
On an IFRS basis, costs of new investments of GBP65,503k
(September 2019: GBP27,200k) reflects funding extended by the
Company to Holdco in the period for the repayment of the revolving
credit facility and for the initial investment into GET Solutions
.
Net cash flow before capital movements in the year on a
Portfolio Basis was GBP19,977k (September 2019: GBP2,379k) and
covers dividends paid of GBP13,869k in the year (2019: 1,713k) by
1.44 times.
Dividend paid in the period of GBP13,869k was an interim
dividend payment in respect of the year ended 31 March 2020 of
GBP8,009k and a first quarterly interim dividend for the quarter
ending 30 June 2020 of GBP5,860k.
The Company is in a transition year regarding its dividend
payments, having switched to quarterly dividend payments from this
financial year. In this six month period the Company has therefore
paid the second semi-annual dividend in respect of the financial
year ended on 31 March 2020 as well as the first quarterly dividend
in respect of the quarter ending 30 June 2020. Once adjusted for a
pro normalised level of expected dividends, the pro forma dividend
cover is 1.9 times.
Share capital raised (net of costs) totalled GBP107,500k
(September 2019: GBP70,870k) reflecting the net proceeds of the
105,769k shares issued at 104 pence per share in June 2020 under
the share issuance programme.
Hedging for the Group is undertaken by Holdco and therefore the
Company had no cash flows for this on an IFRS basis. Holdco enters
into forward sales to hedge foreign exchange exposure in line with
the Company's hedging policy set out below (see 'Foreign Exchange
Hedging' below). On a Portfolio Basis, there was a net cash outflow
of GBP99k on foreign exchange hedging in the period.
Ongoing charges
Ongoing charges, in accordance with AIC guidance, are defined as
annualised ongoing charges (i.e. excluding acquisition costs and
other non-recurring items) divided by the average published
undiluted net asset value in the year. On this basis the Ongoing
charges ratio is 1.05% (March 2020: 1.17%) for the full year on an
extrapolated basis. The Ongoing charges percentage has been
calculated on the Portfolio Basis to take into consideration the
expenses of the Company and Holdco.
As expected, the Ongoing Charges ratio has reduced year on year,
benefitting from the growth in the net assets meaning the fixed
(ongoing) costs of the Company is spread across a larger base.
Group Drawings and Gearing Levels
The revolving credit facility ("RCF"), entered into by Holdco,
was increased by GBP15 million to GBP40 million in July 2020. The
expiry date remains 30 June 2022.
The acquisition financing facility of EUR45 million which was
put in place in 2019, alongside the original GBP25 million RCF, and
expired in July 2020 was repaid in full in June 2020 from existing
cash resources, along with EUR26 million which was utilised from
the RCF and repaid from the proceeds of the capital raised in June
2020. The Company made an equivalent additional investment into
Holdco for it to repay these amounts.
Following the end of the period, a further amendment has been
made to the facility to meet investment requirements and a
short-term acquisition financing of GBP30 million which matures
before the end of the financial year has been added to the RCF.
Following the end of the period approximately GBP65 million in
aggregate from the RCF and acquisition financing was utilised for
the investment in Gasnätet.
The Investment Manager periodically considers refinancing
options aligned to the pipeline of potential transactions and in
the interest of efficient capital management and foreign exchange
hedging.
Foreign Exchange Hedging
The Company applies foreign exchange hedging through currency
hedges entered into by Holdco. The objective of the Company's
hedging strategy is to protect the value of both near-term income
and capital elements of the portfolio from a material impact on NAV
arising from movements in foreign exchange rates, and to provide
stability and predictability of Sterling cash flows.
This is achieved on an income basis by hedging forecast
investment income from non-Sterling investments for up to 24 months
through foreign exchange forward sales. On a capital basis, this is
achieved by hedging a significant portion of the portfolio value
through rolling foreign exchange forward sales. The Investment
Manager also seeks to utilise corporate debt facilities in the
local currency to reduce foreign exchange exposure.
As part of the Company's hedging strategy the Investment Manager
will regularly review non-Sterling exposure in the portfolio and
adjust the levels of hedging accordingly and in doing so will also
take into account the cost benefit of hedging activity.
Net foreign exchange losses in the period ended 30 September
2020 was GBP675k, representing less than 1% of NAV.
Going concern
The Directors believe that the Group has adequate resources to
continue in operational existence for the foreseeable future. The
Directors have considered the impact which the current economic
downturn, triggered by COVID-19 could have on the ability of the
Company to continue as a going concern. The Directors reviewed
financial projections and cash flow forecasts for the group,
considered the existing cash position of the Company itself and
took account of liabilities that are due to be settled within 12
months of the date of the Interim Report.
The Directors do not believe that there is a significant risk to
the Company's ability to continue as a going concern as a result of
the COVID-19 pandemic but will continue to monitor future
developments.
Therefore, they continue to adopt the going concern basis of
accounting in preparing the financial statements. For further
details, see Note 2 of the Condensed Interim Financial
Statements.
2.5 Valuation of the Portfolio
Introduction
The Investment Manager is responsible for carrying out the fair
market valuation of the SEEIT group's portfolio of investments (the
"Portfolio Valuation") which is presented to the Directors for
their consideration and approval. A valuation is carried out on a
six-monthly basis, as at 31 March and 30 September each year. The
Portfolio Valuation is the key component in determining the
Company's NAV.
For non-market traded investments (being all the investments in
the current portfolio), the valuation is based on a discounted cash
flow methodology and adjusted in accordance with the IPEV
(International Private Equity and Venture Capital) valuation
guidelines where appropriate to comply with IFRS 13 and IFRS 9,
given the special nature of infrastructure investments. Where an
investment is traded in an open market, a market quote is used.
The Investment Manager exercises its judgment in assessing the
expected future cash flows from each investment based on the
project's expected life and the financial models produced for each
project company and adjusts the cash flows where necessary to take
into account key external macro-economic assumptions and specific
operating assumptions.
All the investments included in the valuation have an underlying
contract for energy services. The valuation is based on the future
expected cash flows derived from these contracts. For the September
2020 valuation the assumed future cash flows match the maturity of
the underlying contract or regulatory life of the asset except in
the case of four of the assets in Primary Energy where it is
assumed that future contract extensions are achieved and hence the
expected cash flows are currently projected to extend beyond the
maturity date of the existing contract with the counterparty.
The fair value for each investment is then derived from the
application of an appropriate market discount rate to reflect the
perceived risk to the investment's future cash flows and the
relevant year end foreign currency exchange rate to give the
present value of those cash flows. The discount rate takes into
account risks associated with the financing of an investment such
as investment risks (e.g. liquidity, currency risks, market
appetite), any risks to the investment's earnings (e.g.
predictability and covenant of the income) and a thorough
assessment of counterparty credit risk, all of which may be
differentiated by the phase of the investment.
The Investment Manager uses its judgement in arriving at the
appropriate discount rate. This is based on its knowledge of the
market, taking into account intelligence gained from its bidding
activities, discussions with financial advisers in the appropriate
market, and publicly available information on relevant
transactions.
The valuation methodology is unchanged from the Company's IPO
and details of the valuation methodology can be found in the
Company's latest Prospectus and March 2020 Annual Report.
Portfolio Valuation
The Portfolio Valuation as at 30 September 2020 was GBP318,967k.
This valuation compares to GBP319,802k as at 31 March 2020. A
reconciliation between the Portfolio Valuation at 30 September 2020
and Investment at fair value shown in the financial statements is
given in Note 10 to the Condensed Interim Financial Statements, the
principal differences are as per the table below.
Balances at 30 September 2020 GBP'000
Portfolio Valuation held by SEEIT GBP318,967k
Holdco
-----------------
Cash held by SEEIT Holdco GBP4,277k
-----------------
Debt held by SEEIT Holdco -
-----------------
Net working capital of SEEIT Holdco (GBP1,897k)
-----------------
Total Investments at Fair Value (per GBP321,346k
Balance Sheet)
-----------------
Valuation Movements
A breakdown of the movement in the Portfolio Valuation in the
period is set out in the table below.
Valuation movement: 31 March 2020 to 30 September GBP'000 GBP'000
2020
Valuation as at 31 March 2020 319,802
New investments 1,710
Cash from investments (22,669)
Rebased valuation of portfolio 298,843
Changes in macroeconomic assumptions -
Foreign exchange movements (1,011)
Changes in discount rates -
Balance of portfolio return 21,134
Valuation as at 31 March 2020 318,967
The opening valuation at 31 March 2020 was GBP319.8m. After
allowing for investments of GBP1.7m and cash receipts from
investments of GBP22.7m, the rebased valuation is GBP298.8m.
Additional investments of GBP1.7m in the period relate to the
GBP1.7m initial investment in GET Solutions.
The portfolio delivered good cash flows in the period,
contributing to the strong level of cash cover for the dividends
paid in the period as described in Section 2.4.
Return from the Portfolio
Each movement between the rebased valuation of GBP298.8m and the
30 September 2019 valuation of GBP319.0m is considered in turn
below:
(i) Changes in macroeconomic assumptions:
There were no changes to inflation assumptions or corporation
tax assumptions in this period.
Foreign exchange: The movement of GBP1.0m in the period reflects
the relative movement of Sterling against Euro and US Dollar in the
period. This reflects the movement in asset values and is shown
before the offsetting effect of hedging. Overall foreign exchange
movements did not have a material impact on NAV in the period with
a net gain from foreign exchange hedging and movement in the assets
of GBP0.7m.
(ii) Changes in valuation discount rates:
There were no changes to discount rates applied to the
investments compared to 31 March 2020.
The discount rate used for valuing each investment represents an
assessment of the rate of return at which investments with similar
risk profiles would trade on the open market. Each of the discount
rates was reviewed again for the 30 September 2020 valuation to
determine if they remain appropriate.
The weighted average Portfolio Valuation discount rate as at 30
September 2020 was 7.5% (March 2020: 7.5%).
(iii) Balance of portfolio return:
This refers to the balance of valuation movements in the period
(excluding (i) to (ii) above) and represents an increase of
GBP21.1m (7.1%) above the rebased valuation. The balance of
portfolio return mostly reflects the net present value of the cash
flows brought forward for the period at the 7.5% average portfolio
discount rate. In addition, various additional valuation
adjustments have been included in this valuation as described
below, resulting in part from the asset management focus to
generate increased cash flows.
During the period, a new contract for the Primary
Energy-Ironside project was signed, extending the current
contracted period to 2030, in line with the disclosure in the June
2020 prospectus. The cash flow assumptions assume at least one
further extension beyond this date based on a strong re-contracting
history in the Primary Energy assets. The agreed extension terms
provided upside above the previously assumed cash flows.
The Primary Energy projects qualify annually for Renewable
Energy Certificates ("RECs"), which, due to the efficiency and
positive environmental impact of the assets, are equivalent to
those generated by 536 MW of solar or 374 MW of wind projects. A
conservative estimate at the point of acquisition has been updated
for pricing and the period over which these projects are projected
to receive revenue from RECs, based on the latest available
projections and market information.
Following the acquisition and a review by the Investment
Manager, the Portfolio Valuation reflects a short extension to the
assumed cash flows beyond the previously assumed cash flows to be
generated from the Primary Energy assets of approximately 2 years
which has seen the carrying value of these assets increase since
the March 2020 valuation.
The above adjustments contributed to the return in the period
although this was in part offset by smaller adverse movements.
These included the effect of the idling of the blast furnace
associated with Primary Energy-Ironside from April until August
2020 as described below and the shorter term impact on performance
of some assets in the portfolio where remedial work to equipment
was required during the period. These remedial works are in
aggregate not material to the overall valuation.
Impact of COVID-19 on the valuation
The COVID-19 pandemic has had far reaching effects on the global
economy. The Investment Manager has considered this closely and
whilst the portfolio is not immune from the impact of the COVID-19
pandemic, the overall impact on the financial performance and cash
flow projections has not had a material impact on the
valuation.
As described further in Section 2.3, the COVID-19 pandemic
caused some operational and financial disruption to certain assets,
of which the key impacts are listed below:
-- It was the direct cause for the idling of a blast furnace
where the Ironside contract's revenues were impacted between April
and August 2020.
-- The construction commissioning phase of Huntsman Energy
Centre and installations of rooftop solar on Tesco sites were
delayed during the initial hard lockdown period in the UK
spring.
-- In Spain, the localised lockdowns and impact of the initial
wave of the COVID-19 pandemic caused electricity prices to drop
below our assumptions - this caused lower than expected returns in
the period which is however mitigated by the RoRi regulatory
mechanism which provides a level of downside protection through
boosted overall returns that only materialises in future years.
-- Near term lower than projected provision of energy services
at all of the Primary Energy projects
Notwithstanding some of these specific impacts of the COVID-19
pandemic, and with the exception of Ironside noted above, all
operational assets continued to provide energy services throughout
the period. As a result of this, cash flows have remained good and
the overall valuation has not experienced a material impact from
the COVID-19 pandemic.
Valuation Assumptions
30 September 31 March 2020
2020
Discount rate 4.5% to 8.5% 4.5% to 8.5%
range
------------ ----------------- -----------------
Inflation rates UK (RPI) 2.75% p.a. 2.75% p.a.
------------ ----------------- -----------------
USA (CPI) 2.00% p.a. 2.00% p.a.
------------ ----------------- -----------------
EU (CPI) 1.40% - 2.00% 1.40% - 2.00%
p.a. p.a.
------------ ----------------- -----------------
Tax rates UK 19% p.a. 19% p.a.
------------ ----------------- -----------------
USA 21% p.a. Federal 21% p.a. Federal
& &
3-9% p.a. State 3-9% p.a. State
rates rates
------------ ----------------- -----------------
EU (Spain) 25% p.a. 25% p.a.
------------ ----------------- -----------------
Foreign exchange
rates USD/GBP 0.77 0.80
------------ ----------------- -----------------
USD/EUR 0.91 0.88
------------------------------- ----------------- -----------------
Key Sensitivities
For each of the sensitivities, it is assumed that potential
changes occur independently of each other with no effect on any
other base case assumption, and that the number of investments in
the portfolio remains static throughout the modelled life.
Discount Rate Sensitivity
The weighted average discount rate that is applied to each
portfolio company's forecast cash flow, is the single most
important judgement and variable for the purposes of valuing the
portfolio.
A 0.5% increase in the discount rates would result in a NAV per
share decrease of 2.5p based on the Portfolio Valuation as at 30
September 2020. A 0.5% decrease in the discount rates would result
in a NAV per share increase of 2.7p based on the Portfolio
Valuation as at 30 September 2020.
Corporation Tax Rate Sensitivity
This sensitivity considers a 5% p.a. movement in corporation tax
rates in the UK, Spain and USA. The profits of each portfolio
company are subject to corporation tax in the country where the
project is located.
A 5% p.a. increase in corporation tax rates would result in a
NAV per share reduction of 3.0p based on the Portfolio Valuation as
at 30 September 2020. A 5% p.a. decrease in corporation tax rates
would result in a NAV per share increase of 3.0p based on the
Portfolio Valuation as at 30 September 2020.
The UK exposure in the portfolio is structured in an optimal but
prudent manner such that the portfolio has negligible sensitivity
to movements in UK corporation tax rates as a result of UK entities
within the group being able to offset profits and losses. The
sensitivity therefore mainly shows the impact of changes in US and
Spanish tax rates.
Inflation Rate Sensitivity
This sensitivity considers a 0.5% p.a. movement in long term
inflation in the UK, Spain and USA.
A 0.5% p.a. increase in inflation rates would result in a NAV
per share reduction of 0.6p based on the Portfolio Valuation as at
30 September 2020. A 0.5% p.a. decrease in inflation rates would
result in a NAV per share increase of 0.6p based on the Portfolio
Valuation as at 30 September 2020.
The Company's portfolio includes investments that benefit from
fixed or escalating revenue that are not directly linked to
inflation. This includes the assets in Primary Energy where
recontracting is assumed in the valuation. It is assumed that new
revenue contracts entered into in future years reset the revenues
at such a level that it materially offsets increases to project
level costs such as O&M that is materially inflation linked.
Within the portfolio of Oliva Spanish Cogeneration assets there is
some natural offsetting or protection for inflation increases and
decreases. In the current portfolio there are a number of assets
with no or negligible exposure to inflation, notably the assets in
the UK and the senior debt loan investment in Spark US Energy
Efficiency.
The current focus in the portfolio is to have limited exposure
to inflation as a whole. Should the long-term exposure increase
adversely, the Investment Manager will consider implementing
mitigant strategies that include, but are not limited to,
hedging.
Foreign Exchange Rate Sensitivity
This sensitivity considers a 10% movement in relevant non-GBP
currencies, which in the case of the Portfolio Valuation at 30
September 2020 is US Dollar and Euro, from the foreign exchange
rates used at 30 September 2020.
This sensitivity is presented after taking into account the
effect of hedging implemented by the Company - a 10% increase in
foreign exchange rates would result in a NAV per share reduction of
0.6p and 10% decrease in foreign exchange rates would result in a
NAV per share increase of 0.6p.
Without any hedging, a 10% increase in foreign exchange rates
would result in a NAV per share reduction of 6.0p based on the
Portfolio Valuation as at 30 September 2020. A 10% decrease in
foreign exchange rates would result in a NAV per share increase of
5.7p based on the Portfolio Valuation as at 30 September 2020.
Please refer to Note 3 in the Notes to the Financial Statements for
further detail.
3 Interim Financial Statements
3.1 Statement of Directors' Responsibilities
The Directors acknowledge responsibility for the interim results
and confirm that to the best of their knowledge:
a) the condensed financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting" as adopted by
the European Union
b) the interim management report, included within the Chairman's
Statement and Investment Manager's Report, includes a fair review
of the information required by DTR 4.2.7, being the significant
events of the first half of the year and the principal risks and
uncertainties for the remaining six months of the year; and
c) the condensed financial statements include a fair review of
the material related party transactions and any material changes in
the related party transactions described in the last annual report,
as required by DTR 4.2.8.
The Responsibility Statement has been approved on 7 December
2020 on behalf of the Board by:
Tony Roper
Chairman
3.2 Independent Review Report
PWC
Independent review report of SDCL Energy Efficiency Income Trust
PLC
Report on the condensed interim financial statements
Our conclusion
We have reviewed SDCL Energy Efficiency Income Trust PLC's
condensed interim financial statements ("Interim financial
statements") in the Interim Report of SDCL Energy Efficiency Income
Trust PLC for the 6 month period ended 30 September 2020 (the
"period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed statement of financial position as at 30 September 2020;
-- the condensed statement of comprehensive income for the period then ended;
-- the condensed statement of cash flows for the period then ended;
-- the condensed statement of changes in shareholders' equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report
of SDCL Energy Efficiency Income Trust PLC have been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the company
is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Report, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the Interim Report in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Watford
3.3 Financial Statements
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTH PERIODED 30 SEPTEMBER 2020
Six months ended Six months ended
30 September 30 September
2020 2019
(unaudited) (unaudited)
Note GBP'000 GBP'000
====================================== ===== ================= =================
Income
Investment income 4 19,359 3,598
Total income 19,359 3,598
====================================== ===== ================= =================
Fund expenses 5 (2,188) (1,298)
====================================== ===== ================= =================
Operating profit 17,171 2,300
Profit for the period before
tax 17,171 2,300
Tax 6 - -
====================================== ===== ================= =================
Profit and total comprehensive
income for the period after tax 17,171 2,300
====================================== ===== ================= =================
Profit and total comprehensive
income for the period attributable
to:
Equity holders of the Company 17,171 2,300
====================================== ===== ================= =================
Earnings Per Ordinary Share (pence) 7 4.6 1.4
====================================== ===== ================= =================
Other comprehensive income
There were no items of other comprehensive income in the current
period.
All items in the above Statement derive from continuing
operations.
The accompanying Notes are an integral part of these condensed
interim financial statements.
CONDENSED STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2020
30 September 31 March 2020
2020 (unaudited)
GBP'000 (audited)
Note GBP'000
==================================== ====== ================== ====================
Non-current assets
Investment at fair value through
profit or loss 10 321,346 254,095
==================================== ====== ================== ====================
321,346 254,095
Current assets
Trade and other receivables 691 1,840
Cash and cash equivalents 113,156 68,179
113,847 70,019
Current liabilities
Trade and other payables (702) (584)
==================================== ====== ================== ====================
Net current assets 113,145 69,435
Net assets 434,491 323,530
==================================== ====== ================== ====================
Capital and reserves
Share capital 11 4,261 3,204
Share premium 326,323 219,722
Other reserves 11 74,709 88,578
Retained earnings 29,198 12,027
==================================== ====== ================== ====================
Total equity 434,491 323,530
==================================== ====== ================== ====================
Net assets per share (pence) 102.0 101.0
==================================== ====== ================== ====================
The accompanying Notes are an integral part of these condensed
interim financial statements.
The condensed interim financial statements for the period ended
30 September 2020 of SDCL Energy Efficiency Income Trust plc, were
approved and authorised for issue by the Board of Directors on 7
December 2020 and signed on its behalf by:
Helen Clarkson Tony Roper
Director Director
Company registered number: 11620959
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTH PERIODED 30 SEPTEMBER 2020
For the period ended 30 September 2020
Other distributable Retained
Share Capital Share Premium reserves earnings Total
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================= ===== ============== ================ ==================== ============= =============
Balance at 1 April
2020 3,204 219,721 88,578 12,027 323,530
Shares issued 11 1,058 108,942 - - 110,000
Share issue costs 11 - (2,341) - - (2,341)
Dividends paid 8 - - (13,869) - (13,869)
Profit and total comprehensive
income for the period - - - 17,171 17,171
================================ ============== ================ ==================== ============= =============
Shareholders' equity
at
30 September 2020 4,262 326,322 74,709 29,198 434,491
========================= ===== ============== ================ ==================== ============= =============
For the year ended 31 March 2020
Other distributable Retained
Share Capital Share Premium reserves earnings
(audited) (audited) (audited) (audited) Total (audited)
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
==================== ===== ============== ================ ==================== =========== ================
Balance at 1 April
2019 1,000 - 97,000 415 98,415
Shares issued 11 2,204 223,876 - - 226,080
Share issue costs 11 - (4,155) - - (4,155)
Dividends paid 8 - - (8,422) - (8,422)
Profit and total
comprehensive
income for the year - - - 11,612 11,612
=========================== ============== ================ ==================== =========== ================
Shareholders'
equity
at
31 March 2020 3,204 219,721 88,578 12,027 323,530
==================== ===== ============== ================ ==================== =========== ================
The accompanying Notes are an integral part of these condensed
interim financial statements.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODED 30 SEPTEMBER 2020
Six months Six months ended
ended 30 September 30 September
2020 2019
(unaudited) (unaudited)
GBP'000 GBP'000
=========================================== ==== ==================== ===================
Cash flows from operating activities
Operating profit for the period 17,171 2,300
Adjustments for:
Gain on investment at fair value
through profit or loss (14,940) (2,045)
Operating cash flows before movements
in
working capital 2,231 255
Changes in working capital
Decrease in trade and other receivables 1,149 1,754
Increase in trade and other payables 118 378
================================================= ==================== ===================
Net cash used in operating activities 3,498 2,132
Cash flows from investing activities
Investment in subsidiary (65,332) (27,200)
Loan principal repayment received 13,021 -
================================================= ==================== ===================
Net cash used in investing activities (52,311) (27,200)
Cash flows from financing activities
Net proceeds from the issue of
shares 107,659 70,649
Dividends paid (13,869) (1,713)
================================================= ==================== ===================
Net cash generated from financing
activities 93,790 68,936
Net movement in cash and cash equivalents
during the period 44,977 44,123
Cash and cash equivalents at the
beginning of the
period 68,179 38,007
================================================= ==================== ===================
Cash and cash equivalents at the
end of the period 113,156 82,130
================================================= ==================== ===================
The accompanying Notes are an integral part of these condensed
interim financial statements.
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODED 30 SEPTEMBER 2020
1. General Information
The Company is registered in England and Wales under number
11620959 pursuant to the Companies Act 2006 and its registered
office and principal place of business is 6(th) Floor, 125 London
Wall, London, EC2Y 5AS. The Company was incorporated on 12 October
2018 and is a Public Company and the ultimate controlling party of
the group.
The Company's ordinary shares were first admitted to the premium
segment of the UK Listing Authority's Official List and to trading
on the Main Market of the London Stock Exchange under the ticker
SEIT on 11 December 2018.
The Company's objective is to generate an attractive total
return for investors comprising stable dividend income and capital
preservation, with the opportunity for capital growth through the
acquiring and realising value from a diverse portfolio of energy
efficiency projects.
The Company currently makes its investments through its
principal holding company and single subsidiary, SEEIT Holdco
Limited ("HoldCo"), and intermediate holding companies which are
directly owned by the Holdco. The Company controls the investment
policy of each of the Holdco and its intermediate holding companies
in order to ensure that each will act in a manner consistent with
the investment policy of the Company.
The Company has appointed Sustainable Development Capital LLP as
its Investment Manager (the "Investment Manager") pursuant to the
Investment Management Agreement dated 22 November 2018. The
Investment Manager is registered in England and Wales under number
OC330266 pursuant to the Companies Act 2006. The Investment Manager
is regulated by the FCA, number 471124.
These condensed interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31 March
2020 were approved by the Board of Directors on 18 June 2020 and
delivered to the Registrar of Companies. The report of the auditors
on those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under section
498 of the Companies Act 2006.
2. Significant Accounting Policies
Basis of accounting
This condensed interim financial statement for the half-year
reporting period ended 30 September 2020 has been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority and Accounting Standard IAS 34,
'Interim Financial Reporting', as adopted by the European
Union.
The interim report does not include all of the notes of the type
normally included in an annual financial report. Accordingly, this
report is to be read in conjunction with the Annual Report for the
year ended 31 March 2020, which has been prepared in accordance
with IFRSs adopted by the European Union and applicable law, and
any public announcements made by the Company during the interim
reporting period. The Company uses the historical cost basis,
except for certain investments and financial instruments measured
at fair value through the Statement of Comprehensive income and the
Company has applied the amendment to IFRS 10, as adopted by the EU
and as described below.
The condensed interim financial information has been prepared on
the same basis of the accounting policies, significant judgements,
key assumptions & estimates and presentation and methods of
computation as compared to the Company's annual financial
statements for the year ended 31 March 2020 where they are
described in detail.
The Company's financial performance does not suffer materially
from seasonal fluctuations. The condensed interim financial
statements are presented in pounds sterling because that is the
currency of the primary economic environment in which the Company
operates and is the Company's functional currency.
The condensed interim financial statements have been reviewed by
the Company's independent auditor but not audited.
IFRS 10 - Investment entity
IFRS 10 states that investment entities should measure all of
their subsidiaries that are themselves investment entities at fair
value. Being an investment entity, as detailed in the 31 March 2020
Annual Report, Holdco is measured at fair value as opposed to being
consolidated on a line-by-line basis, meaning its cash, debt and
working capital balances are included in the fair value of
investments rather than the Company's current assets. There has
been no event during the period or thereafter that has caused the
Directors to change their judgement that the Company should apply
the Investment Entity exemptions of IFRS 10.
Chief Operating Decision Maker
The Chief Operating Decision Maker ("CODM") being the Board of
Directors, is of the opinion that the Company is engaged in a
single segment of business, being investment in energy efficiency
projects to generate investment returns whilst preserving capital.
The financial information used by the CODM to manage the Company
presents the business as a single segment.
Significant changes
This condensed interim financial statement for the half-year
reporting period ended 30 September 2020 discloses the events and
transactions that are significant to the understanding of the
changes in financial position and performance of the Company since
the Company's annual financial statements for the year ended 31
March 2020. This includes the following:
-- Payment of interim dividends (see Note 8)
-- Changes in Investment at fair value through profit or loss (see Note 10)
-- New investment in the Company's single subsidiary and
investments announced by the Company during the period and after
the period end (see Note 10 and Note 14)
-- Issuing of new shares by the Company during the period and
after the period end (see Note 11 and Note 14)
Going concern and COVID-19
In the period prior to 30 September 2020 and up to the date of
this report, the outbreak of the COVID-19 pandemic has had a
negative impact on the global economy. As the situation is
evolving, it raised some uncertainties and additional risks for the
Company. The Directors of the Company and the Investment Manager
continue to follow government guidelines in relation to COVID-19
pandemic in all the jurisdictions in which it operates to ensure
best practices are followed. Although certain investments, notably
projects in Oliva Spanish Cogeneration and Primary Energy, suffered
from operational disruption due to COVID-19 which affected
financial performance, during the period ended 30 September 2020
and up to the date of approval of the condensed interim financial
statements, there has not been a material impact to the Company and
its subsidiaries to carry out its operations and receive the
expected return from its investments. Further details of the
COVID-19 impact on the operations and valuation of the investments
are provided in the Investment Manager's Report in Section 2.3 and
2.5 of this Interim Report.
The Directors are satisfied that the Company has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of approval of the
interim financial statements. The Directors have reviewed the
Company's financial projections and cash flow forecasts, including
the potential impact from COVID-19 and believe, based upon those
projections and forecasts and various risk mitigation measures in
place, that it is appropriate to prepare the condensed interim
financial statements on a going concern basis.
The Company's portfolio of investments benefit from a range of
long-term contracts with a diversified set of counterparties across
multiple sectors and jurisdictions. A key risk facing the Company
is that counterparties to the investments may not be able to make
their contractual payments. Even in a severe downside scenario
where the Company would not receive any further income from its
investment for the next 12 months from signing the condensed
interim report and taking into account all committed payments for
running the Company and repaying the acquisition facility of GBP30m
when it falls due in March 2021, the Company would have sufficient
cash reserves to continue as a going concern.
The Company has a revolving credit facility that has adequate
headroom in its covenants that have been tested for historic and
forward interest cover and group loan to value limits. The Company
had GBP113 million of cash at 30 September 2020 and raised a
further GBP105 million in October 2020 through a capital raise.
Further amounts of cash are held by the Company's direct and
indirect subsidiaries.
The Directors do not believe there is a significant risk to the
Company from COVID-19 pandemic but along with the Investment
Manager, continues to monitor the portfolio for material impact
from the COVID-19 pandemic.
Accordingly, the Directors continue to adopt the going concern
basis in preparing its financial statements.
Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS
requires the Directors to make judgements,
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of income and expense
during the year. Actual results could differ from those
estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if
the revision only affects that period or in the period
and future periods if the revision affects both current and
future periods.
The accounting estimates and judgements applicable are described
in the Annual Report for the year ending 31 March 2020 and remain
unchanged in the preparation of the condensed interim financial
statements.
3. Financial Instruments
Valuation methodology
The Board of Directors has appointed the Investment Manager to
produce investment valuations of the Company's investment. The
valuation at 30 September 2020 has been reviewed and approved by
the Board.
The valuation is based upon projected future cash flows to be
generated from the portfolio of energy efficiency projects that are
held indirectly through the Holdco and its intermediate holding
companies.
The Directors have satisfied themselves as to the methodology
used and the discount rates and key assumptions applied in
producing the valuations All investments are at fair value through
profit or loss.
For non-market traded investments (being all the investments in
the current portfolio), the valuation is based on a discounted cash
flow methodology and adjusted in accordance with the IPEV
(International Private Equity and Venture Capital) valuation
guidelines where appropriate to comply with IFRS 13 and IFRS 9,
given the special nature of infrastructure investments. Where an
investment is traded in an open market, a market quote is used.
The Investment Manager exercises its judgment in assessing the
expected future cash flows from each investment based on the
project's expected life and the financial models produced for each
project company and adjusts the cash flows where necessary to take
into account key external macro-economic assumptions and specific
operating assumptions.
The fair value for each investment is then derived from the
application of an appropriate market discount rate for that
investment to reflect the perceived risk to the investment's future
cash flows and the relevant period end foreign currency exchange
rate to give the present value of those cash flows. The discount
rate takes into account risks associated with the financing of an
investment such as investment risks (e.g. liquidity, currency
risks, market appetite), any risks to the investment's earnings
(e.g. predictability and covenant of the income) and a thorough
assessment of counterparty credit risk, all of which may be
differentiated by the phase of the investment.
The weighted average discount rate applied in the September 2020
valuation was 7.5% (March 2020: 7.5%). The discount rate is
considered one of the most unobservable inputs through which an
increase or decrease would have a material impact on the fair value
of investment at fair value through profit or loss.
The valuation at 30 September 2020 includes estimates of future
cash flows that have the potential to have a material effect on
measurement of fair value. These include estimates on near, medium
and long-term cash flows on the investment in the nine assets in
Oliva Spanish Cogeneration in relation to thermal revenues from off
takers, revenues from the sale of electricity and the terms on
which future regulatory periods for cogeneration assets will be
renewed. For the five assets in Primary Energy, estimates have been
made to determine the demand for generation by the off takers, the
revenues that can be generated from selling renewables credits and
the cash flows that can be generated through recontracting with the
counterparty after the expiry of the existing contract terms.
Further estimates have been made on the key macroeconomic
assumptions that are likely to have a material effect on the
measurement of fair value being inflation, corporation tax and
foreign exchange which are described further below.
Fair value measurement by level
IFRS 13 requires disclosure of fair value measurement by level.
Fair value measurements are categorised into Level 1, 2 or 3 based
on the degree to which inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety which are described as follows:
-- Level 1 inputs are quoted prices in active markets for
identical assets or liabilities that the Company can access at the
measurement date;
-- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
-- Level 3 inputs are unobservable inputs for the asset or liability.
Investment at fair value through Level 1 Level 2 Level 3
profit or loss GBP'000 GBP'000 GBP'000
================================== ========== ============== =============
30 September 2020 - - 321,346
31 March 2020 - - 254,095
================================== ========== ============== =============
The Company's indirect investments have been classified as level
3 as the investments are not traded and contain unobservable
inputs. As the fair value of the Company's equity and loan
investments in the Holdco is ultimately determined by the
underlying fair values of the projects in which the group invests,
the Company's sensitivity analysis of reasonably possible
alternative input assumptions is the same across all its
investments. The reconciliation of Level 3 fair value is disclosed
in Note 10.
Valuation Assumptions
30 September 2020 31 March 2020 30 September 2019
================== =========== ================== ================ ===================
Inflation UK (RPI) 2.75% p.a. 2.75% p.a. 2.75% p.a.
rates
================== =========== ================== ================ ===================
Spain 1.1% in 2020, 1.1% in 2020, -
(CPI) 1.6 in 2022 and 1.6 in 2022
2.0% 2023 and and 2.0% 2023
thereafter and thereafter
================== =========== ================== ================ ===================
USA (CPI) 2.00% p.a. 2.00% p.a. 2.00% p.a.
================== =========== ================== ================ ===================
19% to March 2020,
Tax rates UK 19% 19% 17% thereafter
================== =========== ================== ================ ===================
Spain 25% 25% -
============================== ================== ================ ===================
USA 21% Federal & 21% Federal 21% Federal & 3-9%
3-9% State rates & 3-9% State State rates
rates
================== =========== ================== ================ ===================
Foreign exchange
rates USD/GBP 0.77 0.80 0.81
=========== ================== ================ ===================
EUR/GBP 0.91 0.88 -
============================== ================== ================ ===================
Discount rates
The discount rates used for valuing the investments in the
portfolio are as follows:
30 September 2020 31 March 2020
================================ ================== ==================
Weighted Average discount rate 7.5% 7.5%
Discount rates 4.5% to 8.5% 4.5% to 8.5%
================================ ================== ==================
Sensitivities
The sensitivities below show the effect on Net asset value of a
assuming a different range for each key input assumption, in each
case applying a range that is considered to be a reasonable and
plausible outcome for the market in which the Company has
invested.
A change to the weighted average discount rate by plus or minus
0.5% has the following effect on the NAV.
Discount rate NAV/share -0.5% Net asset +0.5% change NAV/share
impact change value impact
=============== ============== =============== ================ ================= ==============
30 September
2020 2.7p GBP11,475k GBP434,491k (GBP10,785k) (2.5p)
=============== ============== =============== ================ ================= ==============
31 March 2020 4.1p GBP13,101k GBP323,530k (GBP12,322k) (3.8p)
=============== ============== =============== ================ ================= ==============
Inflation rates
The Portfolio Valuation assumes long-term inflation as indicated
above in the UK, USA and Spain. A change in the inflation rate by
plus or minus 0.5% has the following effect on the NAV, with all
other variables held constant.
NAV/share -0.5% Net asset NAV/share
Inflation rate impact change value +0.5% change impact
================ ============== ============== ================ ================= ==============
30 September
2020 0.6p GBP2,594k GBP434,491k (GBP2,685k) (0.6)
================ ============== ============== ================ ================= ==============
31 March 2020 1.0p GBP3,264k GBP323,530k (GBP4,242k) (1.3p)
================ ============== ============== ================ ================= ==============
Corporation tax rates
The Portfolio Valuation assumes tax rates based on the relevant
jurisdiction. A change in the corporation tax rate by plus or minus
5% has the following effect on the NAV, with all other variables
held constant.
Corporation NAV/share -5% Net asset NAV/share
tax rate impact change value +5% change impact
=============== ============== =============== ================ ================= ==============
30 September
2020 3.0p GBP12,766k GBP434,491k (GBP12,733k) (3.0p)
=============== ============== =============== ================ ================= ==============
31 March 2020 2.8p GBP8,812k GBP323,530k (GBP8,781k) 2.7p
=============== ============== =============== ================ ================= ==============
Foreign exchange rates
The Portfolio Valuation assumes foreign exchange rates based on
the relevant foreign exchange rates against GBP at the reporting
date. A change in the foreign exchange rate by plus or minus 10%
has the following effect on the NAV, with all other variables held
constant. The effect is shown after the effect of hedging which
reduces the impact of foreign exchange movements on the Company's
NAV.
Foreign exchange NAV/share -10% Net asset NAV/share
rate impact change value +10% change impact
================== ============== ============== ================ ================ ==============
30 September
2020 0.6p GBP2,562k GBP434,491k (GBP2,414k) (0.6p)
================== ============== ============== ================ ================ ==============
31 March 2020 0.8p GBP2,618k GBP323,530k (GBP2,380k) (0.7p)
================== ============== ============== ================ ================ ==============
4. Investment Income
Period ended Period ended
30 September 2020 30 September
GBP'000 2019 GBP'000
=================================== =================== ==============
Dividend income 3,500 1,500
Bank interest received 27 53
Gain on investment at fair value
through profit or loss (Note 10) 14,940 2,045
Loan interest income 892 -
=================== ==============
Investment income 19,359 3,598
=================================== =================== ==============
Loan interest income is in respect of coupon bearing loan notes
issued to the Company by Holdco (Note 12). The loan notes accrue
interest at 6%, are unsecured and repayable in full on 18 April
2039. Loan Interest income is recognised on the Statement of
Comprehensive Income on an accruals basis.
Further information on Gain on investment at fair value can be
found in Section 2.5 of this Interim Report.
5. Fund Expenses
Period ended Period ended
30 September 30 September
2020 GBP'000 2019 GBP'000
=========================================== ============== ==============
Investment management fees 1,550 737
Non-executive directors' fees (Note
12) 65 58
Other expenses 533 461
Fees to the Company's independent auditor 40 42
Fund Expenses 2,188 1,298
=========================================== ============== ==============
As at 30 September 2020, the Company had no employees (30
September 2019: nil) apart from Directors in office. The Company
confirms that it has no key management personnel, apart from the
Directors which were disclosed in the Directors' Remuneration
Report in the Annual Report and Audited Financial Statements for
the year ended 31 March 2020. There is no other compensation apart
from those disclosed.
6. Taxation
The tax for the period shown in the Statement of Comprehensive
Income is as follows.
Period ended Period ended
30 September 30 September
2020 GBP'000 2019 GBP'000
Profit for the period before taxation 17,171 2,300
============================================== ============== ==============
Profit for the period multiplied by
the standard rate of UK corporation
tax of 19% 3,262 437
Fair value movements (not subject to
taxation) (2,839) (389)
Dividends received (not subject to tax) (665) (285)
Surrendering of tax losses to unconsolidated
subsidiaries 242 237
============================================== ============== ==============
UK Corporation Tax - -
============================================== ============== ==============
7. Earnings per Share
Period ended Period ended
30 September 30 September
2020 2019
===================================== ============== ==============
Profit and comprehensive income for
the period (GBP'000) 17,171 2,300
Weighted average number of ordinary
shares ('000) 376,438 164,665
Earnings per ordinary share (pence) 4.6 1.4
===================================== ============== ==============
There is no dilutive element during the financial period and
subsequent to the financial period.
8. Dividends
30 September 31 March 2020
2020 GBP'000 GBP'000
============================================ =============== ==================
Amounts recognised as distributions
to equity holders during the period/year:
Interim dividend for the period ended
31 March 2019 of 1.0p per share - 1,713
First semi-annual Interim dividend for
the year ended 31 March 2020 of 2.5p
per share - 6,709
Second semi-annual Interim dividend
for the year ended 31 March 2020 of
2.5p per share 8,010 -
First quarterly interim dividend for
the three-month period ended 30 June
2020 of 1.375p per share 5,859 -
============================================ =============== ==================
From the year beginning on 1 April 2020, the Company is paying
dividends on a quarterly basis compared to semi-annually
previously.
On 23 November 2020 the Company declared an interim dividend for
the quarter ended 30 September 2020 of 1.375 pence per share which
is expected to result in a cash payment of approximately GBP7.2
million on 18 December 2020.
9. Net assets per ordinary share
30 September 2020 31 March 2020
Shareholders' equity (GBP'000) 434,491 323,530
Number of ordinary shares ('000) 426,144 320,374
======================================= ====================== ==================
Net assets per ordinary share (pence) 102.0 101.0
======================================= ====================== ==================
10. Investment at fair value through profit or loss
The Company recognises the investment in its single directly
owned holding company (HoldCo) at fair value which includes the
fair value of each of the individual project companies and holding
companies in which the Company holds an indirect investment, along
with the working capital of Holdco.
30 September 31 March 2020
2020 GBP'000
GBP'000
========================================== ================== ===================
Brought forward investment at fair value
through profit or loss 254,095 61,334
New investments in period/year 65,332 180,866
Loan Principal repaid in period/year (13,021) -
Movement in fair value 14,940 11,895
Closing investment at fair value through
profit or loss 321,346 254,095
========================================== ================== ===================
The movement in fair value in the period to 30 September 2020
has increased and can principally be ascribed to a larger portfolio
of underlying investments compared to previous periods that has
provided opportunity generate increased returns from one off
adjustments to the projected future cash flows - these are
described further in Section 2.5
A reconciliation between the Portfolio Valuation (as described
in Section 2.5, being the valuation of the Investment Portfolio
held by Holdco, and the Investment at fair value through profit or
loss per the Condensed Statement of Financial Position is provided
below. The principal differences are the balances in Holdco for
cash and working capital.
30 September 31 March 2020
2020 GBP'000
GBP'000
======================================== ================== ==============
Portfolio Valuation 318,967 319,802
Holdco cash 4,277 2,584
Holdco debt - (62,826)
Holdco net working capital (1,897) (5,465)
Investment at fair value per Condensed
Statement of Financial Position 321,346 254,095
======================================== ================== ==============
Due to the nature of the investments, they are always expected
to be classified as Level 3 for fair value measurements. There have
accordingly been no transfers between levels during the period.
Acquisitions by the Company
During the period ended 30 September 2020, the Company invested
GBP65.3 million into HoldCo for new portfolio acquisitions and
repayment of debt. In June 2020, HoldCo used GBP64.2 million of
this funding to repay its Revolving Credit Facility ("RCF").
Portfolio Acquisitions, via Holdco
The Company announced the following investment activity in the
period:
-- In August 2020, the Company announced an aggregate investment
commitment of GBP50 million was made to the EV Networks project to
acquire an initial 112 rapid and ultra-fast EV charging stations
across the UK. The commitment of potentially up to GBP50 million
will be drawn down in tranches, subject to meeting set criteria, to
fund the implementation of projects, with the first draw down of
capital expected to take place later this financial year with the
full balance of up to GBP50 million expected to be deployed over
the next 12-18 months.
-- In September 2020, an aggregate investment commitment of
GBP4.8 million was made to the GET Solutions project in relation to
acquiring a portfolio of energy efficiency projects in the UK. This
included an initial GBP1.7 million cash consideration with the
remaining amount expected to be deployed in the coming months.
The Company announced the following portfolio acquisitions after
the period:
-- In October 2020 the Company announced the acquisition of its
first portfolio of energy efficiency projects in Singapore for a
cash consideration of approximately GBP2 million.
-- In October 2020, the Company announced the acquisition of a
100% interest in the Gasnätet project for a consideration of
approximately GBP107 million by acquiring Värtan Gas Stockholm AB,
the ultimate owner of the established, operational and regulated
gas distribution network for Stockholm, Sweden.
11. Share capital and reserves
30 September 2020 31 March 2020
Ordinary Shares '000 '000
======================================== ================== ==============
Authorised and issued at the beginning
of the period / year 320,375 100,000
======================================== ================== ==============
Shares Issued - during the period
/ year 105,769 220,375
======================================== ================== ==============
Authorised and issued at the end
of period / year 426,144 320,375
======================================== ================== ==============
In June 2020, the Company issued 105,769,231 new ordinary shares
at a price of 104 pence per share raising gross proceeds of GBP110
million.
After the period end, in October 2020, the Company issued
100,000,000 new ordinary shares at a price of 105 pence per share
raising gross proceeds of GBP105 million.
The Company currently has one class of ordinary share in issue.
All the holders of the ordinary shares, which total 526,145k at the
date of this report are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at general
meetings of the Company.
Other distributable reserves were created through the
cancellation of the Share Premium account on 12 March 2019. This
amount is capable of being applied in any manner in which the
Company's profits available for distribution, as determined in
accordance with the Companies Act 2006, are able to be applied.
Other distributable reserves and Retained Earnings are detailed
in the Condensed Statement of Changes in Shareholders' Equity.
12. Related parties
The Company and Sustainable Development Capital LLP (the
"Investment Manager") have entered into the Investment Management
Agreement pursuant to which the Investment Manager has been given
responsibility, subject to the overall supervision of the Board,
for active discretionary investment management of the Company's
portfolio in accordance with the Company's investment objective and
policy.
As the entity appointed to be responsible for risk management
and portfolio management, the Investment Manager is the Company's
AIFM. The Investment Manager has full discretion under the
Investment Management Agreement to make investments in accordance
with the Company's investment policy from time to time. This
discretion is, however, subject to: (i) the Board's ability to give
instructions to the Investment Manager from time to time; and (ii)
the requirement of the Board to approve certain investments where
the Investment Manager has a conflict of interest in accordance
with the terms of the Investment Management Agreement.
The Investment Manager also has responsibility for financial
administration and investor relations, advising the Company and its
group in relation to the strategic management of the portfolio,
advising the Company in relation to any significant acquisitions or
investments and monitoring the Company's funding requirements.
Under the terms of the Investment Management Agreement, the
Investment Manager will be entitled to a fee calculated at the rate
of:
-- 0.9 per cent, per annum of the adjusted NAV in respect of the
Net Asset Value of up to, and including, GBP750 million; and
-- 0.8 per cent, per annum of the adjusted NAV in respect of the
Net Asset Value in excess of GBP750 million.
The management fee is calculated and accrues monthly and is
invoiced monthly in arrears. During the period ended 30 September
2020, management fees of GBP1,550k (30 September 2019: GBP737k)
were incurred of which GBP559k (30 September 2019: GBP268k) was
payable at the period end.
The Directors of the Company, who are considered to be key
management, received fees for their services. Their fees were
GBP65k (disclosed as Non-executive directors' fees in Note 5) in
the period (30 September 2019: GBP58k).
During the period ended 30 September 2020, GBP65.3 million (30
September 2019: GBP2.5 million) of funding was provided by the
Company to the Holdco for investment acquisitions and the repayment
of the RCF utilised by HoldCo. The funding of HoldCo consisted of
issued share capital and coupon bearing loan notes.
In September 2020, the Company agreed to acquire its first
portfolio of energy efficiency projects in Singapore from Singapore
Energy Efficiency Investments Pte. Ltd, a related party of the
Investment Manager, for an equity cash consideration of GBP2m.
All of the above transactions were undertaken on an arm's length
basis and there have been no changes in material related party
transactions since the March 2020 Annual Report.
13. Guarantees and other commitments
The Company is the guarantor of the RCF between Holdco and
Investec Bank plc. In July 2020, HoldCo increased the RCF from
GBP25 million to GBP40 million with the same maturity date of 30
June 2022.
14. Events after the reporting period
The Directors have evaluated subsequent events from the date of
the interim financial statements through to the date the interim
financial statements were available to be issued. There were no
subsequent events identified other than those stated below which
require adjustment or disclosure in these interim financial
statements. This includes the potential impact of COVID-19 on the
underlying investments and takes into account factors such as the
national or localised lockdowns and restrictions imposed by
governments in the UK and Spain.
On 23 November 2020 the Company declared an interim dividend for
the quarter ended 30 September 2020 of 1.375 pence per share which
is expected to result in a cash payment of approximately GBP7.2
million on 18 December 2020.
In October 2020 the Company announced the acquisition of its
first portfolio of energy efficiency projects in Singapore for a
cash consideration of approximately GBP2 million.
In October 2020, the Company announced the acquisition of a 100%
interest in the Stockholm Green Gas Grid project for a
consideration of approximately GBP107 million by acquiring Värtan
Gas Stockholm AB, the ultimate owner of the established,
operational and regulated gas distribution network for Stockholm,
Sweden.
In October 2020, Holdco entered into an agreement with Investec
to increase the RCF by GBP30m to an aggregate GBP70m by adding a
short-term acquisition facility repayable in March 2021. HoldCo
utilised approximately GBP65 million of the RCF for the acquisition
of the Gasnätet project.
In October 2020, the Company issued 100,000,000 new ordinary
shares at a price of 105 pence per share raising gross proceeds of
GBP105 million.
In October 2020, Emma Griffin was appointed as the fourth
independent Non-Executive Director of the Company.
GLOSSARY
AIFM an alternative investment fund manager, within the meaning
of the AIFM Directive
AIFM Directive Directive 2011/61/EU of the European Parliament
and of the Council of 8 June 2011 on Alternative Investment Fund
Managers and amending Directives 2003/41/EC and 2009/65/EC and
Regulations (EC) No 1060/2009 and (EU) No. 1095/2010; the
Commission Delegated Regulation (EU) No 231/2013 of 19 December
2012 supplementing Directive 2011/61/EU of the European Parliament
and of the Council with regard to exemptions, general operating
conditions, depositaries, leverage, transparency and
supervision
Board the Board of Directors of the Company, who have overall
responsibility for SEEIT
Biomass boiler a wood-fuelled heating system, which burns wood
pellets, chips or logs to provide warmth in a single room or to
power central heating and hot water boilers
BMS building management systems
CCHP combined cooling/heating and power
CHP combined heating and power
Company SDCL Energy Efficiency Income Trust plc, a limited
liability company incorporated under the Act in England and Wales
on 12 October 2018 with registered number 11620959, whose
registered office is at 6(th) Floor, 125 London Wall, London, EC2Y
5AS
Company SPV a Project SPV owned by the Company or one of its
Affiliates through which investments are made
Contractual payment the payments by the Counterparty to the
Company or relevant Project SPV under the contractual arrangements
governing an Energy Efficiency Project, whether such payments take
the form of a service charge, a fee, a loan repayment or other
forms of payments as may be appropriate from time to time
Counterparty the host of the Energy Efficiency Equipment with
whom the Company has entered into the Energy Efficiency Project,
either directly or indirectly through the use of one or more
Project SPVs
Decentralised energy is energy which is produced close to where
it will be used, rather than at a large centralised plant
elsewhere, delivered through a centralised grid infrastructure
Energy efficiency using less energy to provide the same level of
energy. Efficient energy use is achieved primarily through
implementation of a more efficient technology or process
Energy efficiency equipment the equipment that is installed at
the premises of a Counterparty or a site directly connected to the
premises of a Counterparty in connection with an Energy Efficiency
Project, including but not limited to CHP units, CCHP plant
schemes, HVAC units, lighting equipment, biomass boilers and steam
raising boilers (including IP steam processors)
Energy efficiency project has the meaning given in paragraph 3
of Part II (Industry Overview, Investment Opportunity and Seed
Portfolio) of the November 2018 Prospectus
Energy efficiency technology technologies deployed to achieve an
improvement in energy efficiency
EPC Engineering, procurement and construction
ESA an energy saving agreement governing the terms on which
energy savings are apportioned between the counterparty and the
relevant Project
Holdco is SEEIT Holdco Limited, the Company's single wholly
owned subsidiary
Investment Manager Sustainable Development Capital LLP, a
limited liability partnership incorporated in England and Wales
under the Limited Liability Partnership Act 2000 with registered
number OC330266
Investment Portfolio is the portfolio of energy efficiency
investments held by the Company via its single wholly owned
subsidiary, SEEIT Holdco Limited
June 2020 Prospectus is the prospectus issued by the Company on
19 June 2020
Lighting equipment energy efficient lighting used in connection
with an Energy Efficiency Project, including but not limited to
LEDs and associated fittings
NAV is the Net Asset Value of the Company
Ordinary Shares an ordinary share of GBP0.01 in the capital of
the Company issued and designated as "Ordinary Shares" of such
class (denominated in such currency) as the Directors may determine
in accordance with the Articles and having such rights and being
subject to such restrictions as are contained in the Articles
O&M Contractors operations and maintenance contractors. the
contractor appointed by the Company or the relevant Project SPV to
perform maintenance obligations in relation to the relevant Energy
Efficiency Equipment
Portfolio valuation is the valuation of the portfolio of
investments held by Holdco
SDCL Group the Investment Manager and the SDCL Affiliates
Steam Raising Boiler Technology is technology through which
pressurised water is transformed into steam through the application
of heat
(1) NAV per share is presented as an alternative performance
measure, see Note 10 for details
(2) Total return is based on interim dividends paid and uplift
in NAV per share.
(3) The target dividend stated above is based on a projection by
the Investment Manager and should not be treated as a profit
forecast for the Company.
(4) Stated on Portfolio Basis. Portfolio Basis is presented as
an alternative performance measure, see Section 2.4
(5) Value of the portfolio of investments, see Section 2.5 for
details
(6) IEA (2020), Renewables 2020, IEA, Paris
https://www.iea.org/reports/renewables-2020
(7) IEA (2020), Renewables 2020, IEA, Paris
https://www.iea.org/reports/renewables-2020
(8) Initial commitment of GBP5 million, of which GBP1.7 million
has been invested to date.
(9) Based upon 30 September 2020 portfolio valuation plus
acquisitions at cost
(10) Investment grade or equivalent counterparties may be the
contracting counterparty, or in certain circumstances a parent or a
member of the same group of companies as the contracting
counterparty
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