TIDMUSF TIDMUSFP
RNS Number : 3718G
US Solar Fund PLC
17 March 2020
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INDIRECTLY, IN WHOLE OR IN PART, TO US PERSONS OR INTO OR WITHIN
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JURISDICTION WHERE, OR TO ANY OTHER PERSON TO WHOM, TO DO SO WOULD
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OR FORM PART OF ANY OFFER TO SELL OR ISSUE, OR ANY SOLICITATION OF
ANY OFFER TO PURCHASE, SUBSCRIBE FOR OR OTHERWISE ACQUIRE, ANY
INVESTMENTS IN ANY JURISDICTION.
17 March 2020
US SOLAR FUND PLC (USF, the "Company")
Inaugural Annual Results to 31 December 2019 and Resolution of
Fraud
US Solar Fund PLC (LSE: USF) is pleased to announce its
inaugural Annual Results. This covers the period ending 31 December
2019[1].
Highlights to 31 December
* In April 2019, the Company listed on the premium
segment of the London Stock Exchange, raising gross
proceeds of $200 million, primarily from UK
institutional investors
* Strong progress since IPO with three US solar project
or portfolio acquisitions announced:
* Acquisition One: 128 MW(DC) in-construction solar
project in Milford, Utah, with a 25 year power
purchase agreement (PPA)
* Acquisition Two: 39 MW(DC) portfolio of six
utility-scale in-construction solar power projects in
North Carolina with remaining PPA of 13.1 years
* Acquisition Three: 39 MW(DC) portfolio of eight
operating utility-scale solar power projects in North
Carolina with remaining PPA of 10 years (acquisition
financial close post-period end, as described below)
* Period end Net Asset Value (NAV) of $194.4 million,
$0.972 per share
* Total return to shareholders of 5.44%
* The acquisition pipeline remains robust and, at 31
December, represented a potential cash equity
investment of $1.9 billion and total capacity of
2,036 MW(DC)
* USF continues to due diligence opportunities from its
pipeline and expects to announce further investments
in due course
Highlights after Period-End
* Acquisition Three: Announced financial close of
portfolio
* Acquisition Four: In January announced binding
acquisition for a 177MW(DC) portfolio of twenty-two
operating utility-scale solar power projects located
in North Carolina, Oregon, and California. Financial
close announced on 13 March.
* Commitment of Proceeds: Including potential for
Acquisition Four partial refinancing, the IPO
proceeds were fully committed within just over nine
months of IPO. The portfolio consists of four
transactions, including 37 projects across four
states and with a combined capacity of 382.4 MW(DC)
* Capital Raising: As all four acquisitions are now
closed, the Board anticipates that the Company will
consider raising further funds
* At the end of January 2020, the Investment Manager
was the victim of a fraud by a third party in
relation to contracted construction payments. The
Company has now fully recovered the entire $6.9m of
payments
* Non-Executive Director Josephine Tan will not be
standing for re-election at the AGM as she is taking
up a new executive position that would not be
compatible with the time commitment required to
remain on the Board. The process of recruiting a new
non-executive director has commenced
* Q4 2019 dividend of 0.50 US cents per Ordinary Share
declared to be paid in May 2020. Combined with the
0.41 cent dividend paid in November 2019, and 0.50
cents paid in February 2020, this represents an
annualised dividend yield of 2% against the initial
issue price of $1 per share
Commenting on the Company's results, Gill Nott, Chair of the Company said:
"We are pleased with the progress made in US Solar Fund's first financial year. The Investment
Manager has worked diligently to invest and commit the proceeds raised at IPO.
Today the fund has over 380 MW(DC) capacity across 37 projects. More than half that capacity
is already fully operational, and construction of the remainder is progressing at pace. Once
fully operational, the portfolio is estimated to offset more than 530,000 tonnes of CO(2)
annually. With contracted cashflows for an average of more than 16 years with investment grade
offtakers, the Investment Manager is fully focused on delivering the portfolio's long-term,
stable, income objectives.
Regarding the global spread of coronavirus and potential impact on US Solar Fund, the majority
of the equipment required for in-construction assets is either already in the US or is being
manufactured there. However, as the full impact of controls to minimise spread are still to
be seen, the Board and the Investment Manager continue to closely monitor the situation as
it evolves."
The Company's Annual Report and Financial Statements for the period ending 31 December 2019
are included in this announcement http://www.rns-pdf.londonstockexchange.com/rns/3718G_1-2020-3-16.pdf
, are available on the Company's website at: www.ussolarfund.co.uk/investor-centre/key-documents-and-disclosure
and can be found at www.morningstar.co.uk/uk/NSM .
For further information, please contact:
US Solar Fund
Whitney V oûte +1 718 230 4329
Cenkos Securities plc
Will Rogers
Rob Naylor
Will Talkington +44 20 7397 8900
KL Communications +44 20 3995 6673
Charles Gorman
Charlotte Stickings
About US Solar Fund plc
US Solar Fund plc listed on the premium segment of the London
Stock Exchange in April 2019, following its successful US$200m IPO.
The Company's investment objective is to provide investors with
attractive and sustainable dividends with an element of capital
growth by investing in a diversified portfolio of solar power
assets in North America and other OECD countries in the
Americas.
The Company acquires or constructs, owns and operates solar
power assets that are expected to have an asset life of at least 30
years and generate stable and uncorrelated cashflows by selling
electricity to creditworthy offtakers under long-term power
purchase agreements (or PPAs).
Further information on the Company can be found on its website
at http://www.ussolarfund.co.uk .
About the Investment Manager
USF is managed by New Energy Solar Manager (NESM). NESM also
manages New Energy Solar, an Australian Securities Exchange
(ASX)-listed fund which has committed over US$900m to US and
Australian solar plants since late 2015.
NESM is owned by Walsh & Company, the funds management
division of Evans Dixon, an ASX-listed company (ASX: ED1) with over
A$20 billion of funds under advice and management.
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
for the period from 10 January 2019 (incorporation date) to 31
December 2019
CONTENTS
1.
HIGHLIGHTS..............................................................................................................................................................
3
STRATEGIC REPORT
2. CHAIR'S STATEMENT...................................................................................................................................... 5
3. INVESTMENT MANAGER'S REPORT............................................................................................................. 8
4. ENVIRONMENTAL, SOCIAL AND GOVERNANCE....................................................................................... 23
5. PRINCIPAL RISK AND UNCERTAINTIES...................................................................................................... 27
6. BOARD OF DIRECTORS............................................................................................................................... 31
DIRECTORS' REPORT
7. DIRECTORS' REPORT.................................................................................................................................. 33
8. DIRECTORS' RESPONSIBILITY STATEMENT............................................................................................. 36
9. CORPORATE GOVERNANCE REPORT...................................................................................................... 38
10. AUDIT COMMITTEE'S
REPORT....................................................................................................................
50
11. DIRECTORS' REMUNERATION
REPORT....................................................................................................
54
12. MANAGEMENT ENGAGEMENT COMMITTEE'S
REPORT..........................................................................
58
13. Independent Auditor's Report................................................................................................................. 61
14. STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE
INCOME........................................... 69
15. STATEMENT OF FINANCIAL POSITION............................................................................................................. 70
16. STATEMENT OF CHANGES IN EQUITY.............................................................................................................. 71
17. STATEMENT OF CASH FLOWS........................................................................................................................... 72
18. NOTES TO THE FINANCIAL STATEMENTS........................................................................................................ 74
19. DIRECTORS AND ADVISERS............................................................................................................................... 89
1. Highlights
31 December 2019 30 June 2019
Net Asset Value (NAV) $194.4m $196.0m
----------------- -------------
NAV per share $0.972 $0.979
----------------- -------------
Ordinary shares issued 200m 200m
----------------- -------------
Share price based on closing price of indicated date $1.050 $1.025
----------------- -------------
Premium to NAV 8.1% 1.0%
----------------- -------------
Market capitalisation based on closing price of
indicated date $210m $205m
----------------- -------------
Dividends paid $0.82m -
----------------- -------------
Share price total return performance ([2]) 5.44% 2.50%
----------------- -------------
Ongoing charges ([3]) 1.50% 1.44%
----------------- -------------
Number of Solar Plants3 37
Total Capacity3 382.4 MWDC
CO2 emissions
displaced3, 4 530,000t
([4]) Figure 1: US Solar Fund's key milestones
2. Chair's Statement
I am pleased to present the first Annual Report for US Solar
Fund Plc ( USF or the Company ) for the period ended 31 December
2019.
Since listing in April 2019, the investment manager, New Energy
Solar Manager ( NESM or Investment Manager ), has worked diligently
to invest the proceeds of the fundraising within the first six to
nine months from the Initial Public Offering ( IPO ), as indicated
in the Prospectus dated 26 February 2019 ( Prospectus ). On 29
January 2020, the Company announced its fourth transaction and full
commitment of the IPO proceeds.
The current portfolio, including the acquisition after 31
December 2019, is more than 50% operating and revenue generating
for the Company, in line with the strategy outlined in the
Prospectus. The Board believe that this is an excellent outcome for
USF at this early stage in its life.
During the course of the year the share price has remained
steady, mostly at a small premium to issue price. Taken together
with the initial dividends this has resulted in a total return to
shareholders of 5.44% at the year-end.
The US solar market is a growing space and presents many
attractive opportunities for investment. The Investment Manager
continues to identify and evaluate new investment opportunities to
add to their pipeline. As all four acquisitions are now closed, the
Board anticipates that the Company will consider a further fund
raising. Meanwhile, the Board and Investment Manager will be
continuing to focus on delivering maximum value for shareholders
from the current portfolio of projects, whilst bearing in mind our
responsibility to all our stakeholders.
Investment Progress
In March 2020 (after the end of the period), USF closed the
fourth binding acquisition, completing the commitment of the IPO
proceeds. The total portfolio now consists of four transactions,
including 37 projects across four states and with a combined
capacity of 382.4 MW(DC) . Two of the transactions were for
portfolios of operating assets whilst the remainder of the assets
which are currently under construction are expected to come into
operation from June 2020, in line with the Prospectus target. More
details are given in the Investment Manager's Report on page 8.
Given that the proceeds of the IPO are now fully committed the
Company is considering raising additional equity to refinance
certain of the projects to enhance shareholders returns on those
projects in line with the gearing policy.
payment Fraud
At the end of January 2020, the Investment Manager was the
victim of a fraud by a third party in relation to contracted
construction payments totalling $6.9 million ( Fraud ). In the
subsequent weeks, $6.3 million of the Fraud was successfully
recovered and I am delighted to report that the Company has now
fully recovered the entire $6.9m.
Immediately following the Fraud, with the full support of the
Board, the Investment Manager appointed a major accountancy firm to
review the financial controls and processes at the Investment
Manager. The review is now complete and, although it identified no
material deficiencies, the Investment Manager is implementing the
enhancements to its financial controls and processes suggested by
the accounting firm.
Performance
From listing to 31 December 2019, the share price traded between
$0.98 and $1.05. At 31 December, NAV was $194.4 million or $0.972
per share, and shares were trading at $1.05, an 8.1% premium to
NAV. As stated in the highlights, the total return to shareholders
was 5.44% at
year-end. During the period, the Company made an after-tax
profit of $0.1 million. This small profit reflects the largely
break-even financial position of the Company as interest income
held on the initial IPO proceeds was largely offset by operating
expenditure of the fund.
DIVID
The Company will be paying a dividend of 0.50 cents per share
for the fourth quarter of 2019. The dividend is expected to be paid
in May 2020. When added to the dividend of 0.41 cents paid in
November 2019, and $0.50 cents paid in February 2020 this
represents an annualised dividend yield of 2% when measured against
the initial issue price of $1 per share.
As mentioned above a significant proportion of the Company's
investments are already in operation and thus revenues will begin
to flow to the Company from the first quarter of 2020 onwards, so
permitting a gradual growth of the dividend yield to the target
level of 5.5% indicated in the Prospectus.
BOARD
Josephine Tan will not be standing for re-election at the AGM as
she is taking up a new executive position that would not be
compatible with the time commitment required to remain on the
Board. We are very sorry to see her go and thank her for her
significant contribution. The process of recruiting a new
non-executive director has commenced.
Outlook
The first year of USF's operations has reflected a strong year
for the US solar market overall. By the end of the third quarter of
2019, the contracted pipeline (the total capacity of utility-scale
PV solar with an energy offtaker in place) for the US utility-scale
solar market reached a record high of 45.5 GW(DC) . The market
opportunity has remained robust as the industry expands. The market
continues to be supported by both federal and state subsidies.
During 2019, nine states increased their renewable targets
indicating broad support for renewable energy in the US. Although
the Investment Tax Credit ( ITC ) (a US federal solar tax credit)
begins to roll off this year with its step-down from 30% to 26%,
the Investment Manager continues to see a substantial pipeline of
investment opportunities that meet its demanding criteria. This is
largely due to solar being one of the cheapest forms of new build
power generation in the US ([5]) , even without subsidies.
At listing, USF said it would focus primarily on assets with
long-term Power Purchase Agreements ( PPAs ) (financial contracts
between electricity generators and power purchasers) with
predominantly investment grade offtakers, with terms of 15 to 20+
years where possible. USF's current portfolio includes PPAs with
investment grade offtakers (S&P ratings: from BBB+ to A) that
have an average remaining term of 16.2 years. Given these stable
long-term cashflows, we believe the Company presents an attractive
investment given the risk profile and the target returns. We expect
the Company's current portfolio to be fully operational by the end
of 2020. Once fully operational, the target dividend yield for the
Company is 5.5% ([6]) .
From IPO to the end of 2019, yields on US and UK government
bonds ([7]) dropped to below 2% and 1% respectively. Since the end
of the period, yields have further reduced with US yields now below
1% and UK yields below 0.5%. At a time when traditional investments
are offering such low yields, an investment like USF with
contracted stable cashflows for more than 15 years is attractive.
The current low yields also present the Company with opportunities
to access long-term gearing at competitive rates.
Earlier this year, renewables funds in the UK came under
pressure when power price reports released by Bloomberg New Energy
Finance forecast that UK baseload electricity price would show a
real decline of 4.0% pa to GBP19/MWh in 2040, and to GBP15/MWh by
2050. This forecast of real decline raised analyst concern
regarding the potential impact to renewable funds' NAVs given their
exposure to potential power price volatility. US electricity
forecasts continue to show trends toward flat real power prices
through 2040 and flat through 2050. As noted above, US Solar Fund's
income cashflows are 100% contracted in the US through fixed price
PPAs with investment grade offtakers for an average remaining term
of 16.2 years. The nature of these cashflows, being in the US and
contracted for long periods of time with fixed PPAs, decreases the
Fund's exposure to power price volatility.
As the coronavirus spreads across the world we will wait to see
what the final impact will be on the global economy. I am pleased
to report that the majority of the equipment the Investment Manager
requires to complete the investments under construction is either
already in the USA, or is being manufactured there. However, as
governments of many countries implement controls to minimise the
spread of the virus, delays to construction may yet still occur
from other factors such as interruptions to the availability of
labour. The Investment Manager continues to monitor the situation
as it evolves.
As we note in our Sustainability Policy, (see page 24 for
further details) US Solar Fund was established to both capitalise
on and contribute to the world's increasing awareness of the impact
of climate change, and the need to better manage the world's
resources for present and future generations. During October 2019,
the London Stock Exchange created the Green Economy Mark to
recognise LSE listed companies and funds that derive 50% or more of
their total annual revenues from products and services that
contribute to the global green economy. I am pleased to say USF was
one of the first companies to receive this designation. We believe
that USF continues to be a promising investment given the current
interest in and demand for investment opportunities that help fight
climate change.
Gill Nott
Chair
17 March 2020
3. Investment Manager's Report
Summary of the Period
Over the year, the Investment Manager has focused on deploying
the proceeds of USF's listing on the London Stock Exchange within
the nine months laid out in the Prospectus. As at 31 December 2019,
the fund had closed on two acquisitions and announced the binding
acquisition for its third (the closing of which was announced in
January 2020 after year-end) bringing total committed capital to
$101 million.
After the end of the reporting period, USF announced its fourth
acquisition, noting that in addition to the equity commitment
required, the Company intended to deploy the remaining IPO proceeds
to complete a refinancing of the acquisition. With these four
acquisitions, the IPO proceeds are committed across 37 projects
totalling 382.4 MW(DC) . The Company's income cashflows are 100%
contracted in the US with investment grade offtakers for an average
remaining term of 16.2 years, decreasing the Fund's exposure to
power price volatility. Diversification of the projects across
geography and electricity offtaker, further mitigates the operating
risks of the Company.
INVESTMENT PROGRESS
USF closed on its first acquisition and financing of 100% of the
cash equity interests (approximately US$30m) in a solar project
located in Utah in late August. The 128 MW(DC) Milford Solar
Project (Acquisition One) has a 25-year power purchase agreement
with PacifiCorp, a wholly owned subsidiary of Berkshire Hathaway
Energy, (S&P rating: A) beginning in the second half of 2020
when the plant is expected to become operational. The agreement
sets a fixed price for 100% of the electricity produced by the
project over the PPA term. By entering a PPA contract with a fixed
price, the Company mitigates the risk of fluctuating wholesale
electricity prices which significantly impact the profitability of
a Solar Power Asset. The project was acquired from developer
Longroad Energy Partners, LLC. (Longroad). Longroad has a strong
track record of developing and financing more than 5GWD(C) of
utility-scale renewable energy projects since 2004, including over
1GWDC in the state of Utah. The project is being constructed on a
fixed-time and fixed-cost basis by McCarthy Building Companies, a
leading engineering procurement and construction contractor with a
150-year track record in the US, using First Solar Inc.'s Series 6
solar panels. Once operational, the plant will generate over
277,500 megawatt hours of electricity annually. This volume of
electricity is equivalent to displacing approximately 235,000
tonnes of CO(2) emissions, powering 31,000 homes, or removing
51,000 cars from the road, every year ([8]) .
In December, USF executed binding agreements with a subsidiary
of Cypress Creek Renewables (Cypress Creek) to make its second
acquisition, a 39MW(DC) portfolio of six utility-scale solar power
projects (Acquisition Two) located in North Carolina. USF
progressed to financial close on 100% of the cash equity interests
alongside tax equity financing ([9]) over the course of two weeks.
Each project in the portfolio has executed a power purchase
agreement at fixed prices with subsidiaries of Duke Energy (S&P
rating: A-) with a weighted average term of 13.1 years. The
portfolio is currently under construction and is expected to be
operational in the second half of 2020. The projects will be
constructed on a fixed-time and fixed-cost basis by Horne Brothers
Construction, a North Carolina-based solar installer which has
successfully completed over 900MW of solar construction. Cypress
Creek will provide operations and maintenance services to the
portfolio.
Shortly after financial close of Acquisition Two, USF also
entered binding agreements with Greenbacker Renewable Energy
Corporation (Greenbacker), a leading investor and project sponsor
focusing on income-producing renewable energy projects, to acquire
a 39MWDC operating utility-scale solar power portfolio (Acquisition
Three) consisting of eight projects located in North Carolina. In
January 2020, USF closed the acquisition of 100% of the cash equity
interests in the eight operating utility-scale solar projects. The
projects were constructed by Conergy Projects (Blueleaf Energy) and
commenced operations between 2012 and 2015 and all are selling 100%
of their electricity output under fixed-price long-term PPAs. The
PPAs are with subsidiaries of Duke Energy (S&P rating: A-) with
a weighted average term remaining of 10 years. Further details on
Acquisition Two and Three and how they meet USF's acquisition
principals and mitigate specific risks can be seen in Tables 1. and
2. on pages 9 and 10.
USF's portfolio benefits from geographic diversification but
primarily sources revenue from two offtakers, representing the
majority of forecasted contracted revenue. For further information
on financial and market risks, please refer to the Risks and
Uncertainties section on page 27.
The Investment Manager continues to work diligently to identify
and review new investment opportunities and looks forward to
communicating more information.
Figure 2: USF Funds committed by stage
([10])
SUMMARY OF RECENT TRANSACTIONS
The Investment Manager tests all acquisitions against the
Acquisition and Asset Management Principles disclosed in the
Prospectus and as set out below for Acquisition Two and Acquisition
Three.
Table 1: Acquisition and Asset Management Principles tested
against Acquisition Two
USF Acquisition Principles Acquisition Two
1. Seek Solar Power Assets ([11]) with long-term P 13.1-year PPA average term with an investment-grade
contracted offtake agreements with creditworthy utility (S&P rating A-) beginning in
counterparties. the second half of 2020
P Fixed price for 100% of the energy generated by the
Project
----------------------------------------------------------
2. Acquire Solar Power Assets at a time which minimises P Construction-ready acquisition
exposure to development risks but P Fully-wrapped turnkey EPC contractor with a credible
maximises the Company's competitive advantage compared to construction partner reduces time and
mature asset acquisitions. cost risks
----------------------------------------------------------
3. Form strong relationships with credible and capable Developer & O&M Provider - Cypress Creek Renewables
project developers, construction partners P Leader in utility and community scale solar with more
and vendors who can offer a pipeline of investment than 300 projects and 3.2GW(DC) of
opportunities. solar facilities across the US
Construction partner - Horne Brothers Construction
P Has acted as mechanical sub-contractor for a total of
330 solar PV projects with a total
capacity of over 3GW(DC) , 2GW(DC) of which is located in
North Carolina
Panel manufacturer - First Solar & Solar Frontier
First Solar
P One of the largest and most well-regarded panel
manufacturers in the world
P The Investment Manager has a strong relationship with
First Solar through previous projects
Solar Frontier
P To date, Solar Frontier has shipped over 5GW(DC) of
modules across the globe
----------------------------------------------------------
4. Prioritise bilateral acquisition negotiations over P USF secured exclusivity of the portfolio through
competitive auction processes existing relationships with the Investment
Manager and did not enter a competitive auction process
----------------------------------------------------------
5. Participate in mid-market segments where team P 39 MWDC portfolio size allows USF to deploy capital at
capability and track record offer a competitive attractive returns without competing
advantage with larger passive investors for larger
projects/portfolio or operating assets
P The Investment Manager's track record has reduced
perceived execution and counterparty risk
for the vendor, lenders and tax equity
----------------------------------------------------------
See section 2.2 Acquisition and Asset Management Principles in
the Prospectus for additional information.
Table 2: Acquisition and Asset Management Principles tested
against Acquisition Three
USF Acquisition Principles Acquisition Three
1. Seek Solar Power Assets ([12]) with long-term P 10-year PPA average term remaining with an
contracted offtake agreements with creditworthy investment-grade utility (S&P rating A-)
counterparties. P Fixed price for 100% of the energy generated by the
Project for the remaining term
----------------------------------------------------------
2. Acquire Solar Power Assets at a time which minimises P Portfolio of operating assets that generate immediate
exposure to development risks but cashflow
maximises the Company's competitive advantage compared to P No development risks
mature asset acquisitions. P Acquisition allows for diversification of the
construction timing of the underlying assets
in USF's portfolio
----------------------------------------------------------
3. Form strong relationships with credible and capable Developer - Conergy Projects & Heelstone
project developers, construction partners P Heelstone is a leading developer of renewable energy
and vendors who can offer a pipeline of investment projects in the United States, having
opportunities. developed over 60 projects with an aggregate capacity in
excess of 500MWDC
P Conergy Projects (Blueleaf Energy) has developed and
installed over 300 solar projects,
equivalent to a volume of 2 GWDC globally and 500MWDC in
Asia Pacific
O&M provider - Carolina Solar Services (CSS) & Heelstone
Renewable Energy
P CSS' technicians currently maintain over 780 MWDC of
solar assets in the U.S. which range
in size from 50 kWDC to 25 MWDC
----------------------------------------------------------
4. Prioritise bilateral acquisition negotiations over P USF secured exclusivity of the portfolio through
competitive auction processes existing relationships with the Investment
Manager and did not enter a competitive auction process
----------------------------------------------------------
5. Participate in mid-market segments where team P 39 MWDC portfolio size allows USF to deploy capital
capability and track record offer a competitive into operating assets without competing
advantage with larger passive investors for larger
projects/portfolio
P The Investment Manager's track record has reduced
perceived execution and counterparty risk
for the vendor, lenders and tax equity
----------------------------------------------------------
See section 2.2 Acquisition and Asset Management Principles in
the Prospectus for additional information.
Pipeline Update
At the time of listing, the Investment Manager disclosed a
pipeline of 3,020 MWDC with a $2.9 billion cash equity value, and
an average PPA term of 15.2 years. As of 31 December 2019, the
Investment Manager's pipeline included 2,036MWDC of assets with a
$1.9 billion cash equity value, and an average PPA term of 14.1
years.
The shift in the pipeline has been partially driven by
developers fast-tracking projects to be construction-ready in 2019
in order to Safe Harbor projects for the 30% ITC. The ITC has had
its first step down in 2020 moving to 26%. The IRS has, however,
set out Safe Harbor provisions that provide a mechanism to "lock
in" the ITC at 30% by completing an appropriate amount of
procurement or construction in 2019 even though the project will
not be placed in service until 2020 or beyond.
The Investment Manager continues to see an increase in
competition in the market, largely driven by the upcoming step down
of the ITC and the ongoing downward trend in interest rates. With
this dynamic, the Investment Manager continues to take a
conservative approach with pricing and remains consistent with the
strategy and return targets of the Company. Throughout the course
of the year, the Investment manager has screened over 20 GWDC of
projects, totalling to a total value of over $20 billion. The
Investment Manager is pleased that the pipeline continues to
provide numerous high-quality construction-ready and operational
investment opportunities.
Events After the Period
Acquisition FOUR
After the end of the period, in March 2020, USF announced it had
closed the acquisition of 100% of the cash equity interests in a
portfolio of twenty-two operating utility-scale solar power
projects located in North Carolina, Oregon, and California with a
total capacity of 177MWDC.
USF will acquire the portfolio from affiliates of Heelstone
Renewable Energy, LLC (Heelstone). Heelstone is a leading developer
of renewable energy projects in the United States, having developed
over 60 projects with an aggregate capacity in excess of
500MWDC.
The projects commenced operations between 2016 and 2018 and sell
100% of their electricity output under fixed price long-term PPAs
to a variety of investment grade offtakers (S&P ratings: from
BBB+ to A). The PPAs have a weighted average term remaining of 12
years.
USF will fund the equity purchase price for the portfolio with
available cash. Combined with the three previously announced
transactions, this represents a total commitment of approximately
70% of the net IPO proceeds. Post-acquisition, USF intends to use
the remaining 30% of the net IPO proceeds to refinance the existing
project level debt with a new, smaller debt facility on more
attractive terms resulting in lower portfolio gearing and improved
returns or other investment opportunities should they arise.
The expected portfolio returns for the portfolio are in line
with those anticipated in the Company's investment objective, as
set out in its prospectus. As it is operational, the portfolio will
generate revenues for USF immediately upon acquisition close.
Table 3: Acquisition and Asset Management Principles tested
against Acquisition Four
USF Acquisition Principles Acquisition Four
1. Seek Solar Power Assets with long-term contracted P 12-year PPA average remaining term with various
offtake agreements with creditworthy investment-grade utilities
counterparties. P Fixed price for 100% of the energy generated by the
projects
----------------------------------------------------------
2. Acquire Solar Power Assets at a time which minimises P Portfolio of operating assets that generate immediate
exposure to development risks but cashflow
maximises the Company's competitive advantage compared to P No development risks
mature asset acquisitions. P Acquisition allows for diversification of the
construction timing of the underlying assets
in USF's portfolio
----------------------------------------------------------
3. Form strong relationships with credible and capable Developer - Heelstone
project developers, construction partners P Heelstone is a leading developer of renewable energy
and vendors who can offer a pipeline of investment projects in the United States, having
opportunities. developed over 60 projects with an aggregate capacity in
excess of 500MWDC
O&M provider - Carolina Solar Services & BayWa r.e.
Carolina Solar Services ( CSS )
P CSS' technicians currently maintain over 780 MW(DC) of
solar assets in the U.S. which range
in size from 50 kW(DC) to 25 MW(DC)
BayWa r.e.
P BayWa has developed and achieved commercial operation
on more than 60 solar projects with
an aggregate generating capacity of 500 MWDC
----------------------------------------------------------
4. Prioritise bilateral acquisition negotiations over P USF secured exclusivity of the portfolio through
competitive auction processes existing relationships with the Investment
Manager and did not enter a competitive auction process
----------------------------------------------------------
5. Participate in mid-market segments where team P 177 MWDC portfolio size allows USF to deploy capital
capability and track record offer a competitive into operating assets without competing
advantage with larger passive investors for larger
projects/portfolio
P The Investment Manager's track record has reduced
perceived execution and counterparty risk
for the vendor, lenders and tax equity
----------------------------------------------------------
See section 2.2 Acquisition and Asset Management Principles in
the Prospectus for additional information.
FRAUDULENT ACTIVITY
Post year-end on 30 January 2020, the Investment Manager
received fraudulent payment instructions for genuine invoices
totalling $6.9m for construction work completed by a contractor
(the Contractor) to a USF project company (Project Company). This
resulted in payments being made to a third-party US bank account
(the Payments) rather than to the Contractor's US bank account. In
subsequent announcements the Company advised that $6.3m of the
Payments had been recovered and returned to the Project Company's
bank account.
The Company has now fully recovered the $6.9m. Following, there
is no impact on the Company's Net Asset Value. In addition, there
has been no impact to the relevant construction schedules or
budgets.
The Board's investigation indicated that the Fraud is an
isolated incident originating from outside the Investment Manager
with no indication of collusion with any member of the Investment
Manager's staff. When making the Payments, the Investment Manager
complied with its relevant processes and procedures. The Investment
Manager's parent, Evans Dixon, is conducting a review of relevant
cyber security arrangements based on its established Cybersecurity
Framework. Separately the Contractor is conducting a review of its
own cybersecurity arrangements supported by an external
cybersecurity consultant.
The Investment Manager, with the full support of the Board and
at its own cost, appointed a global accounting firm to undertake a
review of the Investment Manager's relevant financial processes and
controls. US Solar Fund's Audit Committee Chair met with the global
accounting firm in New York to discuss the engagement prior to it
commencing. The review is now complete and, although it identified
no material deficiencies, the Investment Manager is implementing
the enhancements to its financial controls and processes suggested
by the accounting firm..
CORONAVIRUS OUTBREAK
The 2019 Novel Coronavirus (COVID-19) outbreak occurred after
the period end. As a reaction to the outbreak, the governments of
numerous countries have implemented controls to minimise the spread
of the virus. Within the solar industry, there is concern that
these controls may disrupt the international solar supply chain.
Further, as the virus spreads globally, work across industries may
be interrupted for periods of time based on workforce
availability.
The key risks anticipated revolve around module production and
delivery interruption. Some solar manufacturers have halted
operations under central and provincial governments' guidance,
raising concerns around delayed module delivery. Additionally,
ground transportation and shipping from China has been disrupted
due to government restrictions. USF's portfolio has sourced panels
and other materials from a variety of countries. Of the total 37
projects in the current portfolio, there are seven projects that
are yet to be constructed, all of which have met safe harbouring
conditions to qualify for the ITC. To meet these conditions, the
construction materials for the assets have been purchased ahead of
2020. The solar panels for the six in-construction projects in
North Carolina have been imported and delivered and are being
stored in various warehouses across the US. The rest of the
materials required for construction are either on site or have been
procured from various international suppliers overseas and are
still scheduled to be delivered on-time. The majority of the
construction materials for the project in Utah have already been
delivered to the US. The Investment Manager has received
confirmations from the vendors that there is currently no delay
expected for the remaining materials to be delivered. As such, the
Investment Manager believes that USF's in-construction assets are
relatively well-positioned regarding supply chain concerns..
As the virus spreads globally, work interruptions across
industries are increasingly likely. The Investment Manager
continues to work with Engineering, Procurement and Construction
contractors to assess and consider alternative risk mitigation
strategies at USF's solar plants as more details develop. The
Investment Manager has in place a business continuity plan for its
teams which is available to be implemented if and when it is
required.
INVESTMENT PORTFOLIO
USF's investment portfolio as at 31 December 2019 the Fund had
executed binding acquisition agreements on 15 plants, totalling to
205.7 MWDC. Of the 15 plants, USF had interests in 12 plants,
totalling to 194.5MWDC, financially closing on the remaining three
assets in January 2020. After the period ended, the Company
acquired a portfolio of operating assets to bring the total
portfolio to 37 plants, representing 382.4 MWDC.
([13]) Figure 3: USF Portfolio Composition by State Figure 4: USF Portfolio Composition by Asset Life (MW(DC)
(MW(DC) ) )
Table 4: Portfolio overview
Status Acquisition Asset Capacity Location Acquisition Energy Remaining COD ([14])
Portfolio (MW(DC) ) Date Offtaker PPA Length
(Years)
------------- --------------- --------- ---------- ----------- ---------- -----------
l One Milford 127.8 Utah Aug 19 PacifiCorp 25.0 Nov 20
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Two Benson 5.7 Carolina Dec 19 Energy 13.1 Aug 20
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Two Eagle Solar 5.6 Carolina Dec 19 Energy 13.1 Aug 20
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Two Lane II 7.5 Carolina Dec 19 Energy 13.2 Jul 20
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Two Pilot Mountain 7.5 Carolina Dec 19 Energy 13.1 Aug 20
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Two Tate 6.5 Carolina Dec 19 Energy 13.2 Jul 20
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Two Willard 6.0 Carolina Dec 19 Energy 13.1 Aug 20
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
Operational Total 166.6 22.2 ([15])
------------------------------------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Three Faison 2.3 Carolina Dec 19 Energy 10.3 Jun 15
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Three Four Oaks 6.5 Carolina Dec 19 Energy 10.8 Oct 15
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Three Nitro 6.2 Carolina Dec 19 Energy 9.9 Jul 15
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Three Princeton 6.5 Carolina Dec 19 Energy 10.8 Oct 15
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Three Sarah 6.3 Carolina Dec 19 Energy 10.5 Jun 15
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Three S. Robeson 6.3 Carolina Jan 20 Energy 7.6 Jul 12
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Three Progress 1 2.5 Carolina Jan 20 Energy 12.3 Apr 12
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Three Progress 2 2.5 Carolina Jan 20 Energy 8.0 Apr 13
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
County Home North Duke
l Four ([16]) 2.6 Carolina Mar 20 Energy 11.7 Sep 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Four Mariposa(16) 6.4 Carolina Mar 20 Energy 11.7 Sep 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Four Freemont(16) 6.4 Carolina Mar 20 Energy 11.6 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Four Sonne Two(16) 7.0 Carolina Mar 20 Energy 11.6 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Four Cotten(16) 6.8 Carolina Mar 20 Energy 11.9 Nov 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
Monroe North Duke
l Four Moore(16) 6.6 Carolina Mar 20 Energy 11.6 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Four Red Oak(16) 6.9 Carolina Mar 20 Energy 12.0 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
Virginia
North Electric &
l Four Schell(16) 6.9 Carolina Mar 20 Power 12.0 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Four Sedberry(16) 6.2 Carolina Mar 20 Energy 11.6 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Four Siler 421(16) 6.9 Carolina Mar 20 Energy 11.6 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North Duke
l Four Tiburon(16) 6.7 Carolina Mar 20 Energy 11.6 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
San Diego
Gas &
l Four Granger(16) 3.9 California Mar 20 Electric 16.7 Sep 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
San Diego
Valley Gas &
l Four Center(16) 3.0 California Mar 20 Electric 16.9 Dec 16
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
l Four Turkey Hill(16) 13.2 Oregon Mar 20 PacifiCorp 11.8 Dec 17
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
l Four Merrill(16) 10.5 Oregon Mar 20 PacifiCorp 11.8 Jan 18
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
l Four Lakeview(16) 13.7 Oregon Mar 20 PacifiCorp 11.8 Dec 17
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
l Four Dairy(16) 14.0 Oregon Mar 20 PacifiCorp 11.8 Mar 18
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
l Four Chiloquin(16) 14.0 Oregon Mar 20 PacifiCorp 11.8 Dec 17
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
l Four Tumbleweed(16) 14.0 Oregon Mar 20 PacifiCorp 11.8 Dec 17
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
Virginia
North Electric &
l Four Davis Lane(16) 7.0 Carolina Mar 20 Power 13.0 Dec 17
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
North
North Carolina
l Four Jersey(16) 7.0 Carolina Mar 20 Electric 8.0 Dec 17
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
Virginia
North Electric &
l Four Gauss(16) 7.0 Carolina Mar 20 Power 13.6 Oct 18
----------- ------------- --------------- --------- ---------- ----------- ---------- ----------- ----------
Construction Total 215.8 11.6(15)
------------------------------------------- --------- ---------- ----------- ---------- ----------- ----------
Portfolio
Total 382.4 16.2(15)
------------ ----------------------------- --------- ---------- ----------- ---------- ----------- ----------
Key l Operational l Under construction
ACQUISITIONS
Details of the acquisitions made as of March 2020 are listed in
the table below.
Table 5: Portfolio acquisition commitment (US$m)
Acquisition Commitment Estimated
(as at 31 Dec 19) Remaining
Commitment Total Commitment
----------------------- ------------
Acquisition One 29.1 - 29.1
---------------------------------------------------------- ----------------------- ------------ ------------------
Acquisition Two 25.8 9.5 35.3
---------------------------------------------------------- ----------------------- ------------ ------------------
Acquisition Three 23.1 13.1 36.2
---------------------------------------------------------- ----------------------- ------------ ------------------
Acquisition Four ([17]) - 38.0 38.0
---------------------------------------------------------- ----------------------- ------------ ------------------
Capital Committed to Acquisition Four Refinancing ([18]) - 57.4 57.4
---------------------------------------------------------- ----------------------- ------------ ------------------
Total 78.0 118.0 196.0
---------------------------------------------------------- ----------------------- ------------ ------------------
As of 31 December 2019, the fund closed on two acquisitions and
announced the binding acquisition for its third (close was
announced in January after year-end) bringing total committed
capital to $101 million (with $78 million invested as at 31
December 2019). As Acquisition Two includes assets that are in
construction, additional equity contributions will be made as
construction milestones are achieved as seen in table 5. The Fund
closed the acquisition of 100% of the cash equity interests in five
of the eight projects in the Acquisition Three, prior to 31
December 2019, with the remaining three projects closed in January.
After the end of the reporting period, USF announced it had closed
its fourth acquisition, which requires an initial equity commitment
for the acquisition and includes a potential further equity
commitment to complete a refinancing.
Figure 5: Capacity-weighted portfolio
Although the Acquisition One asset, Milford, makes up just over
30% of the portfolio at 128MW(DC) as shown in Figure 5, the
remaining 70% of the portfolio is well diversified across 36
plants. The portfolio to date is also diversified by development
stage with more than 50% of assets currently operating, which
benefits the fund by providing cashflows immediately upon
acquisition.
Figure 6: Portfolio by Stage
US Solar Market Update
The US utility-scale solar photovoltaic (PV) market experienced
a strong year with a robust contracted pipeline and record
installation and construction figures. By the end of the third
quarter of 2019, the contracted pipeline reached a record high of
45.5 GWDC. When comparing Q3 US utility-scale PV installations to
the broader US Solar market, utility PV contributed the largest
share of installed capacity. Between Q1 to Q3 2019, solar accounted
for 39% of new US electricity-generating capacity additions, second
only to natural gas which had 42% of capacity additions.
Over the course of Q1-Q3 2019, 3.8 GWDC of utility-scale
projects were installed in the US, representing:
-- a 19% increase compared to the same period in 2018;
-- a 55% increase compared to the same period five years prior; and
-- 19% year on year cumulative capacity growth.
Projects under construction by the end of the third quarter also
reached an all-time high of 10.4 GWDC, with 38% of projects
expected to be completed during Q4 2019 and the remaining 62% to be
completed in 2020 and 2021. This suggests we could see roughly 8
GWDC of installed utility-scale projects for 2019 given 3.8 GWDC of
capacity was installed between Q1 to Q3 2019, equating to the
second highest volume of installed capacity to date and further
emphasises the substantial growth expected in the upcoming
years.
Utilities and developers are driving some of this growth as they
safe-harbour projects for 2019 in order to qualify for the 30% ITC.
The ITC begins to phase-down after this year, stepping down to 26%,
22% and 10% in annual increments and remaining at 10% from
2022.
Even as the ITC steps down, the demand for utility PV remains
strong. During Q3, Wood Mackenzie revised their forecast for
utility-scale PV from 2019-2024, increasing the estimate by 9.2
GWDC. The increase is driven primarily by utilities procuring or
planning to procure more utility-scale solar than expected for
their integrated resource plans. Utility-scale solar PV has and
will continue to account for the largest share of annual
installations in the US solar market as seen below in Figure 7,
with 58.4 GWDC of utility-scale solar installations forecast
between 2020 and 2024.
Figure 7: Projected growth in the US solar market
Source: Wood Mackenzie, Q4 2019 US Solar Market Insight,
December 2019.
The economic cost-competitiveness of utility PV makes it a
compelling source for utilities seeking additional energy capacity,
and those who need to meet their renewable portfolio standard ( RPS
) or policy mandate. As of the end of Q3 2019, the US utility-scale
solar market grew to be approximately four times the size of the UK
utility-scale solar market ([19]) , with a total installed capacity
of 40.9 GWDC. Since 2017, the UK installed utility solar capacity
increased by 2.1% compared to 31.4% growth since 2017 experienced
in the US market.
Over the last five years, US utility-scale solar's levelised
cost of energy (LCOE), the average total cost of building and
operating the asset per unit of electricity generated over the
assumed lifetime of the asset, has declined by 13% p.a. on average,
according to Lazard's 2019 LCOE analysis. This continued cost
decline strengthens the economic competitiveness of the solar
industry and voluntary (non-mandated) procurement, with solar being
the cheapest form of newbuild energy production in many states in
the US. Voluntary procurement, which is typically driven by
cost-competitiveness of utility-scale solar PV, continues to be the
primary driver of solar development; accounting for 54% of
utility-scale solar capacity additions in 2019 as seen below.
Figure 8: Drivers for utility-scale PV projects announced,
Q1-Q3
Source: Wood Mackenzie, US Utility PV Market: Quarterly Update
Q4 2019, January 2020.
Whilst voluntary procurement remains as the top driver of
utility-scale installations within the US, the share of projects
driven by Renewable Portfolio Standards requirements is expected to
increase. Since the beginning of 2019, nine states within the US
have raised their RPS targets, and as such are expected to drive
more RPS-driven procurement in the mid-2020s both before and after
the ITC steps down to 10% in 2022.
As at the end of Q4 2019, 37 of the 50 states within the US have
implemented a Renewable Portfolio Standard or voluntary renewable
target. Six of these states in addition to Washington DC and Puerto
Rico have committed to 100% renewable or clean energy targets by a
set date. Many states have already met their near term or all RPS
targets and as such the US continues to see increases in existing
state RPS targets, further driving the demand for
installations.
Figure 9: States and territories with RPS requirements
Source: National Conference of State Legislatures, January
2020
Corporate procurement is the second largest driver of projects
announced, with the corporate procurement pipeline now greater than
10 GWDC, on track to drive 22% of US utility PV from 2019 to 2024.
Up until recently, the LCOE of utility-scale wind has made it the
preferred method for corporate procurement, with 12.1 GWDC of
corporate procurement wind installed compared to 3.1 GWDC of solar
installed through the end of H1 2019. With the federal Production
Tax Credit ( PTC ) stepping down for wind at period end, the LCOE
of utility-scale solar starts to become more compelling than wind
even after accounting for the ITC step down. Spurred by an increase
in demand, utility-scale solar is expected to be the preferred
renewable technology choice for corporate procurement, with 3.7
GWDC of corporate offsite solar in 2020.
Figure 10: US Utility-scale solar PV Corporate procurement
installations forecast
Source: Wood Mackenzie, US Utility PV Market: Quarterly Update
Q4 2019, January 2020.
In 2019, corporations bought 44% more clean energy through power
purchase agreements when compared to the previous year with most of
this purchasing occurring within the US. The US purchased
13.6GW(DC) of renewable energy through corporate PPAs in 2019, more
than all global activity in 2018, demonstrating the demand for
corporate PPAs in the US. The demand has been driven by an
increasing number of corporations pledging to use 100% renewable
power by signing to the RE100 leadership initiative, a global
corporate leadership initiative bringing together businesses
committed to 100% renewable electricity. By the end of 2019, 221
companies had committed to the RE100 initiative, pledging to offset
100% of their electricity demand with clean energy in the shortest
possible timeline (by 2050 at the latest). BNEF has estimated that
these companies will require an additional 210TWh of clean energy
in 2030 to meet their goals. It's estimated that this demand would
catalyse an estimated 105GWDC of new solar and wind build
globally.
Solar within the US has been supported by the US federal policy
and the ITC, with the solar market growing by an average of 52%
since the ITC was enacted. Although the ITC has officially stepped
down ([20]) , the IRS has issued safe harbouring provisions to
allow for projects placed in service after December 31, 2019 and
before January 1, 2024 to still qualify for the 30% credit. To be
eligible to have projects safe harboured, certain requirements for
these projects must be met before December 31, 2019.
It should be noted that solar is competitive even without the
ITC in many parts of the US and as such USF believes US solar
remains a compelling investment opportunity. The combination of
declining costs and expansion and maturation of the industry
indicate that the US solar market is likely to remain an attractive
industry in the years to come.
Investment Performance
At 31 December 2019, the Company's shares were trading at $1.05
per share. This represents an 8.1% premium to the Net Asset Value
of $194.4 million or $0.972 per share. The Net Asset Value is
defined as the total assets less any liabilities.
The Company generated a profit after tax of $146,080 (0.07 cents
per share) during the period. Interest income of $1,944,795 and a
net gain from investments of $472,416 were offset by operating
expenses of $2,120,851 and a foreign exchange loss of $150,280 on
funds that were retained in GBP. The financial statements of the
Company are presented on pages 68 to 88.
31 December 30 June
2019 2019
----------------------------------------------- ----------- -------
Number of Projects ([21]) 37 -
----------------------------------------------- ----------- -------
Capacity of Projects(19) 382.4 MWDC -
----------------------------------------------- ----------- -------
Net Asset Value (NAV) $194.4m $196.0m
----------------------------------------------- ----------- -------
NAV per share $0.972 $0.979
----------------------------------------------- ----------- -------
Ordinary Shares Issued 200m 200m
----------------------------------------------- ----------- -------
Closing Share Price (USF) $1.050 $1.025
----------------------------------------------- ----------- -------
Market Capitalisation (Based on closing price) $210m $205m
----------------------------------------------- ----------- -------
Dividends paid $0.82m -
----------------------------------------------- ----------- -------
Share price total return performance ([22]) 5.44% 2.50%
----------------------------------------------- ----------- -------
Ongoing Charges
The ongoing charges ratio of the Company is 1.50% of the average
NAV for the year ended 31 December 2019. The ratio has been
calculated using the AIC recommended methodology. The estimated
total cost as laid out in the prospectus was 1.35% based on
proceeds of $250 million. As total proceeds of the IPO were $200
million, this ratio is slightly higher than estimated at IPO.
Valuation
Net Asset Value
The Net Asset value for the period ending 31 December 2019 is
$194.4 million.
An unaudited Net Asset Value and Net Asset Value per Ordinary
Share is calculated in US Dollars on a quarterly basis as at 31
March, 30 June, 30 September and 31 December each year, pursuant to
the valuation methodology described below, by the Administrator in
conjunction with the Investment Manager. The valuation of the Solar
Power Assets, will be produced by an independent appraiser on a
semi-annual basis as at 30 June and 31 December. These Solar power
plant valuations form part of the Net Asset Value calculation of
the Company, which will be subject to the audit.
Valuation Methodology
The Company will engage an independent third-party appraiser to
value the Solar Power Assets acquired by the Company and its
Project SPVs every six months as at 30 June and 31 December. As all
acquisitions have been made within six months of 31 December 2019
and were subject to bilateral discussions but with sellers seeking
competitive market prices, investments continue to be recognised at
purchase price on the basis that this represents fair value. The
Investment Manager and the directors feel that this remains
consistent with the fair value of these investments as at 31
December 2019 as the purchase price reflects the market value of
the asset and no significant changes to key underlying economic
considerations have arisen. Looking forward, the Investment Manager
will value the Solar Power Assets acquired by the Company and its
Project SPVs for the quarterly periods ending 31 March and 30
September. At each quarter end, the Investment Manager will provide
the relevant third-party or internal valuations of the Solar Power
Assets together with the valuations of the other assets of the
Company and its Project SPVs to the Company Secretary and
administrator (Administrator) of the Company.
The Administrator, in conjunction with the Investment Manager,
will calculate the Net Asset Value and the Net Asset Value per
Ordinary Share as at the end of each quarter of the Company's
financial year and submit the same to the Board for its
approval.
The valuation has been calculated in accordance with Uniform
Standards of Professional Appraisal Practice (USPAP) as applied to
photovoltaic electricity generation systems in the United
States.
Fair value for operational solar power assets will be derived
from a discounted cash flow (DCF) methodology. For Solar Power
Assets that are not yet operational or where the completion of the
acquisition by the Company has not occurred at the time of
valuation, the purchase price of the Solar Power Asset including
acquisition costs will normally be used as an appropriate estimate
of fair value provided no significant changes to key underlying
economic considerations have arisen.
In a DCF analysis, the fair value of the Solar Power Asset is
the present value of the asset's expected future cash flows, based
on a range of operating assumptions for revenues and costs and an
appropriate discount rate range.
The Investment Manager will review a range of sources in
determining the fair market valuation of the Solar Power Assets,
including but not limited to:
-- discount rates publicly disclosed by the Company's global peers;
-- discount rates applicable to comparable infrastructure asset classes; and
-- capital asset price model outputs and implied risk premium over relevant risk-free rates.
A broad range of assumptions are used in valuation models. Given
the long-term nature of the assets, valuations are assessed using
long-term historical data to reflect the asset life.
Where possible, assumptions are based on observable market and
technical data. The Investment Manager also engages technical
experts such as long-term electricity price forecasters to provide
long-term data for use in its valuations.
The Investment Manager will use its judgement in arriving at the
appropriate discount rate. This will be 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.
Gearing
On a look-through basis USF had outstanding debt of $22.8
million as at 31 December 2019, which is based on the face value of
drawn debt. This equates to 10.5% of Gross Asset Value ( GAV )
(calculated as NAV plus outstanding debt). If the post-refinance
project debt associated with Acquisition Four of $137m is taken
into consideration, gearing would increase to 45.1%. This remains
within the target gearing of the Company of 50%.
USF's group debt facilities outstanding as at 31 December 2019
are set out below:
Facility size Drawn face value Drawn fair value
Solar Asset Loan Type (US$m) (US$m) (US$m) ([23])
---------------- ------------------ ------------- ----------------- -----------------
Acquisition One Construction Loan 48.5 22.8 19.9
Acquisition One ITC Bridge Loan 79.2 0.0 0.0
The debt is held by a subsidiary (USF Bristol Class B Member,
LLC), thus included in "Investment held at fair value" on the
Statement of Financial Position.
Refer to Note 10 of the financial statements for further
information on USF's debt facilities.
The projected look-through gearing of USF upon full drawdown of
the project level debt of Acquisitions One and the assumed project
level debt of Acquisition Four is set out below. While the
projected gearing of 50.7% will temporarily exceed USF's target
operational gearing of 50% this is indicative only as the Company
expects to refinance the debt associated with Acquisition Four
using available equity or the proceeds of an equity capital
raising.
Post Acquisition four full
Post Acquisition four partial refinance and
(USD millions) Post Acquisition FOUR refinance $75m equity raise
------------------------------- --------------------- ------------------------------ ------------------------------
Equity invested 139 183 228
Operational period debt ([24]) 200 160 116
Remaining equity 56 12 40
Gearing (%) 50.7% 45.1% 30.2%
SHARE CAPITAL
On 16 April 2019, the Company was admitted to the premium
listing segment of the Official List of the FCA and to trading on
the main market of the London Stock Exchange.
As at 31 December 2019, 200,092,323 ordinary shares were in
issue and no other classes of shares were in issue at that
date.
Following a successful application to the High Court and
lodgement of the Company's statement of capital with the Registrar
of Companies, the Company was permitted to cancel its share premium
account. This was effected on 21 June 2019 by a transfer of the
balance of $194 million from the share premium account to the
capital reduction reserve (refer to note 18). The capital reduction
reserve is classed as a distributable reserve and dividends to be
paid by the Company are to be offset against this reserve.
Information on the Investment manager
The US Solar Fund is managed by New Energy Solar Manager which
also manages New Energy Solar (www.newenergysolar.com.au). The
Investment Manager manages two listed global solar power investment
funds, US Solar Fund and New Energy Solar, which combined has
committed approximately US$1.2 billion to 53 projects totalling 1.2
GWDC.
The Investment Manager has been given responsibility, subject to
the overall supervision of the Board, for active discretionary
investment management of the Portfolio in accordance with the
Company's investment objective and policy. The Investment Manager
offers in-house deal origination, execution and asset management
capabilities with experience in equity, tax equity, debt
structuring and arranging, and active asset management. The
Investment Manager's team currently consists of more than 20
investment and asset management professionals located in Sydney and
New York.
Senior Management Team
The senior members of the Investment Manager who are responsible
for the management of US Solar Fund are set out below. Further
information on the Investment Manager team is provided at
www.ussolarfund.co.uk.
John Martin BEcon (USYD)
Chief Executive Officer, NESM
John joined the Investment Manager as Managing Director and CEO
in May 2017. John brings a wealth of experience and capability to
the role after more than two decades of experience in corporate
advisory and investment banking with a focus on the infrastructure,
energy and utility sectors. John previously led the Infrastructure
and Utilities business at corporate advisory firm Aquasia where he
advised on more than A$10 billion of infrastructure and utility
M&A and financing transactions. Prior to this John held various
investment bank management positions including the Head of National
Australia Bank Advisory and the Joint Head of Credit Markets and
Head of Structured Finance at RBS / ABN AMRO. During his time at
ABN AMRO, John managed the Infrastructure Capital business which
was viewed as a market leader in the development and financing of
infrastructure and utility projects in Australia. John started his
career as an economist with the Reserve Bank of Australia and then
worked in various treasury and risk management positions, before
moving to PwC as the partner responsible for financial risk
management.
Liam Thomas BAgribus (Curtin), MSc (Curtin), MBA (MELB)
Chief Investment Officer, NESM
Liam joined the Investment Manager as Director - Investments in
March 2016, to lead transaction origination and execution
activities. Liam has over 15 years' experience in mergers and
acquisitions, corporate and business development, projects, and
commercial management in the energy, infrastructure, mining and
agribusiness sectors. Prior to joining the Investment Manager, Liam
was a senior member of the International Development team at Origin
Energy focused on the investment and development strategy for
utility-scale solar, hydro, and geothermal projects in Latin
America and South-East Asia. Liam's previous roles have included
General Manager of Commercial Development at Aurizon, Commercial
Manager for the Northwest Infrastructure iron ore port joint
venture, and Project Manager at Orica, focusing on large scale
mining-related infrastructure and manufacturing projects.
Michael van der Vlies BAcc (UTS), CA
Chief Financial Officer, NESM
Michael is responsible for the finance activities of the
Investment Manager, including business planning, budgeting,
forecasting, financial reporting, taxation, treasury, balance sheet
management and risk management. Michael has over 16 years'
experience working in finance, infrastructure and investment
management. Michael previously led a team responsible for the
financial reporting, fund administration, regulatory and compliance
reporting globally across AMP Capital's A$15 billion Infrastructure
Equity funds. Prior to this, Michael held various finance roles
including General Manager of Finance and Group Financial Controller
at BAI Communications, a communications infrastructure business
owned by CPPIB and Senior Manager at Macquarie.
4. Environmental, Social and
Governance
Considering environmental, social and governance ( ESG )
practices is critical to the success and longevity of the Company
because it assists in assessing both risks and opportunities as the
Investment Manager operates and seeks to grow the Company in the
years to come. US Solar Fund is committed to reporting regularly on
the implementation of these ESG and Sustainability principles in
its business and, specifically, in its investment processes and
asset management operations. The Board and Investment Manager
believe it is important to demonstrate its goals to its
Shareholders and stakeholders, as well as to explain how the
Company is meeting them.
US Solar Fund was established to capitalise on the need to
decarbonise the world's energy use and to contribute to activity
which may reduce the impact of climate change. The Company
facilitates the transition to a low-carbon economy and mitigates
the consequences of climate change by generating clean,
emission-free energy and promoting maximum efficiency in the
Company's operations. USF's investment objective is to provide
investors with attractive risk-adjusted and sustainable dividends,
with an element of capital growth, by investing in a diversified
portfolio of Solar Power Assets. By investing in Solar Power Assets
and selling the output from these assets to energy users, the
Company directly contributes to renewable energy infrastructure and
renewable power generation. As at March 2020, USF's portfolio
comprised 37 solar plants, 30 of which are operational and seven
are under construction. Once all of the 37 assets in USF's current
portfolio are operational, the Company will be responsible for
displacing over 530,000 tonnes of CO(2) emissions, equivalent to
powering over 65,000 US homes ([25]) , or removing over 117,000 US
cars from the road ([26]) , every year.
Core to the Company's investment and environmental objectives is
the intention to build a long-term, sustainable business.
Accordingly, the Directors and the Investment Manager are committed
to managing USF in line with the core principles of Environmental,
Social and Governance practices, as well as running the business
with a focus on overall Sustainability Practices.
ESG principles at work in USF
Adherence to ESG principles requires US Solar Fund to consider
the broader impact of its activities and to incorporate practices
to further the aim of these principles.
Environmental considerations incorporate the impact on both the
local environment, as well as global issues like climate change.
USF's primary activity is investing in Solar Power Assets which
support renewable energy development and provide a clean energy
source to communities in rural and metro areas. Further, USF's
strategy of owning and operating solar power portfolios directly
contributes to the displacement of CO(2) emissions and assists
states in their transition to a low carbon economy, helping to
achieve their respective renewable energy targets.
USF's positive environmental impact can be seen in USF's first
acquisition, the Milford Solar project in Utah. Once operational,
this project will generate over 277,500 megawatt hours of
electricity annually. This volume of electricity is equivalent to
displacing approximately 235,000 tonnes of CO(2) emissions,
powering 31,000 homes, or removing 51,000 cars from the road, every
year ([27]) . USF has contributed to the development and growth of
renewable and low-emissions energy which, as an industry, has
created a significant number of new jobs.
The Company acquires plants that are not yet operational, and as
such requires many contractors and jobs to construct each project.
As each project creates new opportunities, for example there are
currently over 80 contractors on site for the construction of the
128MW(DC) Milford solar plant, the Company, through the engagement
of its contractors, seeks to create quality jobs in the communities
in which it operates. Once operational, the plants provide a
smaller number of long-term employment opportunities for members of
the communities in which the plants are located.
The Company is committed to making tangible contributions to the
prosperity and economic development of the regions in which it
operates. For example, the Company seeks to form open and strong
relationships with the landowners on which its assets are located,
as well as those near its assets. The Company also partners up with
educational and research institutions to share insights and data to
further advance the solar industry. These partnerships also help
USF to continue to improve its practices around land preservation,
a key consideration for the Company during the construction phase
of solar asset ownership as well as throughout an asset's
operational life.
Governance considerations require a company to examine its
structure, leadership, shareholder rights and internal controls.
USF's Board of Directors is independent of the Investment Manager
and seeks to implement a system of rules and practices that
preserves the integrity and efficiency of its operations. The Board
has worked with the Investment Manager and Company Secretary to
maintain a framework of governance to meet the interests of
stakeholders including security holders, customers, financiers,
government, and the community. The Company also considers
acquisition and asset management principles and practices as they
relate to dealing with anti-corruption and labour standards.
USF recognises that these governance considerations are critical
to building a successful, long term business.
SUSTAINABILITY
USF was established to both capitalise on and contribute to the
world's increasing awareness of the impact of climate change and
the need to better manage the world's resources for present and
future generations. The Company is focused on sustainability
primarily as an investor in the solar industry but also in the way
the Company is managed.
The Company is committed to:
-- Incorporate sustainability and ESG considerations into our
investment, diligence, and operating decisions and practices
-- Ensure that measurable results related to sustainability and
ESG practices are monitored and achieved through investment
decision making and operations
-- Report on progress to stakeholders
In 2015, the United Nations developed 17 Sustainable Development
Goals ( SDG ) to enable individuals, organisations, corporations
and government to implement, record and measure their approach to
addressing global challenges including poverty, inequality, and
climate change. Each goal has specific targets to be achieved
within a 15-year timeframe (by 2030).
US Solar Fund is well-aligned with these goals, particularly
those concerning the environment (e.g. #13 Climate Action and #7
Affordable and Clean Energy), those concerning social issues (e.g.
#8 Decent Work and Economic Growth and #9 Industry Innovation and
Infrastructure) and those concerning governance (e.g. #16 Peace,
Justice and Strong Institutions). The Company will consider its
contribution to the achievement of the United Nations SDG and will
report regularly to shareholders on its progress in this
regard.
As noted in USF's sustainability policy, the Company has
selected two core UNSDG goals to contribute to:
UNSDG GOAL AFFORDABLE AND Clean Energy Decent Work and Economic Growth
-------------------------------------------------
Relevant Target 7.2 By 2030, increase substantially the share of 8.8 Protect labour rights and promote safe and
renewable energy in the global energy mix secure working environments for all workers,
including migrant workers, in particular women
migrants, and those in precarious employment
---------------- ------------------------------------------------- -------------------------------------------------
USF Reporting Measurement of carbon impact of solar assets; Reporting on health and safety strategic
development of strategic plans for assets at initiatives, planning and incidents at assets
end of life (e.g. solar panel recycling) under
ownership
---------------- ------------------------------------------------- -------------------------------------------------
UNSDG GOAL 7.2
Investing in utility-scale solar in order to provide attractive
risk-adjusted returns for investors is, by its very nature, a
compelling investment for investors focused on sustainability and
ESG. It contributes positively and materially to the world's
growing awareness of and momentum to address the impact of human
activity on the environment and climate. Importantly, through
developing utility-scale solar projects and contracting the power
purchase agreements with various offtakers, the Company directly
contributes to the share of renewable energy in the global energy
mix.
The 37 solar power plants in USF's portfolio have a combined
capacity of 382.4 MWDC and provide power to electricity consumers
by way of long-term PPAs. This power is generated without producing
emissions and importantly, also replaces fossil-fuel generated
power, thereby displacing CO(2) emissions. Once all of USF's 37
assets are operational, it will be responsible for displacing over
530,000 tonnes of CO(2) emissions, equivalent to powering over
65,000 US homes, or removing over 117,000 US cars from the road,
every year.
As at 31 December 2019, the portfolio had eight operating assets
of the 15 acquired. When using first year generation figures, these
assets generated enough electricity annually to power over US 4,000
US homes ([28]) and displace over 38,000 tonnes of CO(2) emissions,
or remove about 8,200 US cars from the road ([29]) , every
year.
As a sustainably run business, USF is conscious of its
obligations to carefully consider and plan for the future disposal
of solar panels as a sustainably run business. Given USF's solar
plants are relatively new, with only 3% of capacity (including the
fourth acquisition) being operational for greater than 5 years and
the majority being operational between 2-5 years, the business has
not yet had to manage the disposal of large quantities of solar
panels.
During construction and operation, the solar panels employed in
USF's plants have proven to be very robust and rates of damage and
waste have been very low. With respect to the bulk of the panels
installed at USF's solar power plants, which have life cycles of
25+ years, USF intends to establish a solar panel recycling
approach that can facilitate the recovery of valuable secondary raw
materials and promote high levels of reuse. To this end, USF is
investigating the recycling programs available in the industry and
the approaches of its development and construction partners.
UNSDG Goal 8.8
When an acquired project is yet to be constructed, an
Engineering, Procurement and Construction Agreement (EPC Agreement)
must be agreed upon and signed by USF and the EPC counterparty
before construction. This agreement contains a comprehensive and
systematic Health and Safety Plan that explicitly outlines certain
requirements according to each site location and layout of the
plant. This plan incorporates health, safety and security measures
that various state and federal laws to which all contractors,
subcontractors, and site visitors must adhere to.
A site health and safety committee is established for each
project location, comprising field representatives and management
from the EPC contractor, once construction commences. These
representatives must obtain United States department of labour
construction safety certification (OSHA36) and are responsible for
daily safety briefings. The representatives also facilitate weekly
"toolbox" meetings, designed to address potential safety concerns
on-site, and ensure the implementation of preventive safety
measures.
USF is also focused on injury reporting and investigation as it
allows for investigation into existing preventative measures,
thereby reducing the likelihood of a similar event occurring in the
future. All injuries and incidents must be reported immediately on
the construction site, followed by an investigation process,
detailed report, and corrective action.
Over the course of the year to 31 December 2019, there was one
recordable accident on site. At the Milford Solar Project
(Acquisition One) construction site, there was one injury that
occurred in November where an individual's foot sustained a mild
injury by moving a racking machine. McCarthy, the EPC contractors
have investigated the root cause of the accident and have since
made corrections to their operating procedures to reduce the
likelihood of further injuries.
The Company continues to monitor and maintain health and safety
management policies. The Company continues to take a preventative
and proactive approach when dealing with health and safety hazards,
rigorously implementing safety practices and improving them where
applicable.
5. Principal Risk and Uncertainties
The Board is responsible for financial reporting and controls,
including the approval of the Annual Report and Accounts, the
dividend policy, any significant changes in accounting policies or
practices, and treasury policies including the use of derivative
financial instruments. During the period the Board has carried out
a robust assessment of the principal risks and uncertainties facing
the Company and how they are being mitigated.
The Company faces a broad range of risks that the Board and
Investment Manager aim to mitigate through internal controls. These
risks are regularly assessed on a periodical basis to ensure that
the business operates smoothly and that any adverse effect on the
Company's performance and share value is mitigated. The Board also
maintains a risk matrix that is reviewed annually to ensure that
there is a risk management framework in place to minimise the
impact of these risks should they occur. The risks that the Board
and Investment manager believe to be the most relevant to the
business can be categorised into key categories as set below:
-- Legal & Regulatory Risks
-- Financial & Market Risks
-- Operational Risks
Principal risks for the period and their mitigants are
summarised in the tables below:
LEGAL & REGULATORY RISKS
Risk Impact on Company Mitigant
--------------------------------------
Changes in laws or regulations Regulation changes may adversely The Company and Investment Manager
governing the Company's operations or affect the business and performance monitor changes in legislation for
the Investment Manager's of the Company. The Company relevant jurisdictions
operations is sensitive to tax changes for to enable rapid and effective
example, including but not limited to response. This ensures that any
income tax, Investment upcoming changes in legislation
Tax Credits and tax restrictions on are proactively accounted for when
renewables. An adverse change in the evaluating potential investment
tax legislations opportunities. The Company
may impact the Company's revenue. and Investment Manager also consult
with tax and regulatory experts as
required.
-------------------------------------- -------------------------------------- --------------------------------------
Political risks including Brexit Political risks often translate to As the Company's assets reside within
elevated political uncertainties and the US, the Investment Manager does
detrimental effects not consider Brexit
on investment and currency markets. to cause significant risks to the US
While the risks associated with renewables market. The Company and
Brexit have reduced in Investment Manager
recent months, ongoing Brexit monitor changes in legislation for
uncertainty may impact the Company's relevant jurisdictions to enable
ability to raise additional rapid and effective response.
funds. The Company and Investment Manager
also consult with tax and legislation
experts as required.
-------------------------------------- -------------------------------------- --------------------------------------
FINANCIAL & MARKET RISKS
Risk Impact on Company Mitigant
--------------------------------------
Long-term power price fluctuations Lower wholesale electricity prices The Company intends to secure revenue
will negatively impact the revenue by acquiring assets that have
that the assets within long-term Power Purchase
the underlying portfolio generates, Agreements in place. The Company
thereby causing a reduction in the continues to regularly monitor
returns of the Company. changes in expert energy price
forecasts and ensure that they are
appropriately factored into asset
valuations.
-------------------------------------- -------------------------------------- --------------------------------------
Valuation of Assets The due diligence process that the The Company appoints reputable third
Investment Manager intends to parties with industry specific skills
undertake in evaluating acquisitions to assist in the
of Solar Power Assets may not reveal due diligence process. As the
all facts that may be relevant in valuations of the SPV investments are
connection with such reliant on detailed financial
investments. This could lead to model inputs, the inherent risks in
valuation errors that affect the utilising inaccurate inputs can be
return of the underlying mitigated through third
assets. party opinions.
-------------------------------------- -------------------------------------- --------------------------------------
Access to capital from tax equity The Company may not be able to source The Company has appointed a reputable
partners funding from suitable Tax Equity and experienced Investment Manager
Partners which may with strong existing
limit the amount of capital the banking relationships. These existing
Company is able to utilise in relationships in addition to new
acquiring assets. Additionally, relationships developed
the Company may be exposed to risks with experienced Tax Equity partners
from its contractual relationships in allows for various avenues to appoint
relation to tax a partner best
equity financing with any Tax Equity suited for the project. The Company
Partner. also continues to monitor compliance
with tax equity financing
provisions.
-------------------------------------- -------------------------------------- --------------------------------------
Unable to source suitable Solar Power The Company may not be able to source The Company has appointed an
Assets suitable assets for the fund, which Investment Manager with a dedicated
would result in team of experienced investment
the Company holding levels of cash and renewable energy professionals
which are higher than optimal. This focused on sourcing, evaluating and
cash would likely generate transacting on new
much lower levels of returns than the investments for the Company.
assets in the fund, consequentially
adversely affecting
the level of returns to shareholders
and the market value of the Company.
-------------------------------------- -------------------------------------- --------------------------------------
OPERATIONAL RISKS
Risk Impact on Company Mitigant
--------------------------------------
Operational Fraud The Company is potentially exposed to The Investment Management Agreement (
financial losses from fraud through IMA ) provides USF with certain
receipts from spot protections through
price markets and PPA counterparties, passing certain responsibilities to
and from payments made to the Investment Manager. The
construction entities, maintenance Investment Manager maintains
providers and capital investors. and adheres to policies and processes
to mitigate the risk of fraud. The
Evans Dixon Group,
of which Investment Manager is a
member, holds insurance which
potentially covers fraudulent
incidents.
-------------------------------------- -------------------------------------- --------------------------------------
Cyber Risk The Company and the Investment The Investment Manager periodically
Manager are potentially exposed to reviews its established Cybersecurity
financial losses, disruption Framework to ensure
or damage to the reputation due to that security processes are up to
breaches of or attacks on technical date and that preventative measures
infrastructure or the are in place. The Investment
use of technology. Manager retains an in-house
cybersecurity specialist resource for
this purpose.
-------------------------------------- -------------------------------------- --------------------------------------
Changes to market conditions for the The income generated by the portfolio While it is the intention of the
energy industry is largely correlated to the energy Company to be fully invested in
market conditions normal market conditions,
due to the nature of the underlying the Company may in its absolute
assets. An adverse change to the discretion decide to hold cash on
energy market may affect deposit and may invest in
the Company's ability to achieve cash equivalent investments, which
dividend and return targets. may include short-term investments in
money market type
funds and tradeable debt securities.
Additionally, when assessing new
projects, the most recent
power market forecasts are utilised
in assessing the viability of the
asset.
-------------------------------------- -------------------------------------- --------------------------------------
Default of developer or Engineering, The Company may experience a The Company intends to appoint
Procurement, Construction (EPC) financial loss (realised or experienced and reputable contractors
contractor unrealised) from a developer or EPC with strong track records
counterparty failing to perform their through existing relationships with
contractual obligations. the Investment Manager. The Company
will periodically
review the credit ratings and other
available financial indicators of
counterparties before
contracting and adjust risk premiums
accordingly.
No financial transactions are
permitted with counterparties with a
credit rating of less than
BBB- from Standard & Poor's or Baa3
from Moody's unless specifically
approved by the Board.
-------------------------------------- -------------------------------------- --------------------------------------
Unfavourable weather conditions The Company may be exposed to a lower The Company and Investment Manager
including Climate Change than expected volume of revenue conduct sensitivity analysis on power
generation produced generation when evaluating
by the Solar Power Assets. the acquisition target. There is also
Additionally, the Solar Power Assets an allowance for unfavourable weather
may face damages due to extreme events in modelled
weather conditions arising from forecasts of revenue. By investing in
climate change. a geographically diverse set of
investments, the portfolio
will inherently mitigate unfavourable
weather conditions across the
investment portfolio.
-------------------------------------- -------------------------------------- --------------------------------------
Underperformance of solar power The underperformance of solar assets The Company and Investment Manager
plants relative to acquisition may lead to reductions in energy conduct sensitivity analyses on power
assumptions generated and thereby generation when evaluating
a reduction in revenue that the asset the acquisition target. The Company
would be expected to produce. also uses third party engineers to
review the assets and
provide independent reports on
performance before acquisition, to
ensure that reasonable generation
assumptions are utilised.
-------------------------------------- -------------------------------------- --------------------------------------
Pandemics including COVID-19 Global health concerns often The Investment Manager has received
translate to elevated uncertainties confirmations from the vendors that
in investment markets and there is currently
have detrimental effects on the no delay expected for the remaining
global economy. The COVID-19 outbreak materials to be delivered and
may impact the Company's continues to work with EPC
supply chain and also ability to contractors to assess and consider
raise additional funds. alternative mitigation strategies.
The Investment Manager
has developed contingency plans to
maximise shareholder value in place
of raising additional
funds. The Investment Manager is
actively monitoring the COVID-19
situation and has a business
continuity plan available to
implement if and when required.
-------------------------------------- -------------------------------------- --------------------------------------
LONGER TERM VIABILITY
The Board is responsible for financial reporting and controls,
including the approval of the Annual Report and Accounts, the
dividend policy, any significant changes in accounting policies or
practices, and treasury policies including the use of derivative
financial instruments. The Board of the Company is also required to
assess the long-term prospects of the Company according to the
Association of Investment Companies ( AIC ) Code. The Board has
assessed the prospects of the group over a 5 year period. The Board
considers a 5 year timeframe to be reasonable on the basis that the
Company is in the initial stage of acquiring assets. The key risks
facing the Company including, but not limited to, the risks
mentioned on pages 27 to 29 have been individually assessed by the
Board. The likelihood and impact of each risk on the Company prior
to and after specific risk mitigation controls have taken place
have been evaluated.
After assessing these risks, and reviewing the Company's
liquidity position, together with forecasts of the Company's future
performance under various scenarios, the Board has a reasonable
expectation that the Company is well positioned to continue to
operate and meet its liabilities over the short term and the 5 year
outlook period. While the Board has no reason to believe that the
Company will not be viable over the specified outlook period, they
are aware that it is difficult to foresee the viability of any
business over a longer period given the inherent uncertainty
involved.
It is important to note that the risks associated with
investments within the infrastructure sector could result in a
material adverse effect on the Company's performance and value of
Ordinary Shares. When required, experts will be employed to gather
information, including tax advisers, legal advisers, and
environmental advisers.
STRATEGIC REPORT AND SECTION 172 OBLIGATIONS
The strategic report is set out on pages 5 to 29 of this
document and has been prepared to provide information in relation
to how the directors have performed their duty to promote the
success of the company.
Meaningful engagement with all our stakeholder groups supports
our obligations under Section 172 of the Companies Act 2006. On
pages 23 to 25 and pages 42 to 45 we set out how the Board, and the
Group more widely, has had regard to stakeholder interests when
discharging its duty to promote the success of the Company and how
we seek to maintain our high standards of business conduct.
The strategic report was approved by the Board of directors on
17 March 2020.
Gill Nott
Chair
Date: 17 March 2020
6. Board of Directors
The Directors are responsible for the determination of the
Company's investment objective and policy and its investment
strategy and have overall responsibility for the Company's
activities, including the review of investment activity and
performance and the supervision and control of the Investment
Manager. The Directors have delegated responsibility for managing
the assets comprising the Portfolio to the Investment Manager.
Further information on the Board is provided at
www.ussolarfund.co.uk.
Gillian Nott
Non-Executive Chair
Mrs Nott spent the majority of her career working in the energy
sector, including positions with BP. In 1994 she became CEO of
ProShare, a not for profit organisation promoting financial
education, savings and investment, and employee share ownership.
She was a non-executive director of the Financial Services
Authority from 1998 until 2004. Subsequently she has held numerous
board roles, including being a non-executive director of Liverpool
Victoria Friendly Society, a leading insurer, and deputy chair of
the Association of Investment Companies. Mrs Nott has served as
both a non-executive director and chair of a number of venture
capital trusts and investment trusts. She is currently chair of
JPMorgan Russian Securities plc, Premier Global Infrastructure
Trust plc and Gresham House Renewable Energy Venture Capital Trust
1 plc.
Jamie Richards
Non-Executive Director
Mr Richards is a chartered accountant and has 25 years'
experience in fund management, banking and corporate recovery with
a focus on the infrastructure and solar sector. Mr Richards
previously was a partner, executive committee member and head of
infrastructure at Foresight Group having joined in 2000. Between
2007 and 2018 he had overall responsibility from inception for the
group's infrastructure and solar business in the UK, Australia,
Italy and the US. He oversaw, as a member of the investment
committee, more than 100 solar projects representing the group's
approximately GBP1.5 billion solar portfolio and led the IPO of
Foresight Solar Fund Limited. Prior to 2007, he led a number of
venture capital and private equity transactions in the technology
and cleantech sectors representing Foresight Group's funds and was
a non-executive director of several companies. Previously, Mr
Richards worked at PwC, Citibank and Macquarie, both in London and
Sydney. Mr Richards also currently acts as alternative chair of the
investment committee of Community Owned Renewable Energy LLP, an
investment programme targeting UK solar farms for community
ownership.
Rachael Nutter
Non-Executive Director
Ms Nutter has spent over 20 years in the energy sector and the
last 12 years in the renewable and clean energy sector. Ms Nutter
is currently general manager of business development for Shell
International in the nature-based solutions business. Prior to
this, she led a global solar business development team in Shell
that originated and delivered investments in solar projects and
development platforms, having previously led the development of the
solar entry strategy for Shell. Ms Nutter also had a role within
Shell Ventures and led the portfolio management of technology
demonstration projects and assessment of clean energy commercial
opportunities such as biogas for Shell. Prior to re-joining Shell
in 2012, she worked at CT Investment Partners, Carbon Trust and PA
Consulting Group, having started her career as a petroleum engineer
with Shell. Ms Nutter is a board member of the Energy Technologies
Institute, a UK public-private partnership to accelerate the
commercialisation of low carbon technologies.
Josephine Tan
Non-Executive Director
Ms Tan is an experienced corporate finance adviser to junior
mining companies and mining focused private equity funds. She is a
founding member and chief financial officer of Sandown Bay Resource
Capital, a London-based mining private equity firm focused on
investments in the junior mining sector. Prior to this, Ms Tan was
a senior investment banker at UBS AG in London and Melbourne.
During her 10 years at UBS, she worked across various teams and
industry sectors, including as part of the European Energy Group,
the Global Industrials Group and the Australian Natural Resources
Group. She commenced her career at the Boston Consulting Group in
Melbourne. Ms Tan was a non-executive director of the Australian
Governance Masters Index Fund from 2015 to 2018 and she currently
sits on the advisory board of the Australian Governance and Ethical
Index Fund, both managed by a subsidiary of Walsh and Company
Investments Limited, the parent Company of the Investment Manager.
Ms Tan is not considered independent from the Investment
Manager.
7. Directors' Report
The Directors present their report together with the audited
financial statements for the period from 10 January 2019
(incorporation date) to 31 December 2019 in accordance with section
839 (4) of the Companies Act 2006. This is the first set of Annual
Financial Statements prepared by US Solar Fund Plc and therefore no
comparatives are provided.
PRINCIPAL ACTIVITY AND STATUS
US Solar Fund Plc was incorporated as a Public Company, limited
by shares, in England and Wales on 10 January 2019 with registered
number 11761009. The registered office of the Company is The
Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF. Its share
capital is denominated in US Dollars (USD or $) and currently
consists of ordinary shares. The Company's principal activity is to
invest in a diversified portfolio of Solar Power Assets located in
North America and other countries forming part of the Organisation
for Economic Co-operation and Development (OECD) in the
Americas.
DIRECTORS
All Directors are non-executive directors.
The Company maintains GBP20 million of Directors' and Officers'
Liability Insurance cover for the benefit of the Directors, which
was in place throughout the period and which continues in effect at
the date of this report.
Details of the fees paid to Directors in the period are set out
below:
Received in period
Annual fee ended 31 December 2019
Director (GBP) (GBP)
----------------- ---------- ------------------------
Gillian Nott* 60,000 52,308
----------------- ---------- ------------------------
Jamie Richards** 50,000 43,590
----------------- ---------- ------------------------
Rachael Nutter 40,000 34,872
----------------- ---------- ------------------------
Josephine Tan 40,000 34,872
----------------- ---------- ------------------------
*This includes GBP20,000 per annum in respect of serving as
Chair of the Board.
**This includes GBP10,000 per annum in respect of serving as
Chair of the Audit committee.
In accordance with FCA Listing Rules 9.8.6(R)(1), Directors'
interest in the shares of the Company (in respect of which
transactions are notifiable to the Company under FCA Disclosure and
Transparency Rule 3.1.2(R)) as at 31 December 2019 are shown
below:
Number of
Director ordinary shares Percentage of issued share capital
--------------- ---------------- ----------------------------------
Gillian Nott 66,000 0.03%
--------------- ---------------- ----------------------------------
Jamie Richards 65,495 0.03%
--------------- ---------------- ----------------------------------
Rachael Nutter 26,196 0.01%
--------------- ---------------- ----------------------------------
Josephine Tan 26,196 0.01%
--------------- ---------------- ----------------------------------
Further details on the remuneration of the directors can be
found on the remuneration report on pages 53 to 56.
STRATEGIC REPORT AND OTHER DISCLOSURES
The Strategic report on pages 5 to 29 contains disclosures in
relation to a review of business performance, future developments,
capital structure, engagement with suppliers and customers and
environmental reporting. These disclosures form part of this report
by cross-reference.
Information about the use of financial instruments by the
company and its subsidiaries is given in note 15 to the financial
statements.
SIGNIFICANT SHAREHOLDINGS
As at 31 December 2019, the Company is aware of or has received
notification in accordance with the Financial Conduct Authority's
Disclosure and Transparency Rule 5 of the following interests in 3%
or more of USF's shares to which voting rights are attached:
Shareholder Number of Ordinary Shares Percentage of Issued Share Capital
------------------------------------------------------- ------------------------- ----------------------------------
CCLA Investment Management Limited 22,000,000 11.00%
------------------------------------------------------- ------------------------- ----------------------------------
Sarasin & Partners LLP 20,250,000 10.13%
------------------------------------------------------- ------------------------- ----------------------------------
Baillie Gifford & Co 19,650,000 9.83%
------------------------------------------------------- ------------------------- ----------------------------------
Evans Dixon Limited 15,000,000 7.50%
------------------------------------------------------- ------------------------- ----------------------------------
The Trust Company (Australia) Limited as custodian for
New Energy Solar Fund 15,000,000 7.50%
------------------------------------------------------- ------------------------- ----------------------------------
The Bank of New York Mellon Corporation 14,800,817 7.40%
------------------------------------------------------- ------------------------- ----------------------------------
FIL Limited 13,550,000 6.77%
------------------------------------------------------- ------------------------- ----------------------------------
Aggregate of Standard Life Aberdeen plc affiliated
investment management entities with delegated
voting rights on behalf of multiple managed portfolios 10,350,000 5.17%
------------------------------------------------------- ------------------------- ----------------------------------
Future Developments
The Company's future outlook is discussed in the Investment
Manager's Report on pages 7 to 21.
DividendS
The Company will be paying a dividend of 0.50 cents per share
for the fourth quarter of 2019. The dividend is expected to be paid
in May 2020. When added to the dividend of 0.41 cents paid in
November 2019, and 0.50 cents paid in February 2020 this represents
an annualised dividend yield of 2% when measured against the
initial issue price of $1 per share.
GOING CONCERN
The Board has reviewed a set of financial projections of the
cash flow and distribution profile of the Company prepared by the
Investment Manager. The Board has assessed the prospects of the
group over a 5 year period given the long-term nature of the
underlying assets. After assessing these risks, and reviewing the
Company's liquidity position, together with forecasts of the
Company's future performance under various scenarios, the Board has
a reasonable expectation that the Company is well positioned to
continue to operate and meet its liabilities over the short term
and the 5 year outlook period. As such the Board concluded that it
is appropriate to adopt the going concern basis of preparation in
preparing these financial statements.
POLITICAL CONTRIBUTIONS
The Company made no political contributions during the
period.
POST BALANCE SHEET EVENTS
The Company's events after the period ended is discussed in the
Investment Manager's Report on pages 7 to 21.
DISCLOSURE OF INFORMATION TO AUDITORS
All of the Directors have taken all the steps that they ought to
have taken to make themselves aware of any information needed by
the auditors for the purposes of their audit and to establish that
the auditors are aware of that information. The Directors are not
aware of any relevant audit information of which the auditors are
unaware.
Signed by order of the Board,
Gill Nott
Chair
Date: 17 March 2020
8. Directors' Responsibility
Statement
The Directors are responsible for preparing the annual report
and financial statements in accordance with applicable law and
regulations.
As a Company listed on the London Stock Exchange, US Solar Fund
Plc is subject to the FCA's Listing Rules and Disclosure and
Transparency Rules, as well as to all applicable laws and
regulations in England and Wales where it is registered.
The annual report and financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union. Under Company law, the Directors
must not approve the financial statements unless they are satisfied
they give a true and fair view of the state of affairs of the
Company and of the profit or loss for the period. In preparing
these financial statements, the Directors should:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable;
-- specify which generally accepted accounting principles have
been adopted in their preparation; and
-- prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which are sufficient to show and explain the Company's
transactions and are to disclose with reasonable accuracy at any
time the financial position of the Company and enable them to
ensure that the financial statements comply with the requirements
of the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are also responsible for preparing the annual
report and financial statements and the Directors confirm that they
consider that, taken as a whole, the annual report and financial
statements are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's
performance, business model and strategy. In accordance with the
FCA's Disclosure and Transparency Rules, the Directors confirm to
the best of their knowledge that:
a) the financial statements, prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company taken as a whole;
b) the annual report and accounts include a fair view of
important events that have occurred during the financial period;
and
c) the annual report and accounts include the related parties'
transactions that have taken place in the financial period and that
have materially affected the financial position or the performance
of the enterprise during that period.
The Directors have acknowledged their responsibilities in
relation to the financial statements for the period to 31 December
2019.
Signed by order of the Board,
Gill Nott
Chair
Date: 17 March 2020
9. Corporate Governance Report
The Board of US Solar Fund Plc has considered the Principles and
Provisions of the Association of Investment Companies Code of
Corporate Governance (AIC Code). The AIC Code addresses the
Principles and Provisions set out in the UK Corporate Governance
Code (the UK Code), as well as setting out additional Provisions on
issues that are of specific relevance to the Company.
The Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the
Financial Reporting Council, provides more relevant information to
shareholders.
The Company has complied with the Principles and Provisions of
the AIC Code. The AIC Code is available on the AIC website
(www.theaic.co.uk/aic-code-of-corporate-governance-0). It includes
an explanation of how the AIC Code adapts the Principles and
Provisions set out in the UK Code to make them relevant for
investment companies. The Company is a member of the Association of
Investment Companies.
THE BOARD
The Board consists of four non-executive directors of which the
Chair, Gill Nott, alongside Jamie Richards and Rachael Nutter are
deemed to be independent of the Investment Manager. Josephine Tan
is not considered to be independent from the Investment Manager.
This is due to the fact that Ms Tan currently sits on the advisory
board of the Australian Governance and Ethical Index Company which
is managed by a subsidiary of Walsh and Company Investments
Limited, the parent company of the Investment Manager. Ms Tan's
non-independence is not considered detrimental to the Company as
her role on the board of Australian Governance and Ethical Index
Company is unlikely to cause any conflicts of interest. Any
independence risks are managed by the Chair.
The Company has not appointed a senior independent director.
Biographical details of all Board members (including significant
other commitments of the Chairman) are shown on page 31.
In accordance with the AIC Code, all the Directors will retire
at the forthcoming AGM. Gill Nott, Jamie Richards and Rachael
Nutter, being eligible, will offer themselves for re-election.
Josephine Tan will not be standing for re-election at the AGM.
Full Board meetings take place quarterly and the Board meets or
communicates more regularly to address specific issues. The Board
has a formal schedule of matters specifically reserved for its
decision which includes, but is not limited to: considering
recommendations from the Investment Manager and reviewing,
annually, the terms of engagement of all third party advisers
(including the Investment Manager).
The Board has also established procedures whereby Directors
wishing to do so in the furtherance of their duties may take
independent professional advice at the Company's expense.
All Directors have access to the advice and services of the
Company Secretary. The Company Secretary provides the Board with
full information on the Company's assets and liabilities and other
relevant information requested by the Chair, in advance of each
Board meeting.
BOARD COMMITTEES
The Board has delegated a number of areas of responsibility to
its three committees; the Audit Committee, the Remuneration and
Nomination Committee and the Management Engagement Committee. Each
committee has defined terms of reference and duties.
AUDIT COMMITTEE
The Audit Committee consists of three independent non-executive
directors; Jamie Richards, the Chair, Gill Nott and Rachael Nutter.
The Chair is a chartered accountant and has recent and relevant
financial experience. The Audit Committee normally meets at least
twice yearly to consider, amongst other things, the following:
-- the financial reporting process of the Company including the
accounting standards, estimates and judgements made by the Company,
taking into account the views of the Auditor
-- the internal controls and risk management systems
-- oversight of the external audit process including scope,
independence and objectivity of the external auditors
-- the risks facing the Company including ESG risks
A full list of matters reserved for the Audit Committee can be
found in the Audit Committee Report on pages 49 to 52.
The Audit Committee has performed an assessment of the audit
process and the Auditor's report, details of which can be found in
the Audit Committee Report on pages 49 to 52. The Directors have
decided to recommend the re-appointment of Deloitte LLP as auditor
and a resolution concerning this will be proposed at the Annual
General Meeting.
REMUNERATION AND NOMINATION COMMITTEE
The Remuneration Committee is comprised of the whole Board and
chaired by Rachael Nutter, which is considered appropriate given
the size of the Board and the fact that the Company has no
executive directors or employees.
In accordance with the Committee's terms of reference, no
director is involved in any decisions with respect to their own
remuneration.
The Company has also adopted a Remuneration Policy which will be
put to a shareholder vote at the AGM on 17 May 2020. Full details
on this Policy can be found in the Remuneration Report on pages 53
to 56.
This committee meets as required to consider, amongst other
things, the following:
-- the composition and balance of skills, knowledge and experience of the Board
-- succession planning for the Company
-- the levels of remuneration of the Directors
In reviewing Board composition, the Committee will consider the
benefits of all aspects of diversity including, but not limited to,
differences in knowledge and understanding of relevant diverse
geographies, peoples and their backgrounds including race or ethnic
origin, sexual orientation, gender, age, disability or religion, in
order to maintain an appropriate range and balance of skills,
experience and background on the Board.
The Committee has begun the process of recruiting a new
non-executive director to replace Josephine Tan.
MANAGEMENT ENGAGEMENT COMMITTEE
The Management Engagement Committee is comprised of the entire
Board and is chaired by Rachael Nutter. This Committee meets as
required to consider, amongst other things, the following:
-- the appointment and terms of engagement of the Company's
service providers including the Investment Manager
-- the performance of all service providers
BOARD AND COMMITTEE MEETINGS
The following table sets out the Directors' attendance at the
Board and Committee meetings during the period:
Board Audit Rem & Nom MEC
--------------- ----- ----- --------- ---
Gill Nott 3/3 2/2 1/1 1/1
--------------- ----- ----- --------- ---
Rachael Nutter 3/3 2/2 1/1 1/1
--------------- ----- ----- --------- ---
Jamie Richards 3/3 2/2 1/1 1/1
--------------- ----- ----- --------- ---
Josephine Tan 3/3 N/A 1/1 1/1
--------------- ----- ----- --------- ---
The Board meets formally on a quarterly basis and our attendance
is shown in the table above. Ad hoc meetings are also held; these
are generally called to approve specific announcements or
transactions and frequently involve a quorate sub-committee of the
board, appointed as necessary.
Representatives of JTC (UK) Limited attend all our scheduled
meetings as Secretary to the Board. In addition, representatives of
the Investment Manager, our external auditor and other advisers,
are invited to attend as required.
The Board agenda
At our quarterly meetings, the Board follows a formal agenda.
This agenda generally includes, amongst other things:
-- The Investment Manager's report for the period, including
strategic performance and acquisitions, a review of the performance
of the investments and market conditions
-- Financial results against budget and cash flow forecasts,
including dividends declared and forecast
-- Reports and updates on shareholder and investor communications
-- The corporate governance and secretary's report, with a
review of policies and procedures, a compliance report and an
update on legislative/regulatory obligations as appropriate
-- Recommendations and updates from board committees as appropriate
Key activities of the board during 2019
The primary focus at regular board meetings has been on
delivering the strategy and monitoring performance against our
strategic objectives. This included:
-- Considering capital structure
-- Discussing asset acquisitions and pipelines
-- Reviewing conflicts of interest register and significant shareholdings
-- Reviewing the risk register
BOARD EVALUATION
The Board undertook a formal internal annual evaluation of its
own performance by way of a questionnaire for each Director. The
Chair then discussed the results with the Board and took
appropriate action to address any issues arising from the process.
It was concluded that the Board performed well in the first year
and that members work effectively together to achieve the
objectives and that each Director continues to contribute
effectively. No weaknesses in the Board's capabilities were
identified.
RELATIONS WITH SHAREHOLDERS
The Company communicates with Shareholders and solicits their
views where it considers it is appropriate to do so. Individual
shareholders are welcomed to the Annual General Meeting where they
have the opportunity to ask questions of the Directors. The Board
is also happy to respond to any written queries made by
Shareholders during the course of the period, or to meet with major
Shareholders if so requested.
During the period the Chair has met with Shareholders on several
occasions.
In addition to the formal business of the AGM, representatives
of the Investment Manager and the Board are available to answer any
questions a Shareholder may have. Separate resolutions are proposed
at the AGM on each substantially separate issue. The Registrar
collates proxy votes and the results (together with the proxy
forms) are forwarded to the Company Secretary immediately prior to
the AGM. Proxy votes are announced at the AGM, following each vote
on a show of hands, except in the event of a poll being called. The
notice of the first AGM and proxy form will be circulated with this
Annual Report.
The terms of reference of the Committees and the conditions of
appointment of non-executive directors are available to
Shareholders on request.
Internal control
Although the Board is ultimately responsible for safeguarding
the assets of the Company, the Board has delegated, through written
agreements, the day-to-day operation of the Company (including the
Financial Reporting Process) to the following advisers:
Investment Manager New Energy Solar Manager Pty Limited
Administrator JTC (UK) Limited
The Audit Committee keeps under review the internal financial
controls and internal control and risk management, ensuring that
the procedures to be followed by the advisers and themselves are in
place.
The Board then reviews the effectiveness of the internal
controls system, based on the report from the Audit Committee, on
an annual basis to ensure that the controls remain relevant and
were in operation throughout the year.
The Board has approved a Financial Position and Prospectus
Procedures (FPPP) board memorandum which was prepared by the
Investment Manager. This sets out the procedures operating to
identify the information needed to monitor the business and manage
risk so as to make proper judgements on its financial position and
prospects. In addition, it sets out the procedures to identify,
assess and document the risk factors likely to impact on the
Company's financial position, prospects and any changes and on the
preparation and communication to the Directors of related
information.
As part of its regular risk assessment procedures, the Board
takes account of the significance of environmental, social and
governance matters to the business of the Company. The Board has
identified and assessed the significant ESG risks to the Company's
short and long-term value, as well as the opportunities to enhance
value that may arise from an appropriate response. Further
information on the Company's approach to ESG can be found on pages
22 to 25.
FRAUDULENT ACTIVITY
Post year-end on 30 January 2020, the Investment Manager
received fraudulent payment instructions for genuine invoices
totalling $6.9m for construction work completed by a contractor to
a USF project company. This resulted in payments being made to a
third-party US bank account rather than to the Contractor's US bank
account. In subsequent announcements the Company advised that $6.3m
of the Payments had been recovered and returned to the Project
Company's bank account.
The Company has now fully recovered the $6.9m with no impact to
the Company's Net Asset value. In addition, there has been no
impact to the relevant construction schedules or budgets.
The Board's investigation indicated that the Fraud is an
isolated incident originating from outside the Investment Manager
with no indication of collusion with any member of the Investment
Manager's staff. When making the Payments, the Investment Manager
complied with its relevant processes and procedures. The Investment
Manager's parent, Evans Dixon, is conducting a review of relevant
cyber security arrangements based on its established Cybersecurity
Framework. Separately the Contractor is conducting a review of its
own cybersecurity arrangements supported by an external
cybersecurity consultant.
The Investment Manager, with the full support of the Board and
at its own cost, appointed a global accounting firm to undertake a
review of the Investment Manager's relevant financial processes and
controls. US Solar Fund's Audit Committee Chair met with the global
accounting firm in New York to discuss the engagement prior to it
commencing. The review is now complete and, although it identified
no material deficiencies, the Investment Manager is implementing
the enhancements to its financial controls and processes suggested
by the accounting firm.
ANTI-BRIBERY POLICY
The Company operates an anti-bribery policy to ensure that it
meets its responsibilities arising from the Bribery Act 2010.
Gill Nott
Chair
Date: 17 March 2020
COMPLIANCE WITH THE 2019 Association of Investment Companies
(AIC) CODE
The below table sets out the Company's compliance with the 2019
AIC Code:
Section 5: Board Leadership and Purpose
Principles
==========================================================
Principle/Provision Details of how the Company complies
A. A successful Company is led by an effective board, The Company has a Board of four non-executive directors,
whose role is to promote the long-term three of whom are considered to be
sustainable success of the Company, generating value for independent. The Board has not appointed a Senior
shareholders and contributing to Independent Director.
wider society.
==========================================================
B. The board should establish the Company's purpose, The Board considers the Company's purpose, values and
values and strategy, and satisfy itself strategy, and satisfies itself that
that these and its culture are aligned. All directors these and its culture are aligned on annual basis during
must act with integrity, lead by example its Strategy Day. This is also taken
and promote the desired culture. into consideration when evaluating the performance of the
Investment Manager and its other
Service Providers.
==========================================================
C. The board should ensure that the necessary resources The Board considers the Company's purpose, values and
are in place for the Company to meet strategy, and satisfies itself that
its objectives and measure performance against them. The these and its culture are aligned on annual basis during
board should also establish a framework its Strategy Day. This is also taken
of prudent and effective controls, which enable risk to into consideration when evaluating the performance of the
be assessed and managed. Investment Manager and its other
service providers.
==========================================================
D. In order for the Company to meet its responsibilities Representatives of the Investment Manager have met
to shareholders and stakeholders, regularly with Shareholders during the
the board should ensure effective engagement with, and year and have provided the Board with feedback on
encourage participation from, these shareholder views and concerns. The Board
parties. have also made themselves available to those Shareholders
who wished to meet them.
The AGM, in particular provides the Board with an
important opportunity, to make contact with
Shareholders, who are invited to meet the Board
informally following the formal business of
the meeting.
==========================================================
E. [Intentionally left blank] [Per the AIC Code]
==========================================================
Provisions
1. The board should assess the basis on which the Company Please refer to the Principal Risks and Uncertainties
generates and preserves value over Report on pages 26 to 29.
the long-term. It should describe in the annual report
how opportunities and risks to the
future success of the business have been considered and
addressed, the sustainability of the
Company's business model and how its governance
contributes to the delivery of its strategy.
For an investment Company, the annual report should also
include the Company's investment
objective and investment policy.
==========================================================
2. The board should assess and monitor its own culture, This is undertaken as part of the Board evaluation
including its policies, practices process. The Company's purposes, values
and behaviour to ensure it is aligned with the Company's and strategy and their alignment to its culture are
purpose, values and strategy. discussed annually at the Company's Strategy
Day.
==========================================================
3. In addition to formal general meetings, the chair Representatives of the Investment Manager have met
should seek regular engagement with regularly with Shareholders during the
major shareholders in order to understand their views on year and have provided the Board with feedback on
governance and performance against shareholder views and concerns.
the Company's investment objective and investment policy. The Chair has also spoken with a number of Shareholders.
Committee chairs should seek engagement
with shareholders on significant matters related to their
areas of responsibility. The chair
should ensure that the board as a whole has a clear
understanding of the views of shareholders.
==========================================================
Provisions
4. When 20 per cent or more of votes have been cast There have been no general meetings to date.
against the board recommendation for
a resolution, the Company should explain, when announcing
voting results, what actions it
intends to take to consult shareholders in order to
understand the reasons behind the result.
An update on the views received from shareholders and
actions taken should be published no
later than six months after the shareholder meeting. The
board should then provide a final
summary in the annual report and, if applicable, in the
explanatory notes to resolutions at
the next shareholder meeting, on what impact the feedback
has had on the decisions the board
has taken and any actions or resolutions now proposed.
==========================================================
5. The board should understand the views of the Company's The Board actively considers the views of the Company's
other key stakeholders and describe other key Stakeholders. This is achieved
in the annual report how their interests and the matters through quarterly operational board reporting prepared by
set out in section 172 of the Companies the Investment Manager.
Act 2006 have been considered in board discussions and The Company provides disclosure relevant to the
decision-making. The board should keep requirements of Section 172(1) a)-f) throughout
engagement mechanisms under review so that they remain the Strategic Report. The Company's relationships with
effective. suppliers, customers and contractors
along with items relating to shareholders, Company
reputation and investment decisions are
contained within the Investment Manager's Report. Further
discussion on the Company's operations
impact on the community and the environment, is outlined
in the Environmental, Social and
Governance report.
==========================================================
6. The board should take action to identify and manage The Board regularly reviews its conflicts of interest
conflicts of interest, including those register and significant shareholdings.
resulting from significant shareholdings, and ensure that
the influence of third parties does
not compromise or override independent judgement.
==========================================================
7. Where directors have concerns about the operation of The Board meets formally on a quarterly basis and
the board or the Company that cannot meetings follow a formal agenda. The Chair
be resolved, their concerns should be recorded in the is available for Directors to raise concerns. The Chair
board minutes. On resignation, a non-executive will seek specific opinions utilising
director should provide a written statement to the chair, the non-executives professional and general experience
for circulation to the board, if and capabilities. The Non-Executive
they have any such concerns. Directors provide objective, rigorous and constructive
challenge to the Investment Manager.
==========================================================
Section 6: Division of Responsibilities
==========================================================
Principles
F. The chair leads the board and is responsible for its The Chair promotes an open and constructive environment
overall effectiveness in directing in the boardroom and actively invites
the Company. They should demonstrate objective judgement the Non-Executive Directors' views. Where appropriate,
throughout their tenure and promote the Chair will seek specific opinions
a culture of openness and debate. In addition, the chair utilising the non-executives' professional and general
facilitates constructive board relations experience and capabilities. The Non-Executive
and the effective contribution of all non-executive Directors provide objective, rigorous and constructive
directors, and ensures that directors challenge to the Investment Manager.
receive accurate, timely and clear information.
==========================================================
G. The board should consist of an appropriate combination The Board comprises of four Non-Executive Directors of
of directors (and, in particular, which the Chairman, Gill Nott, alongside
independent non-executive directors) such that no one Jamie Richards and Rachael Nutter are deemed to be
individual or small group of individuals independent of the Investment Manager.
dominates the board's decision making. Josephine Tan is not considered to be independent from
the Investment Manager.
==========================================================
H. Non-executive directors should have sufficient time to The Board as part of its annual evaluation analyses the
meet their board responsibilities. time required to meet their board
They should provide constructive challenge, strategic responsibilities and confirm that they have sufficient
guidance, offer specialist advice and time to meet them.
hold third party service providers to account.
==========================================================
I. The board, supported by the Company Secretary, should The Board supported by the Company Secretary keeps under
ensure that it has the policies, regular review the policies, processes,
processes, information, time and resources it needs in information, time and resources it needs in order to
order to function effectively and efficiently. function effectively and efficiently.
There are regular review meetings between the Chair,
Audit Chair, Investment Manager and Company
Secretary to ensure effective and efficient functioning
of the Board.
==========================================================
Provisions - Director Responsibilities
8. The responsibilities of the chair, senior independent These are set out in the Directors' Report on pages 32 to
director, board and committees should 34. The Annual Report also contains
be clear, set out in writing, agreed by the board and a Committee Report for each Committee. These can be found
made publicly available. The annual on pages 49 to 59.
report should set out the number of meetings of the board
and its committees, and the individual
attendance by directors.
==========================================================
9. When making new appointments, the board should take There have been no additional board appointments during
into account other demands on directors' the period.
time. Prior to appointment, significant commitments On appointment, full details of duties and obligations
should be disclosed with an indication are provided and are supplemented by
of the time involved. Additional external appointments further details as requirements change.
should not be undertaken without prior
approval of the board, with the reasons for permitting
significant appointments explained
in the annual report.
==========================================================
Provisions - Board and Director Independence
10. At least half the board, excluding the chair, should All the Directors are independent except for Josephine
be non-executive directors whom Tan who is not considered to be independent
the board considers to be independent. The majority of from the Investment Manager for the reasons set out on
the board should be independent of page 38.
the manager. There should be a clear division of
responsibilities between the board and the
manager.
==========================================================
11. The chair should be independent on appointment when The Chair, Gill Nott, was independent on appointment.
assessed against the circumstances
set out in Provision 13.
==========================================================
1 2. On appointment, and throughout the chair's tenure, The Chair, on appointment and throughout her tenure,
the chair should have no relationships continues to have no relationships that
that may create a conflict of interest between the may create a conflict of interest between her interest
chair's interest and those of shareholders, and those of shareholders. The Chair
including: is and has always been independent of the Investment
-- being an employee of the manager or an ex-employee who Manager, in the capacity of employee,
has left the employment of the professional adviser or serving on other boards managed
manager within the last five years; by the same manager.
-- being a professional adviser who has provided services
to the manager or the board within
the last three years; or
-- serving on any other boards of an investment Company
managed by the same manager.
==========================================================
13. The board should identify in the annual report each The Board comprises of four Non-Executive Directors of
non-executive director it considers which the Chair, Gill Nott, alongside
to be independent. Circumstances which are likely to Jamie Richards and Rachael Nutter are deemed to be
impair, or could appear to impair, a independent of the Investment Manager.
non-executive director's independence include, but are Josephine Tan is not considered to be independent from
not limited to, whether a director: the Investment Manager as she currently
-- has, or has had within the last three years, a sits on the advisory board of the Australian Governance
material business relationship with the and Ethical Index Company, managed
Company or the manager, either directly or as a partner, by a subsidiary of Walsh and Company Investments Limited,
shareholder, director or senior employee the parent Company of the Investment
of a body that has such a relationship with the Company Manager.
or the manager;
-- has received or receives additional remuneration from
the Company apart from a directors'
fee;
-- has close family ties with any of the Company's
advisers, directors or the manager;
-- holds cross-directorships or has significant links
with other directors through involvement
in other companies or bodies. Directors who sit on the
boards of more than one Company managed
by the same manager are entitled to serve as directors;
however, they will not be regarded
as independent for the purposes of fulfilling the
requirement that there must be an independent
majority;
-- represents a significant shareholder; or
-- has served on the board for more than nine years from
the date of their first appointment.
Where any of these or other relevant circumstances apply,
and the board nonetheless considers
that the non-executive director is independent, a clear
explanation should be provided.
==========================================================
14. The board should appoint one of the independent Due to the size of the Board a senior independent
non-executive directors to be the senior director has not been appointed.
independent director to provide a sounding board for the The Chair and Investment Manager maintain appropriate
chair and serve as an intermediary communication with Shareholders. If
for the other directors and shareholders. Led by the required, the other non-executive Directors are available
senior independent director, the non-executive to Shareholders.
directors should meet without the chair present at least As the Board is small, any issues are discussed and dealt
annually to appraise the chair's with by the Board as a whole.
performance, and on other occasions as necessary. In the circumstance that there would be any issues with
the Chair, these would be dealt with
by the remaining non-executive directors.
==========================================================
Provisions - Board Meetings
15. The primary focus at regular board meetings should be The Board Agenda and key activities are described on
a review of investment performance pages 39 to 40 of this Report.
and associated matters such as gearing, asset allocation,
attribution analysis, marketing/investor
relations, peer group information and industry issues.
==========================================================
Provisions - Relationship with the Manager
16. The board should explain in the annual report the The Board is responsible to Shareholders for the proper
areas of decision making reserved for management of the Company and meets
the board and those over which the manager has at least quarterly and on an ad hoc basis as required. It
discretion. Disclosure should include: has a clearly articulated set of
-- a discussion of the manager's overall performance, for matters which are specifically reserved to it, thus
example, investment performance, ensuring that it maintains full and effective
portfolio risk, operational issues such as compliance control over appropriate strategic, financial,
etc; operational and compliance issues.
-- the manager's remit regarding stewardship, for example A management agreement between the Company and the
voting and shareholder engagement, Investment Manager sets out the matters
and environmental, social and corporate governance issues over which the Investment Manager has authority,
in respect of holdings in the Company's including monitoring and managing the existing
portfolio. investment portfolio and the limits above which Board
The board should also agree policies with the manager approval must be sought. All other matters
covering key operational issues. are reserved for the approval of the Board of Directors.
==========================================================
17. Non-executive directors should review at least The Management Engagement Committee carried out a
annually the contractual relationships performance review of the Investment Manager
with, and scrutinise and hold to account the performance during the period. Details can be found in the Management
of, the manager. Engagement Committee's Report on
Either the whole board or a management engagement pages 57 to 59.
committee consisting solely of directors
independent of the manager (or executives) should perform
this review at least annually with
its decisions and rationale described in the annual
report. If the whole board carries out
this review, it should explain in the annual report why
it has done so rather than a separate
management engagement committee.
The Company chair may be a member of, and may chair, the
management engagement committee,
provided that they are independent of the manager.
==========================================================
Provisions - Relationship with Other Service Providers
==========================================================
18. The board should monitor and evaluate other service As the Company has been operating for less than a year,
providers (such as the Company Secretary, the Management Engagement Committee
custodian, depositary, registrar and broker). carried out a review of its main Service Providers; the
The board should establish procedures by which other Investment Manager and the Company
service providers, should report back Secretary.
and the methods by which these providers are monitored
and evaluated.
==========================================================
19. All directors should have access to the advice of the The Directors have access to the advice and services of
Company Secretary, who is responsible the Company Secretary.
for advising the board on all governance matters. Both
the appointment and removal of the
Company Secretary should be a matter for the whole board.
==========================================================
20. The directors should have access to independent Where necessary in carrying out their duties, the
professional advice at the Company's Directors may seek independent professional
expense where they judge it necessary to discharge their advice and services at the expense of the Company.
responsibilities properly.
==========================================================
Provisions - New Companies
==========================================================
21. Where a new Company has been created by the manager, N/A
sponsor or other third party, the
chair and the board should be selected and bought into
the process of structuring a new launch
at an early stage.
==========================================================
Section 7: Composition, Succession and Evaluation
==========================================================
Principles
==========================================================
J. Appointments to the board should be subject to a No appointments were made during the period. The process
formal, rigorous and transparent procedure, of recruiting a new director to replace
and an effective succession plan should be maintained. Josephine Tan has commenced and will be subject to a
Both appointments and succession plans formal, rigorous and transparent procedure.
should be based on merit and objective criteria and,
within this context, should promote diversity
of gender, social and ethnic backgrounds, cognitive and
personal strengths.
==========================================================
K. The board and its committees should have a combination This is detailed on page 38 of this report.
of skills, experience and knowledge.
Consideration should be given to the length of service of
the board as a whole and membership
regularly refreshed.
==========================================================
L. Annual evaluation of the board should consider its Details of the Annual Evaluation can be found on page 40
composition, diversity and how effectively of this report.
members work together to achieve objectives. Individual
evaluation should demonstrate whether
each director continues to contribute effectively.
==========================================================
Provisions
==========================================================
22. The board should establish a nomination committee to A Remuneration and Nomination Committee was formed on 16
lead the process for appointments, May 2019. Due to the size of the
ensure plans are in place for orderly succession to the Board and the nature of the Company's business, the
board and oversee the development entire Board fulfils the role of the Remuneration
of a diverse pipeline for succession. A majority of and Nomination Committee, with Rachael Nutter as Chair.
members of the committee should be independent
non-executive directors. If the board has decided that
the entire board should fulfil the
role of the nomination committee, it will need to explain
why it has done so in the annual
report. The chair of the board should not chair the
committee when it is dealing with the
appointment of their successor.
==========================================================
23. All directors should be subject to annual In accordance with the AIC Code the Directors are subject
re-election. The board should set out in the to re-election at each AGM.
papers accompanying the resolutions to elect each
director the specific reasons why their
contribution is, and continues to be, important to the
Company's long-term sustainable success.
==========================================================
24. Each board should determine and disclose a policy on The Company's practice is to assume directors serve for a
the tenure of the chair. A clear minimum three year term, subject
rationale for the expected tenure should be provided, and to annual re-election by the shareholders.
the policy should explain how this
is consistent with the need for regular refreshment and
diversity.
==========================================================
25. Open advertising and/or an external search There were no appointments made during the period.
consultancy should generally be used for the
appointment of the chair and non-executive directors. If
an external search consultancy is
engaged it should be identified in the annual report
alongside a statement about any other
connection it has with the Company or individual
directors.
==========================================================
26. There should be a formal and rigorous annual The Remuneration and Nomination Committee reviewed the
evaluation of the performance of the board, results of the annual board and committees
its committees, the chair and individual directors. The evaluation of the directors undertaken in 2019. It was
chair should consider having a regular concluded that the board members work
externally facilitated board evaluation. In FTSE 350 effectively together to achieve the objectives and that
companies this should happen at least each director continues to contribute
every three years. The external evaluator should be effectively.
identified in the annual report and a
statement made about any other connection it has with the
Company or individual directors.
==========================================================
27. The chair should act on the results of the evaluation The results of the evaluation were good, no weaknesses in
by recognising the strengths and the Board capabilities were identified.
addressing any weaknesses of the board. Each director
should engage with the process and take
appropriate action when development needs have been
identified.
==========================================================
28. The annual report should describe the work of the This is detailed on page 39 of this report.
nomination committee, (including where
the whole board is acting as the nomination committee)
including:
-- the process used in relation to appointments, its
approach to succession planning and
how both support developing a diverse pipeline;
-- how the board evaluation has been conducted, the
nature and extent of an external evaluator's
contact with the board and individual directors, the
outcomes and actions taken, and how it
has or will influence board composition; and
-- the policy on diversity and inclusion, its objectives
and linkage to Company strategy,
how it has been implemented and progress on achieving the
objectives.
==========================================================
Section 8: Audit, Risk and Internal Control
==========================================================
Principles
==========================================================
M. The board should establish formal and transparent Please refer to the Audit Committee Report on pages 49 to
policies and procedures to ensure the 52.
independence and effectiveness of external audit
functions and satisfy itself on the integrity
of financial and narrative statements.
==========================================================
N. The board should present a fair, balanced and This is detailed on pages 32 to 34 of this report.
understandable assessment of the Company's
position and prospects.
==========================================================
O. The board should establish procedures to manage risk, This is detailed on pages 26 to 29 and pages 32 to 34.
oversee the internal control framework,
and determine the nature and extent of the principal
risks the Company is willing to take
in order to achieve its long-term strategic objectives.
==========================================================
Provisions
==========================================================
29. The board should establish an audit committee of The Company has an Audit Committee which comprises three
independent non-executive directors, independent Non-Executive directors
with a minimum membership of three, or in the case of as its members. Jamie Richards is the Chair. Jamie is a
smaller companies two. The chair of chartered accountant and Gill and
the board should not chair the committee but can be a Rachael are considered to have recent and relevant
member if they were independent on appointment. financial experience.
If the chair of the board is a member of the audit
committee, the board should explain in
the annual report why it believes this is appropriate.
The board should satisfy itself that
at least one member has recent and relevant financial
experience. The committee as a whole
shall have competence relevant to the sector in which the
Company operates.
==========================================================
30. The main roles and responsibilities of the audit The main roles and responsibilities of Audit Committee
committee should include: are set out in its Report on pages
-- monitoring the integrity of the financial statements 49 to 52.
of the Company and any formal announcements The primary role of the Committee in relation to
relating to the Company's financial performance, and financial reporting is to review with the
reviewing significant financial reporting Investment Manager, the Administrator and the Auditor the
judgements contained in them; appropriateness of the half-year
-- providing advice (where requested by the board) on report and Annual Report and Financial Statements.
whether the annual report and accounts, During this review, the Board considers the material
taken as a whole, is fair, balanced and understandable, areas in which significant judgements
and provides the information necessary have been applied such as fair value which is reviewed
for shareholders to assess the Company's position and taking into account the timing of acquisition
performance, business model and strategy; and ensuring the cost is accurate.
-- reviewing the Company's internal financial controls The determination of the revenue or capital nature of a
and internal control and risk management transaction is determined by giving
systems, unless expressly addressed by a separate board consideration to the underlying elements of the
risk committee composed of independent transaction.
non-executive directors, or by the board itself;
-- conducting the tender process and making
recommendations to the board, about the appointment,
reappointment and removal of the external auditor, and
approving the remuneration and terms
of engagement of the external auditor;
-- reviewing and monitoring the external auditor's
independence and objectivity;
-- reviewing the effectiveness of the external audit
process, taking into consideration relevant
UK professional and regulatory requirements;
-- developing and implementing policy on the engagement
of the external auditor to supply
non-audit services, ensuring there is prior approval of
non-audit services, considering the
impact this may have on independence, taking into account
the relevant regulations and ethical
guidance in this regard, and reporting to the board on
any improvement or action required;
and
-- reporting to the board on how it has discharged its
responsibilities.
==========================================================
31. The annual report should describe the work of the The work of Audit Committee is detailed in its Report on
audit committee including: pages 49 to 52.
-- the significant issues that the audit committee The Audit Committee is responsible for reviewing the
considered relating to the financial statements, Auditor's effectiveness taking into account
and how these issues were addressed; the Auditor's performance against the audit plan as well
-- an explanation of how it has assessed the independence as their understanding of the Company's
and effectiveness of the external risks and key accounting and audit judgements.
audit process and the approach taken to the appointment
or reappointment of the external auditor,
information on the length of tenure of the current audit
firm, when a tender was last conducted
and advance notice of any retendering plans;
-- in the case of a board not accepting the audit
committee's recommendation on the external
auditor appointment, reappointment or removal, a
statement from the audit committee explaining
its recommendation and the reasons why the board has
taken a different position (this should
also be supplied in any papers recommending appointment
or reappointment); and
-- an explanation of how auditor independence and
objectivity are safeguarded, if the external
auditor provides non-audit services.
==========================================================
32. The directors should explain in the annual report Please refer to the Audit Committee Report on pages 49 to
their responsibility for preparing 52.
the annual report and accounts, and state that they
consider the annual report and accounts,
taken as a whole, is fair, balanced and understandable,
and provides the information necessary
for shareholders to assess the Company's position,
performance, business model and strategy.
==========================================================
33. The board should carry out a robust assessment of the Principal risks are identified and reported on pages 26
Company's emerging and principal to 29.
risks. The board should confirm in the annual report that
it has completed this assessment,
including a description of its principal risks, what
procedures are in place to identify emerging
risks, and an explanation of how these are being managed
or mitigated.
==========================================================
34. The board should monitor the Company's risk This is detailed on pages 26 to 29 of this report.
management and internal control systems and,
at least annually, carry out a review of their
effectiveness and report on that review in
the annual report. The monitoring and review should cover
all material controls, including
financial, operational and compliance controls.
==========================================================
35. In annual and half-yearly financial statements, the This is set out in the going concern and viability
board should state whether it considers statements on pages 34 and 29 respectively.
it appropriate to adopt the going concern basis of
accounting in preparing them, and identify
any material uncertainties to the Company's ability to
continue to do so over a period of
at least twelve months from the date of approval of the
financial statements.
==========================================================
36. Taking account of the Company's current position and Please refer to the assessment of the viability statement
principal risks, the board should on page 29.
explain in the annual report how it has assessed the
prospects of the Company, over what period
it has done so and why it considers that period to be
appropriate. The board should state
whether it has a reasonable expectation that the Company
will be able to continue in operation
and meet its liabilities as they fall due over the period
of their assessment, drawing attention
to any qualifications or assumptions as necessary.
==========================================================
Section 9: Remuneration
==========================================================
Principles
==========================================================
P. Remuneration policies and practices should be designed Details of the remuneration policies and practices can be
to support strategy and promote found in the Remuneration Report
long-term sustainable success. on pages 53 to 56.
==========================================================
Q. A formal and transparent procedure for developing The Remuneration and Nomination Committee has adopted
policy on remuneration should be established. defined terms of reference and duties
No director should be involved in deciding their own which include ensuring that a formal and transparent
remuneration outcome. procedure for developing policy on remuneration
is established and that no director is involved in
deciding their own remuneration outcome.
==========================================================
R. Directors should exercise independent judgement and Please refer to the Remuneration Committee Report on
discretion when authorising remuneration pages 53 to 56.
outcomes, taking account of Company and individual
performance, and wider circumstances.
==========================================================
Provisions
==========================================================
37. The board should establish a remuneration committee The entire Board fulfils the role of the Remuneration and
of independent non-executive directors Nomination Committee, with Rachael
with a minimum membership of three, or in the case of Nutter as Chair. Rachael Nutter was independent on
smaller companies, two. In addition, appointment.
the chair of the board can only be a member if they were This is considered appropriate by the Directors due to
independent on appointment and cannot the size of the Board.
chair the committee. Before appointment as chair of the
remuneration committee, the board
should satisfy itself that the appointee has relevant
experience and understanding of the
Company. If the board has decided that the entire board
should fulfil the role of the remuneration
committee, it will need to explain why it has done so in
the annual report.
==========================================================
38. The remuneration committee should have delegated The Remuneration policy is set out on page 54 of the
responsibility for determining the policy Remuneration Committee's Report.
and setting the remuneration for the chair.
==========================================================
39. The remuneration of non-executive directors should be The Directors only receive fees and reasonable expenses
determined in accordance with the for services as non-executive directors
Articles of Association or, alternatively, by the board. - no taxable benefits or bonuses are paid.
Levels of remuneration for the chair
and all non-executive directors should reflect the time
commitment and responsibilities of
the role. Remuneration for all non-executive directors
should not include share options or
other performance-related elements. Provision should be
made for additional directors' fees
where directors are involved in duties beyond those
normally expected as part of the director's
appointment. In such instances the board should provide
details of the events, duties and
responsibilities that gave rise to any additional
directors' fees in the annual report.
==========================================================
40. Where a remuneration consultant is appointed, this No remuneration consultant was appointed during the
should be the responsibility of the period.
remuneration committee. The consultant should be
identified in the annual report alongside
a statement about any other connection it has with the
Company or individual directors. Independent
judgement should be exercised when evaluating the advice
of external third parties.
==========================================================
41. The main role and responsibilities of the The main role and responsibilities of the Remuneration
remuneration committee should include: and Nomination committee are set out
-- in conjunction with the chair, setting the directors' on page 39.
remuneration levels; and In addition, the terms of reference of the Committee are
-- considering the need to appoint external remuneration available on the Company's website.
consultants.
==========================================================
42. There should be a description of the work of the The work of the Remuneration and Nomination committee is
remuneration committee in the annual set out on page 39.
report.
==========================================================
10. Audit Committee's Report
The Audit Committee (the Committee) is chaired by Jamie Richards
and comprises all of the Independent Directors set out on page 38.
The Committee operates within clearly defined terms of reference
and includes all matters indicated by Rule 7.1 of the UK FCA's DTRs
and the AIC Code. The terms of reference were reviewed during the
year under review and were updated to enhance the Committee's scope
to consider key risks facing the Company. The Board is satisfied
that the Committee is properly constituted with one member of the
Committee who is a chartered accountant with recent and relevant
financial experience.
The Committee meets a minimum of twice a year, and at such other
times as the Committee shall require. Any Director who is not a
member of the Committee, the Administrator and representatives of
the Investment Manager may be invited to attend meetings as and
when deemed appropriate.
Role and Responsibilities of the Audit Committee
The function of the Committee is to ensure that the Company
maintains the highest standards of integrity, financial reporting,
internal and risk management systems and corporate governance. The
main duties of the Audit Committee are:
-- monitoring the integrity of the financial statements of the
Company and any formal announcements relating to the Company's
financial performance and reviewing significant financial reporting
judgements contained in them;
-- reporting to the Board on the appropriateness of the Board's
accounting policies and practices including critical judgement
areas;
-- reviewing the valuation of the Company's investments prepared
by the Investment Manager, and making a recommendation to the Board
on the valuation of the Company's investments;
-- meeting regularly with the Auditor to review their proposed
audit plan and the subsequent audit report and assess the
effectiveness of the audit process and the levels of fees paid in
respect of both audit and nonaudit work;
-- making recommendations to the Board in relation to the
appointment, re-appointment or removal of the Auditor and approving
their remuneration and the terms of their engagement;
-- monitoring and reviewing annually the Auditor's independence,
objectivity, expertise, resources, qualification and non-audit
work;
-- reviewing the effectiveness of the accounting and internal
control systems of the Company and considering annually whether
there is a need for the Company to have its own internal audit
function;
-- reviewing and considering the UK Code, the AIC Code, the FRC
Guidance on Audit Committees and the Company's institutional
investors' commitment to the UK Stewardship code; and
-- reviewing the risks facing the Company and monitoring the risk matrix.
The Audit Committee is required to report formally to the Board
on its findings after each meeting on all matters within its duties
and responsibilities.
Financial Reporting
The primary role of the Committee in relation to financial
reporting is to review with the Investment Manager, the
Administrator and the Auditor the appropriateness of the half-year
report and Annual Report and financial statements, concentrating
on, amongst other matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- amendments to legislation and corporate governance reporting
requirements and accounting treatment of new transactions in the
year;
-- the impact of new and amended accounting standards on the Company's financial statements;
-- whether the Audit Committee believes that proper and
appropriate processes and procedures have been followed in the
preparation of the half year report and Annual Report and financial
statements;
-- whether the Annual Report and financial statements, taken as a whole, is fair, balanced, and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy;
-- material areas in which significant judgements and estimates
have been applied or there has been discussion with the Auditor;
and
-- any correspondence from regulators in relation to the Company's financial reporting.
Meetings
During the year covered by this report, the Committee met
formally on two occasions. The Committee considered and discussed
the following matters:
-- Consideration and agreement of the terms of reference of the
Audit Committee for approval by the Board;
-- Review of the Company's risk matrix;
-- Review of the internal controls of the Investment Manager and Administrator;
-- Review and approval of the audit plan of the Auditor and
timetable for the interim and annual financial statements; and
-- Detailed review of the interim financial statements.
Internal Audit
The Committee considers at least once a year whether or not
there is a need for an internal audit function. Currently it does
not consider there to be a need for an internal audit function,
given that there are no employees in the Company and all outsourced
functions are with parties who have their own internal controls and
procedures.
External Audit
Deloitte was appointed at the Company's inception during the
year as the external Auditor.
Effectiveness of the Audit Process
To fulfil its responsibility regarding the independence of the
Auditor, the Committee has considered:
-- discussions with or reports from the Auditor describing its
arrangements to identify, report and manage any conflicts of
interest; and
-- the extent of non-audit services provided by the Auditor and
arrangements for ensuring the independence and objectivity and
robustness and perceptiveness of the Auditor and their handling of
key accounting and audit judgements.
To assess the effectiveness of the Auditor, the Committee has
reviewed and challenged:
-- the Auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit;
-- feedback from other service providers evaluating the performance of the audit team;
-- arrangements for ensuring independence and objectivity; and
-- robustness of the Auditor in handling key accounting and audit judgements.
The Committee is satisfied with Deloitte's effectiveness and
independence as Auditor, having considered the degree of diligence
and professional scepticism demonstrated by them.
Non-Audit Services
Details of fees paid to Deloitte during the year are disclosed
in note 7 to the financial statements. The Committee approved these
fees after a review of the level and nature of work to be
performed, and are satisfied that they are appropriate for the
scope of the work required.
The objectivity of the Auditor is reviewed by the Committee
which also reviews the terms under which the external Auditor may
be appointed to perform non-audit services. The Committee reviews
the scope and results of the audit, its cost effectiveness and the
independence and objectivity of the Auditor, with particular regard
to any non-audit work that the Auditor may undertake. In order to
safeguard Auditor independence and objectivity, the Committee
ensures that any other advisory and/or consulting services provided
by the external Auditor do not conflict with its statutory audit
responsibilities. Advisory and/or consulting services will
generally only cover reviews of interim financial statements, tax
compliance and capital raising work. Any non-audit services
conducted by the Auditor outside of these areas will require the
consent of the Committee before being initiated.
Independence
The Committee is required to consider the independence of the
external Auditor. In fulfilling this requirement, the Committee has
considered a report from Deloitte describing its arrangements to
identify, report and manage any conflict of interest and the extent
of non-audit services provided by them. The Committee has concluded
that it considers Deloitte to be independent of the Company and
that the provision of the non-audit services described above is not
a threat to the objectivity and independence of the conduct of the
audit.
Auditor's Tenure
The Auditor is required to rotate the audit partner every five
years. The current partner is in his first year of tenure. There
are no contractual obligations restricting the choice of external
auditor and the Company will consider putting the audit services
contract out to tender at least every ten years. In line with the
FRC's recommendations on audit tendering, this will be considered
further when the audit partner rotates every five years. Under the
Companies Law, the reappointment of the external Auditor is subject
to shareholder approval at the AGM.
Having carried out the review described above and having
satisfied itself that the Auditor remains independent and
effective, the Audit Committee has recommended to the Board that
Deloitte be reappointed as Auditor for the year ending 31 December
2020.
Annual General Meeting
The Chairman of the Committee will be present at the Company's
AGM to answer questions on the Audit Committee's activity and
matters within the scope of the Audit Committee's
responsibilities.
Jamie Richards
Chairman of the Audit Committee
17 March 2020
11. Directors' Remuneration Report
The Board has prepared this report in line with the AIC Code as
well as the requirements of the Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008 (SI2008/410) and
the Companies Act 2006.
Under the requirements of Section 497 of the Companies Act 2006,
the Company's Auditor is required to audit certain disclosures
contained within the report. These disclosures have been
highlighted and the audit opinion thereon is contained within the
Auditor's Report on pages 60 to 67.
Annual Statement from the Chairman of the Remuneration &
Nomination Committee
The Committee comprises of the full US Solar Fund Plc Board and
consists solely of Non- Executive Directors. Three of the Directors
are independent from the Investment Manager, however, Ms Tan is not
considered independent from the Manager. The Committee considers at
least annually the level of the Board's fees.
Consideration by the Directors of matters relating to directors'
remuneration
The Remuneration and Nomination Committee comprises the entire
Board with Rachael Nutter as Chair. The Committee has
responsibility for reviewing the remuneration of the Directors,
specifically reflecting the time commitment and responsibilities of
the role, and meets at least annually. The Committee also
undertakes external comparisons and reviews to ensure that the
levels of remuneration paid are broadly in line with industry
standards and members have access to independent advice where they
consider it appropriate.
During the year neither the Board nor the Committee has been
provided with external advice or services by any person, but has
received industry comparison information from the Investment
Manager in respect of the Directors' remuneration. The remuneration
policy set by the Board is described below. Individual remuneration
packages are determined by the Remuneration and Nomination
Committee within the framework of this policy.
The Directors are not involved in deciding their own individual
remuneration with each Director abstaining from voting on their own
remuneration.
Remuneration Policy
Below is the Fund's remuneration policy. This policy was adopted
on 19 November 2019 and will be put to a Shareholder vote at the
forthcoming AGM.
Policy
The Company's policy is that the remuneration of Non-Executive
Directors should be determined with due regard to the experience of
the Board as a whole, the time commitment required and to be fair
and comparable to that of other non-executive directors of similar
companies. The Company may also periodically choose to benchmark
directors' fees with an independent review, to ensure they remain
competitive, fair and reasonable.
The fees for the Directors are determined within the limits set
out in the Company's Articles of Association which states that the
Directors' remuneration for their services in the office of
director shall, in the aggregate not exceed GBP500,000 per annum or
such higher figure as the Company, by ordinary resolution,
determines. The Directors may elect to apply the cash amount equal
to their annual fee to subscribe for or to purchase ordinary
shares. Directors' fees will be reviewed at least annually.
The Directors are entitled only to their annual fee and to be
reimbursed for any expenses properly and reasonably incurred by
them respectively in and about the business of the Company or in
the discharge of his or her duties as a director.
Any director who performs services which in the opinion of the
Directors are outside the scope of the ordinary duties of a
director, may be paid such reasonable additional remuneration to be
determined by the Directors or any committee appointed by the
Directors and such additional remuneration shall be in addition to
any remuneration provided for by way of their annual fee and their
reasonable expenses.
No element of the Directors' remuneration is performance
related, nor does any director have any entitlement to pensions,
share options or any long-term incentive plans from the
Company.
The Directors hold their office in accordance with the Articles
and their appointment letters. No director has a service contract
with the Company, nor is any such contract proposed. The Directors'
appointments can be terminated in accordance with the Articles and
without compensation.
Retirement by rotation
In accordance with the Articles of Association, the requirements
of the AIC Code and the Board's policy, all the Directors will
retire annually. Gill Nott, Jamie Richards and Rachael Nutter,
being eligible, will offer themselves for re-election. Biographical
notes on the Directors are given on page 31. The Board believes
that each Director's skills, experience and knowledge continue to
complement each other and add value to the Company and recommends
their re-election to the Board. Josephine Tan will not offer
herself for re-election at the upcoming AGM. No Director has a
contract of service with the Company.
Details of Directors' Remuneration (audited)
The emoluments in respect of qualifying services of each person
who served as a Director during the period are shown below. All of
the Directors are paid a basic annual fee of GBP40,000 quarterly in
arrears for their services. In addition to this fee, Gill Nott is
paid an additional GBP20,000 per annum for her role as Chair of the
Board. Jamie Richards is paid an additional GBP10,000 per annum for
serving as Chair of the Audit committee. No Director has waived or
agreed to waive any emoluments from the Company in the current
year. No other remuneration was paid or payable by the Company
during the current period nor were any expenses claimed by or paid
to them other than for expenses incurred wholly, necessarily and
exclusively in furtherance of their duties as Directors of the
Company.
Current Fees paid from
Annual fee 15 Feb - 31 Dec 19
Director (GBP) (GBP)
----------------- ------------ --------------------
Gillian Nott* 60,000 52,308
----------------- ------------ --------------------
Jamie Richards** 50,000 43,590
----------------- ------------ --------------------
Rachael Nutter 40,000 34,872
----------------- ------------ --------------------
Josephine Tan 40,000 34,872
----------------- ------------ --------------------
Total 190,000 165,642
----------------- ------------ --------------------
*This includes GBP20,000 per annum in respect of serving as
Chair of the Board.
**This includes GBP10,000 per annum in respect of serving as
Chair of the Audit committee.
The Directors who held office during the year and their
interests in the issued shares of 1p each of the Company were as
follows:
Number of
Director ordinary shares
--------------- ----------------
Gillian Nott 66,000
--------------- ----------------
Jamie Richards 65,495
--------------- ----------------
Rachael Nutter 26,196
--------------- ----------------
Josephine Tan 26,196
--------------- ----------------
Total 183,887
--------------- ----------------
All of the Directors' share interests shown above were held
beneficially.
Approval of the Remuneration Report
An ordinary resolution for the approval of this Directors'
Remuneration Report will be put to Shareholders at the forthcoming
Annual General Meeting.
Approval of the Remuneration Policy
In addition, Resolution 3, which is seeking shareholder approval
for the Directors' Remuneration Policy, will, if approved, take
effect from the AGM and will be valid for a period of three years
unless renewed, varied or revoked by the Company at a general
meeting.
Companywide considerations
There are no executive directors, nor are there any employees of
the Company, so there are no statements to make on any
consultations, comparisons or pay and employment conditions within
the Company.
Statement of consideration of shareholder views
No comments were received in meetings held with Shareholders in
2019 in relation to directors' fees. Following publication of the
2019 Annual Report and prior to the AGM, the Company will offer to
meet with Shareholders to discuss the Company's performance and
prospects and give Shareholders the opportunity to ask questions
about the Remuneration Policy and levels of remuneration.
This Directors' Remuneration Report was approved by the Board on
17 March 2020 and is signed on its behalf by Rachael Nutter
(Director and Chair of the Remuneration and Nomination
Committee).
Rachael Nutter
Director
17 March 2020
12. Management Engagement
Committee's Report
The Management Engagement Committee is comprised of the entire
Board and chaired by Rachael Nutter. The Committee's two principal
functions are:
-- to review annually the compliance by the Investment Manager
with the Company's investment policy as established by the Board
and with the investment management agreement entered into between
the Company and the Investment Manager from time to time (the
"Management Agreement"); and
-- to review annually the performance of any other key service providers to the Company.
The Committee is required to report formally to the Board on its
findings after each meeting on all matters within its duties and
responsibilities.
Investment Manager Review
When reviewing the Investment Manager's performance, the
Committee considers:
-- the integrity of the financial statements of the Company and
any formal announcements relating to the Company's financial
performance and reviews significant financial reporting judgements
contained in them;
-- the Investment Manager's compliance with the terms of the Management Agreement;
-- the terms of the Management Agreement to ensure that the
terms thereof comply with all relevant regulatory requirements,
conform with market and industry practice and remain in the best
interests of shareholders;
-- the merit of obtaining an independent appraisal of the Investment Manager's services;
-- the level and method of remuneration of the Investment
Manager pursuant to the terms of the Management Agreement,
including the methodology of calculation of the relevant annual
fee. The review of these fee arrangements shall seek to ensure that
the methodology does not encourage excessive risk and that it
rewards demonstrably superior performance by the Investment Manager
in managing or advising on the portfolio against the stated
investment objective when compared to a suitable benchmark or peer
group;
-- whether the continuing appointment of the Investment Manager
on the agreed terms is in the best interests of the Company and
shareholders and whether any recommendations should be made to the
Board in this respect;
-- the adequacy and security of the Investment Manager's
arrangements for its employees and contractors to raise concerns,
in confidence, about possible wrongdoing in financial reporting or
other matters; and
-- the relationship with the Investment Manager including (but not limited to):
- making recommendations on the Investment Manager's remuneration;
- approving of the terms of engagement of the Investment Manager
and the terms of the Management Agreement;
- assessing annually the Investment Manager's independence and
objectivity taking into account relevant regulatory
requirements;
- assessing annually the qualifications, expertise and resources of the Investment Manager; and
- meeting regularly with the Investment Manager and at least
twice a year, to discuss the Investment Manager's remits, the
performance of the Company's investments and any issues arising
from the management of the Company's investments.
OTHER SERVICE PROVIDERS
The Committee also reviews the performance of the Company's
other service providers and in particular:
-- monitors compliance by providers of other services to the
Company with the terms of their respective agreement from time to
time;
-- reviews and considers the appointment and remuneration of
providers of services to the Company; and
-- considers any points of conflict which may arise between the
providers of services to the Company.
COMMITTEE MEETINGS
The Committee met once in the period under review and all
members were present. During this meeting, the Committee's terms of
reference were adopted. The Committee also carried out a review of
the Investment Manager's performance during which it was noted that
the Investment Manager had complied with the terms of its
engagement and had met its obligations to the Company. The
International Standard on Assurance Engagements (ISAE) Report for
JTC (UK) Limited was tabled at a Board Meeting during the period
and following its review the Board was satisfied with the controls
in place and the performance of the Company Secretary.
A Manager Review Paper was also reviewed at the meeting. This
paper, which focuses on the Investment Manager's performance in
respect of Investment Process and Performance, Business Process and
Business Continuity, Marketing, Legal, Regulatory and Corporate
Governance, and Shareholders Communications will be used by the
Committee as an additional tool to analyse performance going
forwards.
The Board also reviewed a Service Provider Questionnaire which
will be used to assess each Service Provider to the Company's
performance and terms of engagement. The Committee did not consider
it appropriate to carry out a full performance review of all its
service providers at its last meeting as only a few months had
passed since these had been engaged and all letters of engagement
and fees were carefully considered by the Board.
RACHAEL NUTTER
Director
17 March 2020
13. Independent Auditor's report to the members of
US Solar Fund plc
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of US Solar Fund plc
(the 'company'):
-- give a true and fair view of the state of the company's
affairs as at 31 December 2019 and of its profit for the year then
ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
-- have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
-- the statement of profit and loss and other comprehensive income statement;
-- the statement of financial position;
-- the statement of changes in equity;
-- the statement of cash flows; and
-- the related notes 1 to 24.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. The non-audit services
provided to the company for the year are disclosed in note 7 to the
financial statements. We confirm that the non-audit services
prohibited by the FRC's Ethical Standard were not provided to the
company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters The key audit matter that we identified in the current year was:
* Fair value of investments
================= --------------------------------------------------------------------------------------------
Materiality The materiality that we used in the current year was GBP3.9 million which was determined on
the basis of total shareholders equity.
----------------- --------------------------------------------------------------------------------------------
Scoping As the company is required to measure its subsidiaries at fair value rather than consolidate
on a line-by-line basis, the company has been treated as having only one component.
----------------- --------------------------------------------------------------------------------------------
4. Conclusions relating to going concern, principal risks and viability statement
4.1. Going concern Going concern is the basis of preparation of the
We have reviewed the directors' statement in Note 2 to the financial statements that assumes an entity
financial statements about whether will remain in operation for a period of at least 12
they considered it appropriate to adopt the going concern months from the date of approval of the
basis of accounting in preparing financial statements.
them and their identification of any material uncertainties We confirm that we have nothing material to report, add
to the company's ability to continue or draw attention to in respect of
to do so over a period of at least twelve months from the these matters.
date of approval of the financial
statements.
We considered as part of our risk assessment the nature of
the company, its business model
and related risks including where relevant the impact of
Brexit, the requirements of the applicable
financial reporting framework and the system of internal
control. We evaluated the directors'
assessment of the company's ability to continue as a going
concern, including challenging
the underlying data and key assumptions used to make the
assessment, and evaluated the directors'
plans for future actions in relation to their going concern
assessment.
We are required to state whether we have anything material
to add or draw attention to in
relation to that statement required by Listing Rule
9.8.6R(3) and report if the statement
is materially inconsistent with our knowledge obtained in
the audit.
----------------------------------------------------------- ---------------------------------------------------------
4.2. Principal risks and viability statement Viability means the ability of the company to continue
Based solely on reading the directors' statements and over the time horizon considered appropriate
considering whether they were consistent by the directors.
with the knowledge we obtained in the course of the audit, We confirm that we have nothing material to report, add
including the knowledge obtained or draw attention to in respect of
in the evaluation of the directors' assessment of the these matters.
company's ability to continue as a going
concern, we are required to state whether we have anything
material to add or draw attention
to in relation to:
* the disclosures on pages 27 to 29 that describe the
principal risks, procedures to identify emerging
risks, and an explanation of how these are being
managed or mitigated;
* the directors' confirmation on page 27 that they have
carried out a robust assessment of the principal and
emerging risks facing the company, including those
that would threaten its business model, future
performance, solvency or liquidity; or
* the directors' explanation, on page 29, as to how
they have assessed the prospects of the company, over
what period they have done so and why they consider
that period to be appropriate, and their statement as
to whether they have a reasonable expectation that
the company will be able to continue in operation and
meet its liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to report whether the directors'
statement relating to the prospects
of the company required by Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge
obtained in the audit.
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
5.1. Fair value of investments
Key audit matter description The company's investments held at fair value, comprise of
investments in an intermediate holding
company and its associated debt interest.
The company has made three initial investments via this
subsidiary entity during the period
and one further investment subsequent 31 December 2019.
The total value of investments, including
loan receivables, recognised at fair value as at the
reporting date is GBP119 million.
The valuation of investments requires significant
judgements given there is no liquid or quoted
price information available for the investments made.
Given the proximity of the investments made to the
reporting date the company has recognised
investments at cost and therefore assumes that cost is a
reasonable representation for fair
value at the reporting date.
The risk is disclosed as a critical accounting judgement
in note 3 of the financial statements.
A breakdown of the investments and the assumptions applied
to the valuation are described
in note 10 and note 17 of the financial statements.
========================================================== ==========================================================
How the scope of our audit responded to the key audit The timing, nature and extent of our audit procedures were
matter directed to assess the the appropriateness
of management's assumption that purchase price of
investments is a reasonable representation
for fair value at the reporting date. As such we have
considered evidence available to support
the assumptions made by management and the sensitivity of
the valuation to reasonably possible
changes in these assumptions.
We challenged these assumptions and the valuation
recognised through the following procedures:
Obtaining an understanding and evaluated the design and
implementation of the relevant controls
related to the valuation process at 31 December 2019;
Holding meetings with the investment manager to understand
the basis for assuming cost approximates
fair value at the reporting date for the investments made;
Reviewing legal documentation and correspondence related
to the acquisition of investments
to assess whether the company has the rights and
obligations to recognise the investments
at the reporting date;
Reviewing evidence in respect of the acquisition process
to challenge the assumption that
the investments were made through a competitive process
and therefore the consideration payable
reflects a fair market value at the date of acquisition;
Review of methodology applied in determining fair value
and challenge of key assumptions through
the use of benchmarking against third party sources;
using macroeconomic data (including inflation and tax rate
forecasts) and observable market
data to benchmark key assumptions;
reviewing the share purchase agreements for any newly
acquired assets in order to agree the
acquisition cost and the nature and amount of any deferred
consideration that may be embedded
in the valuation;
performing sensitivity analysis over key assumptions to
assess the impact on valuations recognised;
and
reviewing the adequacy of the disclosures made in the
financial statements.
========================================================== ==========================================================
Key observations Based on the audit procedures performed we have concluded
that the valuations recognised are
appropriate.
========================================================== ==========================================================
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality GBP3.9 million
=================================== =================================================================================
Basis for determining materiality 2% of total shareholders equity
=================================== =================================================================================
Rationale for the benchmark applied We consider equity to be the key benchmark used by members of the Company in
assessing financial
performance. Net asset value is a key metric communicated to shareholders and
investors ,
due to the nature of the company as an investment entity, and reflects both the
performance
and position of the Company.
=================================== =================================================================================
A lower materiality threshold of GBP0.2 million based upon 5% of
expenses has also been applied to all administrative expenses and
related balances recognised within the statement of financial
position at the reporting date. The use of a lower materiality
threshold reflects the nature of these transactions being primarily
from related parties.
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was set at 70% of
materiality for the 2019 audit. In determining performance
materiality, we considered the following factors:
a. our understanding of the control environment relevant to the financial reporting process;
b. no significant changes in the business during the year
against the expected business plan and strategy communicated as
part of the IPO process;
c. relative complexity of operations and stage of investment lifecycle in the current period.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP0.19 million, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the entity
and its environment, including internal control, and assessing the
risks of material misstatement. Audit work to respond to the risks
of material misstatement was performed directly by the audit
engagement team.
As the company is required to measure its subsidiaries at fair
value rather than consolidate on a line-by-line basis, the company
has been treated as having only one component and this all of the
work was carried out by one audit team.
8. Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
In this context, matters that we are specifically required to
report to you as uncorrected material misstatements of the other
information include where we conclude that:
-- Fair, balanced and understandable - the statement given by
the directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the company's position and performance, business model and
strategy, is materially inconsistent with our knowledge obtained in
the audit; or
-- Audit committee reporting - the section describing the work
of the audit committee does not appropriately address matters
communicated by us to the audit committee; or
-- Directors' statement of compliance with the UK Corporate
Governance Code - the parts of the directors' statement required
under the Listing Rules relating to the company's compliance with
the UK Corporate Governance Code containing provisions specified
for review by the auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
We have nothing to report in respect of these matters.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Details of the extent to which the audit was considered capable
of detecting irregularities, including fraud and non-compliance
with laws and regulations are set out below.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, and then
design and perform audit procedures responsive to those risks,
including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
the nature of the industry and sector, control environment and
business performance including the design of the company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- results of our enquiries of management and the audit
committee about their own identification and assessment of the
risks of irregularities;
-- any matters we identified having obtained and reviewed the
company's documentation of their policies and procedures relating
to:
- identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
- detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud
including the fraudulent transactions arising after the period end
date as disclosed on page 5;
- the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
involving relevant internal specialists, including tax specialists
regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the assessment of
the fair value of investments and transactions with related
parties. In common with all audits under ISAs (UK), we are also
required to perform specific procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory
framework that the company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the UK Companies Act, Tax legislation, Alternative
Investment Fund Managers (AIFM) Directive, Non-Mainstream Pooled
Investments regulations and the Listing Rules.
11.2. Audit response to risks identified
As a result of performing the above, we identified the
assessment of the fair value of investments as a key audit matter
related to the potential risk of fraud. The key audit matters
section of our report explains the matter in more detail and also
describes the specific procedures we performed in response to that
key audit matter.
In addition to the above, our procedures to respond to risks
identified included the following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management and the audit committee concerning
actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance;
-- in addressing the risk of fraud in the related party
transactions, we have challenged management on the rationale for
all transactions entered into and reviewed the accounting
treatments adopted by management against the specific contractual
terms and arrangements associated with each individual transaction
and reviewed the related disclosures in the financial statements;
and
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the
audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act
2006
In our opinion the part of the directors' remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company
and its environment obtained in the course of the audit, we have
not identified any material misstatements in the strategic report
or the directors' report.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not
visited by us; or
-- the financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
13.2. Directors' remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors' remuneration have
not been made or the part of the directors' remuneration report to
be audited is not in agreement with the accounting records and
returns.
We have nothing to report in respect of these matters.
14. Other matters
14.1. Auditor tenure
Following the recommendation of the audit committee, we were
appointed by the directors on 30 June 2019 to audit the financial
statements for the year ending 31 December 2019 and subsequent
financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 1
year.
14.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance with
ISAs (UK).
15. Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Anthony Matthews FCA
(Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
London
Date: 17 March 2020
14. Statement of Profit and Loss
and Other Comprehensive Income
NOTES 10 January 2019 to 31 December 2019
-------------------------------------------------------------- ----- ---------------------------------------
Revenue Capital Total
-------------------------------------------------------------- ----- ------------- ---------- ------------
USD USD USD
-------------------------------------------------------------- ----- ------------- ---------- ------------
Net gain on investments at fair value through profit and loss 10 - 472,416 472,416
Interest income 6 1,944,795 - 1,944,795
-------------------------------------------------------------- ----- ------------- ---------- ------------
1,944,795 472,416 2,417,211
-------------------------------------------------------------- ----- ------------- ---------- ------------
Expenditure
Administrative and other expenses 7 (2,120,851) - (2,120,851)
-------------------------------------------------------------- ----- ------------- ---------- ------------
Operating profit / (loss) for the period (176,056) 472,416 296,360
Gain / (loss) on foreign exchange 2,765 (153,045) (150,280)
-------------------------------------------------------------- ----- ------------- ---------- ------------
Profit / (loss) before taxation (173,291) 319,371 146,080
Taxation 8 - - -
-------------------------------------------------------------- ----- ------------- ---------- ------------
Profit / (loss) and Total Comprehensive Income for the period (173,291) 319,371 146,080
Earnings per share (basic and diluted) 9 (0.001) 0.002 0.001
-------------------------------------------------------------- ----- ------------- ---------- ------------
All items dealt with in arriving at the result for the period
relate to continuing operations.
The Total column of this statement represent the Company's
profit and loss account, prepared in accordance with International
Financial Reporting Standards (IFRS) and interpretations adopted by
the European Union. The return on ordinary activities after
taxation is the total comprehensive income and therefore no
additional statement of other comprehensive income is presented.
The supplementary revenue and capital columns are presented for
information purposes in accordance with the Statement of
Recommended Practice issued by the Association of Investment
Companies as further explained in note 2.
The notes on pages 73 to 88 form an integral part of these
financial statements.
15. Statement of
Financial Position
31 December
Notes 2019
------------------------------ ----- -----------
USD
------------------------------ ----- -----------
Non-current assets
Investment held at fair value 10 119,472,416
------------------------------ ----- -----------
119,472,416
------------------------------ ----- -----------
Current assets
Trade and other receivables 11 88,744
Cash and cash equivalents 12 76,458,662
------------------------------ ----- -----------
76,547,406
------------------------------ ----- -----------
Total assets 196,019,822
------------------------------ ----- -----------
Current liabilities
Trade and other payables 13 603,641
Dividends payable 14 1,000,461
------------------------------ ----- -----------
Net current assets 74,943,304
------------------------------ ----- -----------
Total net assets 194,415,720
------------------------------ ----- -----------
Shareholders equity
Share capital 18 2,000,923
Share premium 18 89,350
Capital reduction reserve 18 192,179,367
Capital reserve 19 319,371
Retained earnings 19 (173,291)
------------------------------ ----- -----------
Total shareholders equity 194,415,720
------------------------------ ----- -----------
Net asset value per share 20 0.972
------------------------------ ----- -----------
The financial statements of US Solar Fund Plc (registered number
11761009) were approved by the Board of Directors and authorised
for issue on -- March 2020. They were signed on its behalf by:
Gill Nott
Director
Date: 1 March 2020
The notes on pages 73 to 88 form an integral part of these
financial statements.
16. Statement of
Changes in Equity
Capital
Share Share reduction Total
Notes capital premium reserve Capital reserve Retained earnings equity
----------------- ----- --------- ------------- ---------------- ---------------- ----------------- -----------
USD USD USD USD USD USD
----------------- ----- --------- ------------- ---------------- ---------------- ----------------- -----------
Balance at 10
January 2019 - - - - - -
----------------- ----- --------- ------------- ---------------- ---------------- ----------------- -----------
Issue of share
capital 18 2,000,923 198,089,350 - - - 200,090,273
Equity issue
costs 18 - (4,000,000) - - - (4,000,000)
Transfer to
capital
reduction
reserve 18 - (194,000,000) 194,000,000 - - -
Dividends 14 - - (1,820,633) - - (1,820,633)
Profit & total
comprehensive
income for the
period - - - 319,371 (173,291) 146,080
----------------- ----- --------- ------------- ---------------- ---------------- ----------------- -----------
Balance at 31
December 2019 2,000,923 89,350 192,179,367 319,371 (173,291) 194,415,720
----------------- ----- --------- ------------- ---------------- ---------------- ----------------- -----------
The notes on pages 73 to 88 form an integral part of these
financial statements.
17. Statement of
Cash Flows
Notes 10 January 2019 to 31 December 2019
-------------------------------------------------------------- ----- -----------------------------------
USD
-------------------------------------------------------------- ----- -----------------------------------
Cash flows from operating activities
Profit before tax for the period 146,080
Adjustments for:
Net gain on investments at fair value through profit and loss 10 (472,416)
Equity settled management fee 90,273
Losses on foreign exchange 150,280
-------------------------------------------------------------- ----- -----------------------------------
Operating cash flows before movements in working capital (85,783)
-------------------------------------------------------------- ----- -----------------------------------
Increase in trade and other receivables 11 (54,443)
Increase in trade and other payables 13 603,641
Increase in interest receivable (34,301)
-------------------------------------------------------------- ----- -----------------------------------
Net cash generated in operating activities 429,114
-------------------------------------------------------------- ----- -----------------------------------
Cash flows used in investing activities
Purchases of investments 10 (76,000,000)
Loan advanced 10 (43,000,000)
-------------------------------------------------------------- ----- -----------------------------------
Net cash outflow from investing activities (119,000,000)
-------------------------------------------------------------- ----- -----------------------------------
Cash flows used in financing activities
Dividends paid 14 (820,172)
Proceeds from issue of ordinary shares at a premium 18 200,000,000
Share issue costs 18 (4,000,000)
-------------------------------------------------------------- ----- -----------------------------------
Net cash inflow from financing activities 195,179,828
-------------------------------------------------------------- ----- -----------------------------------
Net increase in cash and cash equivalents for the period 76,608,942
Effect of foreign exchange rate movements (150,280)
Cash and cash equivalents at the beginning of the period -
-------------------------------------------------------------- ----- -----------------------------------
Cash and cash equivalents at the end of the period 12 76,458,662
-------------------------------------------------------------- ----- -----------------------------------
The notes on pages 73 to 88 form an integral part of these
financial statements.
18. Notes to the Financial
Statements
For the period from 10 January 2019 (incorporation date) to 31
DECEMBER 2019
1. GENERAL INFORMATION
US Solar Fund Plc was incorporated as a Public Company, limited
by shares, in England and Wales on 10 January 2019 with registered
number 11761009. The registered office of the Company is The
Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF. Its share
capital is denominated in US Dollars and currently consists of
ordinary shares. The Company's principal activity is to invest in a
diversified portfolio of Solar Power Assets located in North
America and other countries forming part of the Organisation for
Economic Co-operation and Development in the Americas.
2. BASIS OF PREPARATION
The financial statements have been prepared in accordance with
International Financial Reporting Standards and interpretations
adopted by the European Union and also considers Statement of
Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts", issued by the Association of
Investment Companies, (the AIC SORP) in October, 2019. The
financial statements have been prepared on a historical cost basis,
except where balances are recognised at fair value. The principal
accounting policies are set out in Note 5.
In terms of the AIC SORP, the Company presents an Income
Statement which shows amounts split between those which are revenue
and capital in nature. The determination of whether an item should
be recognised as revenue or capital (or part revenue and part
capital) is carried out in accordance with the recommendations and
principles as set out in the SORP.
The determination of the revenue or capital nature of a
transaction is determined by giving consideration to the underlying
elements of the transaction. Capital transactions are considered to
be those arising as a result of the appreciation or depreciation in
the value of assets, whether due to the retranslation of assets
held in foreign currency or fair value movements on investments
held at fair value through profit and loss. Revenue transactions
are all transactions, other than those which have been identified
as capital in nature.
FUNCTIONAL AND PRESENTATION CURRENCY
The currency of the primary economic environment in which the
Company operates (the functional currency) is US Dollar which is
also the presentation currency.
GOING CONCERN
The financial position of the Company, its cash flows, liquidity
position and borrowing facilities are described in the financial
statements and related notes. In addition, note 16 to the financial
statements includes the policies and processes for managing its
capital, its financial risk management, details of its financial
instruments and its exposure to credit risk and liquidity risk. The
Company has sufficient financial resources and expectation of
growth in the medium-term to meet its financial obligations. As
such the Directors believe that the Company will continue into the
foreseeable future and have adopted the going concern basis of
preparation in preparing these financial statements.
3. CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amount of
assets, liabilities, income and expenses. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to the
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
During the period the Directors considered the following
significant judgements, estimates and assumptions:
Judgements
ASSESSMENT AS AN INVESTMENT ENTITY
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate them unless they
provided investment related services to the Company. To determine
that the Company continues to meet the definition of an investment
entity, the Company is required to satisfy the following three
criteria:
a) the Company obtains funds from one or more investors for the
purpose of providing those investors with investment management
services;
b) the Company commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
c) the Company measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company meets the criteria as follows:
-- the Company provides investment management services and has
several investors who pool their funds to gain access to
infrastructure related investment opportunities that they might not
have had access to individually;
-- the stated strategy of the Company is to deliver stable
returns to shareholders through investing in a diversified
portfolio of utility-scale solar power plants and associated
infrastructure, which may include transmission and storage (e.g.
batteries) assets which will typically be co--located with the
solar power plant (together, Solar Power Assets) located in North
America and other OECD countries in the Americas; and
-- the Company measures and evaluates the performance of all of
its investments on a fair value basis. The fair value method is
used to represent the Company's performance in its communication to
the market, including investor presentations. In addition, the
Company reports fair value information internally to Directors, who
use fair value as the primary measurement attribute to evaluate
performance.
The Directors are of the opinion that the Company has all the
typical characteristics of an investment entity and continues to
meet the definition in the standard. This conclusion will be
reassessed on an annual basis.
In respect of the second criterion the Company's purpose is to
invest funds for returns from capital appreciation and investment
income. In respect of the requirement that investments should not
be held indefinitely but should have an exit strategy for their
realisation the Company may hold these assets until the end of
their expected useful lives, unless there is an opportunity in the
market to dispose of the investments at a price that is considered
appropriate. There continues to be an active secondary market for
renewables projects in the countries in which we operate.
As at 31 December 2019, the Company only had one subsidiary, USF
Holding Corp. Being an investment entity, it 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 Group's current
assets.
ESTIMATES
valuation of investment in subsidiary
The significant estimate in the Company's financial statements
that carry the most significant risk of a material effect on next
year's financial statements are the fair value of investments. This
estimate is considered to be at risk of actual outcomes in the next
12 months varying from the estimates made in determining the
reported amount of an asset. As at 31 December 2019, the fair value
of the underlying investments has been assessed as equivalent to
their cost. This assessment is considered to be a significant
estimate at year end, as the assumptions used are subject to
measurement uncertainty and possible changes could be significant.
Refer to note 17 for further year-end detail on the fair value
measurement as at 31 December 2019.
4. NEW AND REVISED STANDARDS AND INTERPRETATIONS
application of new and revised stAndards
This following standards are required to be adopted in annual
periods beginning on or after 1 January 2019:
-- IFRIC 23 Uncertainty over Income Tax Treatments
-- Annual Improvements to IFRSs 2015-2017 Cycle (Amendments to
IFRS 3, IFRS 11, IAS 12 and IAS 23)
NEW AND REVISED STANDARDS IN ISSUE BUT NOT YET EFFECTIVE
There are no standards, amendments or interpretations in issue
at the reporting date which have been issued but are not yet
effective and are deemed to be material to the Company.
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies used in the preparation of the financial
statements have been consistently applied during the period ended
31 December 2019.
The principal accounting policies applied in the preparation of
the financial statements are set out below:
segmental information
The Board is of the opinion that the Group is engaged in a
single segment business, being the investment in Solar Power Assets
located in North America and other countries forming part of the
Organisation for Economic Co-operation and Development in the
Americas.
INCOME
Income comprises interest income (bank interest and loan
interest). Interest income is recognised when it is probable that
the economic benefits will flow to the Company and the amount of
revenue can be measured reliably. Loan interest income is accrued
by reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts
estimated future cash receipts through the expected life of the
financial asset to that asset's net carrying amount on initial
recognition.
No income is earned from contracts with customers and as such
IFRS 15 has not been applied.
EXPENSES
Operating expenses are the Company's costs incurred in
connection with the on-going management of the Company's
investments and administrative costs. Operating expenses are
accounted for on an accruals basis.
The Company's management and administration fees, finance costs
and all other expenses are charged through the Statement of Profit
and Loss and Other Comprehensive Income.
Directly attributable acquisition costs of assets are
capitalised on purchase of assets. Costs directly relating to the
issue of Ordinary Shares are charged to share premium.
NET GAIN OR LOSS ON INVESTMENTS AT FAIR VALUE THROUGH PROFIT AND
LOSS
The Company recognises movements in the fair value of
investments in subsidiaries through profit and loss.
TAXATION
The Company is approved as an Investment Trust Company under
sections 1158 and 1159 of the Corporation Taxes Act 2010 and Part 2
Chapter 1 Statutory Instrument 2011/29999 for accounting periods
commencing on or after 25 May 2018. The approval is subject to the
Company continuing to meet the eligibility conditions of the
Corporations Tax Act 2010 and the Statutory Instrument 2011/29999.
The Company intends to ensure that it complies with the Investment
Trust Company regulations on an ongoing basis and regularly
monitors the conditions required to maintain Investment Trust
Company status.
From 1 April 2015 there is a single corporation tax rate of 19%.
Tax is recognised in the Statement of Profit and Loss and Other
Comprehensive Income except to the extent that it relates to the
items recognised as direct movements in equity, in which case it is
similarly recognised as a direct movement in equity. Current tax is
the expected tax payable on any taxable income for the period,
using tax rates enacted or substantively enacted at the end of the
relevant period.
INVESTMENT IN SUBSIDIARIES
Subsidiaries are entities controlled by the Company. Control
exists when the Company is exposed, or has rights, to variable
returns from its involvement with the subsidiary entity and has the
ability to affect those returns through its power over the
subsidiary entity. In accordance with the exception under IFRS 10
Consolidated financial statements, the Company is an investment
entity.
The Company does not have any subsidiaries that provide
investment management services and are not themselves investment
entities. As a result the Company does not consolidate any of its
subsidiaries.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and deposits
held with the bank.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at fair
value and subsequently stated at amortised cost less loss allowance
which is calculated using the provision matrix of the expected
credit loss model, the effect of which is considered
immaterial.
TRADE AND OTHER PAYABLES
Trade and other payables are recognised initially at fair value
and subsequently stated at amortised cost.
EQUITY
Equity instruments issued by the Company are recorded at the
amount of the proceeds received, net of directly attributable issue
costs. Costs not directly attributable to the issue are immediately
expensed in the Statement of Profit and Loss and Other
Comprehensive Income. The Company's capital is represented by the
Ordinary Shares, Share Premium (until cancellation), Accumulated
losses and Capital Reduction Reserve.
FINANCIAL INSTRUMENTS
In accordance with IFRS 9, the Company classifies its financial
assets and financial liabilities at initial recognition into the
categories of amortised cost or fair value through profit or loss.
None of the financial instruments are classified as fair value
through other comprehensive income.
FINANCIAL ASSETS
The Company classifies its financial assets at amortised cost or
fair value through profit or loss on the basis of both:
-- the entity's business model for managing the financial assets
-- the contractual cash flow characteristics of the financial asset
FINANCIAL ASSETS MEASURED AT AMORTISED COST
A debt instrument is measured at amortised cost if it is held
within a business model whose objective is to hold financial assets
in order to collect contractual cash flows and its contractual
terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount
outstanding. The Company includes in this category short-term
non-financing receivables including cash and financial instruments
classified as trade and other receivables.
FINANCIAL ASSET MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS
(FVPL)
A financial asset is measured at fair value through profit or
loss if:
a) its contractual terms do not give rise to cash flows on
specified dates that are solely payments of principal and interest
(SPPI) on the principal amount outstanding; or
b) it is not held within a business model whose objective is
either to collect contractual cash flows, or to both collect
contractual cash flows and sell; or
c) it is classified as held for trading (derivative contracts in an asset position).
The Company's investment in subsidiaries (which comprises both
debt and equity) is held at fair value through profit or loss under
IFRS 9 as the equity portion of the investment does not meet the
SPPI test nor will the Company elect to designate the investments
at fair value through other comprehensive income. The debt
investment forms part of a group of assets that are managed and the
performance evaluated on a fair value basis.
The Company includes in this category equity instruments
including investments in subsidiaries (which comprises both debt
and equity). There are no consolidated subsidiaries.
FINANCIAL LIABILITIES MEASURED AT AMORTISED COST
This category includes all financial liabilities, other than
those measured at fair value through profit or loss, including
short-term payables.
RECOGNITION AND DERECOGNITION
Financial assets are recognised on trade date, the date on which
the Company commits to purchase or sell an asset. A financial asset
is derecognised where the rights to receive cash flows from the
asset have expired, or the Company has transferred its rights to
receive cash flows from the asset. The Company derecognises a
financial liability when the obligation under the liability is
discharged, cancelled or expired.
IMPAIRMENT OF FINANCIAL ASSETS
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9, there has been no impairment
loss identified. Investment held at fair value through profit or
loss is not subject to IFRS 9 impairment requirements.
The company holds trade receivables with no financing component
and which have maturities of less than 12 months at amortised cost
and, as such has chosen to apply an approach similar to the
simplified approach for expected credit losses (ECL) under IFRS 9
to all of its trade receivables.
Interest receivable on cash balances, fall within the scope of
IFRS 9. The Company has completed some high-level analysis and
forward looking qualitative and quantitative information, the
Directors consider the interest receivable to be low credit risk as
the deposits are held with reputable financial institutions.
For interest receivable that are low credit risk, IFRS 9 allows
a 12 month expected credit loss to be recognised. The Directors
have concluded that any ECL on the interest receivable would be
immaterial to the Annual Financial Statements and therefore no
impairment adjustments were accounted for.
FAIR VALUE MEASUREMENT AND HIERARCHY
Fair value is the price that would be received on the sale of an
asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction takes
place either in the principal market for the asset or liability, or
in the absence of a principal market, in the most advantageous
market. It is based on the assumptions that market participants
would use when pricing the asset or liability, assuming they act in
their economic best interest. A fair value measurement of a
non-financial asset takes into account the best and highest value
use for that asset.
The level in the fair value hierarchy within which the fair
value measurement is categorised is determined on the basis of the
lowest level input that is signi cant to the fair value measurement
in its entirety. For this purpose signi cance of the inputs is
assessed against the fair value measurement in its entirety.
Assessing the signi cance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
speci c to the asset or liability. If a fair value measurement uses
observable inputs that require signi cant adjustment based on
unobservable inputs or any other signi cant unobservable inputs,
that measurement is a Level 3 measurement.
The fair value hierarchy to be applied under IFRS 13 is as
follows:
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are carried at fair value and
which will be recorded in the financial information on a recurring
basis, the Company will determine whether transfers have occurred
between levels in the hierarchy by reassessing categorisation at
the end of each reporting period.
6. INTEREST INCOME
31 December 2019
USD
-------------- ----------------
Bank interest 1,944,795
-------------- ----------------
1,944,795
-------------- ----------------
7. ADMINISTRATIVE AND OTHER EXPENSES
31 December 2019
USD
--------------------------------------------------------------------------------------------- ----------------
Administrative fees 97,458
Director & officer insurance 25,660
Directors fees 230,105
Fees payable to the Company's auditor for the audit of the Company's financial statements(1) 52,738
Fees payable to the Company's auditor for non-audit services(2) 19,957
Investment Management expenses 111,544
Investment Management fees 1,393,870
Legal and professional fees 62,863
Regulatory fees 13,684
Sundry expenses 112,972
--------------------------------------------------------------------------------------------- ----------------
2,120,851
--------------------------------------------------------------------------------------------- ----------------
1. During the year, the Company's auditor, Deloitte, was paid
GBP76,500 for their role as reporting accountant prior to the IPO.
This fee was recognised directly in equity as a cost associated
with the initial capital raising of the Company.
2. The non-audit services provided related to the review of the
initial financial statements.
The Company has no employees and therefore no employee related
costs have been incurred.
8. TAXATION
The Company is approved as an Investment Trust Company with
effect as of 16 April 2019 and is subject to tax at the UK
corporation tax rate of 19%. An Investment Trust Company can claim
a corporation tax deduction for dividends designated as interest
distributions that are derived from net interest income. Therefore,
no UK corporation tax charge has been recognised by the Company for
the period ended 31 December 2019.
31 December 2019
USD
--------------------------------- ----------------
a) Tax charge in profit or loss
UK corporation tax -
31 December 2019
USD
-------------------------------------------------------------------- --------- --------- ------- ----------------
Revenue Capital Total
-------------------------------------------------------------------- --------- --------- ------- ----------------
b) Reconciliation of the tax charge for the period
Profit before tax (173,291) 319,371 146,080
Tax at UK main rate of 19% 19% (32,925) 60,680 27,755
Tax effect of:
Fair value gains/(losses) on investments not taxable 204.89% - 299,309 299,309
Foreign exchange loss not deductible 19.91% - 29,079 29,079
Non-deductible expenditure 3.35% 4,888 - 4,888
Tax credit/designated as interest distributions (247.15%) (361,031) - (361,031)
-------------------------------------------------------------------- --------- --------- ------- ----------------
Tax charge for the period - % (389,068) 389,068 -
-------------------------------------------------------------------- --------- --------- ------- ----------------
The tax credit of $361,031 arose as a result of dividends
payable in respect of the period being designated as interest
distributions in accordance with UK tax legislation specific to
Investment Trust Companies.
9. EARNINGS PER SHARE
Earnings per share amounts are calculated by dividing the profit
or loss for the period attributable to ordinary equity holders of
the Company by the weighted average number of ordinary shares in
issue during the period. As there are no dilutive instruments
outstanding, basic and diluted earnings per share are
identical.
31 December 2019
USD
---------------------------------------------------------- ----------------
Net profit attributable to ordinary shareholders 146,080
Weighted average number of ordinary shares for the period 200,065,051
---------------------------------------------------------- ----------------
Earnings per share - Basic and diluted 0.001
---------------------------------------------------------- ----------------
10. INVESTMENT IN SUBSIDIARY
The Company meets the definition of an investment entity.
Therefore, it does not consolidate its subsidiaries but, rather,
recognises them as investments held at fair value through profit or
loss. The Company is not contractually obligated to provide
financial support to the subsidiary and there are no restrictions
in place on passing monies up the structure.
Place of business Percentage ownership
------------------------------- ------------------ --------------------
USF Holding Corp. Delaware, US Delaware 100%
Opening Equity
equity and acquisitions Loans: principal Net fair value Closing balance:
loan during the period advanced movement equity and loans
USD USD USD USD USD
------------------------ ----------- ------------------ ------------------------ -------------- -----------------
USF Holding Corp.
Delaware, US - 76,000,000 43,000,000 472,416 119,472,416
The net fair value movement comprises the following:
Interest Income Operating Costs Total
USD USD USD
------------------------- --------------- --------------- -------
Net fair value movement 777,806 (305,390) 472,416
Within the net results presented above are intercompany interest
charges of $377,253 and intercompany MSA fees of $2,047,726. On 28
June 2019, the Company entered into a Management Services Agreement
(MSA) with its subsidiary USF Holding Corp. The Board of the
Company, with further assistance by delegation of duties to the
Investment Manager, will provide strategic management services to
USF Holding Corp as it pursues investment into US solar plants. The
fair value movement in the period to 31 December 2019 includes an
MSA fee of $2,047,726.
The investment in subsidiaries comprises on a 'look-through'
basis the following:
US Solar fund
31 December 2019
USD
-------------------------------------------------------------------------- -----------------
Purchase price of underlying solar asset interests held (i) 97,857,436
Cash or cash equivalents 41,693,039
3rd party loan funding provided (ii) (22,800,746)
Fair value of interest rate swaps on 3rd party loan funding provided (ii) 2,941,464
Other net assets/liabilities (218,777)
-------------------------------------------------------------------------- -----------------
Investment balance 119,472,416
-------------------------------------------------------------------------- -----------------
(i) The balance recorded at 31 December 2019 relates to the
Company's purchase price of the Olympos Acquisition One,
Acquisition Two, and Acquisition Three, Granite and Preserve
portfolio solar asset plants.
(ii) 3rd party loan funding is comprised of the following:
Facility size Drawn Face Value Drawn Fair Value ([30])
Issuing bank Loan type Held by (USDm) (USDm) (USDm)
------------------- ------------------ ------------------- ------------- ---------------- -----------------------
Zions
Bancorporation, USF Bristol Class B
N.A. Construction Loan Member, LLC 24.3 11.4 9.9
KeyBank National USF Bristol Class B
Association Construction Loan Member, LLC 24.3 11.4 9.9
Zions
Bancorporation, USF Bristol Class B
N.A. ITC Bridge Loan Member, LLC 43.8 - -
KeyBank National USF Bristol Class B
Association ITC Bridge Loan Member, LLC 35.4 - -
On 29 August 2019, USF Bristol Class B Member, LLC and Milford
Solar I Holdings, LLC, each as borrowers, entered into a financing
agreement with Zions Bancorporation, N.A. and KeyBank National
Association, each as lenders. The facility includes a construction
loan commitment and an ITC bridge loan commitment of $48.5 million
and $79.2 million respectively. The ITC bridge loan is scheduled to
be repaid in December 2020 using proceeds from the tax equity
investor. Concurrently, the construction loan will convert to a
term loan which will be fully amortised over a 25-year tenure.
$22.8 million of the construction loan was drawn as of period end.
The construction loan and subsequent term loan facility is hedged
with a fixed interest rate swap for the full duration of the loan.
As at 31 December 2019, the drawn fair value of the loan includes
mark-to-market revaluation of associated interest rate swaps of
$2.9 million.
In addition to the above, the following Letters of Credit have
been issued:
-- KeyBank National Association has provided Letters of Credit
to USF Bristol Class B Member LLC to the value of US$20.6 million,
expiring in November 2045.
-- Zions Bancorporation, N.A. has provided Letters of Credit to
USF Bristol Class B Member LLC to the value of US$9.9 million,
expiring in November 2045.
11. TRADE AND OTHER RECEIVABLES
31 December 2019
USD
---------------------------- ----------------
Deposit interest receivable 34,301
Prepayments 12,883
VAT receivable 41,560
---------------------------- ----------------
88,744
---------------------------- ----------------
12. CASH AND CASH EQUIVALENTS
31 December 2019
USD
---------------------- ----------------
Cash at bank 85,914
Deposits held at bank 76,372,748
---------------------- ----------------
76,458,662
---------------------- ----------------
13. TRADE AND OTHER PAYABLES
31 December 2019
USD
---------------------------------- ----------------
Creditors and Operating Accruals 112,499
Investment Management Fee Accrual 491,142
---------------------------------- ----------------
603,641
---------------------------------- ----------------
14. Dividends payable
During the year the Company declared dividends totalling
$1,820,633 of which $820,172 has been paid. The Company paid a
dividend of 0.50 cents per share, totalling $1,000,461 for the
period ending 30 September 2019. The dividend was paid on 7
February 2020.
15. CATEGORIES OF FINANCIAL INSTRUMENTS
31 December 2019
USD
-------------------------------------------------------- ----------------
Financial assets
Financial assets at fair value through profit and loss:
Investment in subsidiary 119,046,423
Financial assets at amortised cost:
Trade and other receivables 34,301
Cash at bank 76,458,662
-------------------------------------------------------- ----------------
Total financial assets 76,492,963
-------------------------------------------------------- ----------------
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables 603,641
-------------------------------------------------------- ----------------
Total financial liabilities 603,641
-------------------------------------------------------- ----------------
At the balance sheet date, all financial assets and liabilities
were measured at amortised cost except for the investment in
subsidiary which is measured at fair value as further explained in
note 17.
16. FINANCIAL RISK MANAGEMENT
The Company is exposed to certain risks through the ordinary
course of business and the Company's financial risk management
objective is to minimise the effect of these risks. The management
of risks is performed by the Directors of the Company and the
exposure to each financial risk considered potentially material to
the Company, how it arises and the policy for managing it is
summarised below:
CREDIT RISK
The Company is exposed to third party credit risk in several
instances and the possibility that counterparties with which the
Company and its subsidiaries, together the Group, contracts may
fail to perform their obligations in the manner anticipated by the
Group.
Counterparty credit risk exposure limits are determined based on
the credit rating of the counterparty. Counterparties are assessed
and monitored on the basis of their ratings from Standard &
Poor's and/or Moody's. No financial transactions are permitted with
counterparties with a credit rating of less than BBB- from Standard
& Poor's or Baa3 from Moody's unless specifically approved by
the Board.
Cash and other assets that are required to be held in custody
will be held at bank. Cash and other assets may not be treated as
segregated assets and will therefore not be segregated from the
banks own assets in the event of the insolvency of a custodian.
Cash held with the bank will not be treated as client money subject
to the rules of the FCA and may be used by the bank in the ordinary
course of its own business. The Company will therefore be subject
to the creditworthiness of the bank. In the event of the insolvency
of the bank, the Company will rank as a general creditor in
relation thereto and may not be able to recover such cash in full,
or at all.
Credit risk is managed by diversifying exposures among a
portfolio of counterparties and through applying credit limits to
those counterparties with lower credit standing.
Credit exposures may also be managed using credit derivatives.
No credit derivatives were in place as at 31 December 2019.
Cash and bank deposits are held with major international
financial institutions who each hold a Moody's credit rating of A2
or higher.
LIQUIDITY RISK
The objective of liquidity management is to ensure that all
commitments which are required to be funded can be met out of
readily available and secure sources of funding. The Company's only
financial liabilities are trade and other payables. The Company
intends to hold sufficient cash across operating accounts to meet
the working capital needs over a horizon of at least the next 6
months. Cash flow forecasts are prepared on a six-monthly basis to
assist in the ongoing analysis of daily cash flow.
The following table reflects the maturity analysis of financial
assets and liabilities.
< 1 year 1 to 2 years 2 to 5 years > 5 years Total
As at 31 December 2019 USD USD USD USD USD
----------------------------------------------------- ---------- ------------ ------------ ---------- -----------
Financial assets
Financial assets at fair value through profit and
loss:
Loan to subsidiary* - - - 43,000,000 43,000,000
Financial assets at amortised cost:
Trade and other receivables 34,301 - - - 34,301
Cash at bank 76,458,662 - - - 76,458,662
----------------------------------------------------- ---------- ------------ ------------ ---------- -----------
Total financial assets 76,492,963 - - 43,000,000 119,492,963
----------------------------------------------------- ---------- ------------ ------------ ---------- -----------
< 1 year 1 to 2 years 2 to 5 years > 5 years Total
AS AT 31 DECEMBER 2019 USD USD USD USD USD
----------------------------------------- -------- ------------ ------------ --------- -------
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables 603,641 - - - 603,641
----------------------------------------- -------- ------------ ------------ --------- -------
Total financial liabilities 603,641 - - - 603,641
----------------------------------------- -------- ------------ ------------ --------- -------
*excludes the equity portion of the investment in subsidiary
MARKET RISK
Market risk is the risk that the fair value or cash flows of a
financial instrument will fluctuate due to changes in market
prices. Market risk reflects interest rate risk, currency risk and
other price risks. The objective is to minimise market risk through
managing and controlling these risks to acceptable parameters,
while optimising returns. The Company uses financial instruments in
the ordinary course of business, and also incurs financial
liabilities, in order to manage market risks.
PRICE RISK
Price risk is the risk that the fair value or cash flows of a
financial instrument will fluctuate due to changes in market
prices. At 31 December 2019, the Company had no direct exposure to
price risk. The effect of price on the Company's investments is
considered in note 17.
INTEREST RATE RISK
Interest rate Risk is the risk of changes in the interest
expense for debt, or interest received on deposits, as measured in
the currency of that debt, due to movements in market interest
rates.
The Company does not have any borrowings as at 31 December 2019.
The Company may manage the cost of borrowing by borrowing using
fixed rate instruments, and/or by overlaying interest rate
derivatives against the Company's debt portfolio. Policy limits for
the maximum and minimum levels of hedging relative to the expected
net debt profile for rolling multi-year periods.
In considering whether to execute hedging transactions, the
costs and benefits of hedging will be balanced against the effects
of movements in interest rates on the debt portfolio.
At 31 December 2019, the Company is indirectly exposed to
interest rate risk through its investment in the subsidiary.
However this risk is managed at a subsidiary level and the effect
of Interest rate risk on the Company is considered immaterial.
The Company may be exposed to changes in variable market rates
of interest as this could impact the discount rate and therefore
the valuation of the projects as well as the fair value of the loan
to subsidiary.
CURRENCY RISK
The Net Asset Value of the Company is calculated in US Dollars
whereas the financial instruments at period end may be in other
currencies. The value in terms of USD of the financial instruments
of the Company, which may be designated in any currency, may rise
and fall due to exchange rate fluctuations of individual
currencies. Adverse movements in currency exchange rates can result
in a decrease and loss of capital. At period end, the currency
exposure was considered immaterial.
Currency risk can be mitigated to some extent through
transacting wherever possible in USD. Where non-USD exposures are
unavoidable, the Company is able to manage exposures to movements
in foreign currencies through foreign exchange derivative
transactions.
CAPITAL RISK MANAGEMENT
The capital structure of the Company at year-end consists of
equity attributable to equity holders of the Company, comprising
issued capital, reserves and accumulated loss. The Company has no
return on capital benchmark, but the Board continues to monitor the
balance of the overall capital structure so as to maintain investor
and market confidence. The Company is not subject to any external
capital requirements.
17. FAIR VALUE MEASUREMENT
The following table analyses within the fair value hierarchy the
Company's assets and liabilities measured at fair value at 31
December 2019:
Level 1 Level 2 Level 3
USD USD USD
------------------------- ------- ------- -----------
Investment in subsidiary - - 119,472,416
------------------------- ------- ------- -----------
The investments recognised at fair value through profit and loss
are classified as Level 3 in the fair value hierarchy and the
reconciliation in the movement of this Level 3 investment is
presented below. No transfers between levels took place during the
period.
31 December 2019
USD
----------------------------------------------------- ----------------
Opening balance -
Add: purchases during the year 76,000,000
Add: loans advanced 43,000,000
Total fair value movement through the profit or loss 472,416
----------------------------------------------------- ----------------
Closing balance 119,472,416
----------------------------------------------------- ----------------
The Company's policy is to recognise transfers into and
transfers out of fair value hierarchy levels as of the date of the
event or change in circumstances that caused the transfer.
As all underlying investments into solar projects have been
acquired within the last six months, in accordance with the
guidelines of the valuation policy, the fair value of these
investments have been measured at purchase price including
acquisition costs and no significant changes to key underlying
economic considerations have arisen. The Investment Manager and the
directors feel that this represents a reasonable approximation of
the fair value of these investments as at 31 December 2019. The
valuation is to be assessed every six months by an external
valuation expert.
The first external valuation is expected to be performed within
the next 6 months and then adopted by the Investment Manager for
inclusion in the 30 June 2020 interim financial statements.
There has been no change in the valuation methodology during the
period.
Sensitivity analysis
Set out below are the initial indications of the key assumptions
the Directors believe would have a material impact upon the fair
value of the investments should they change. In the absence of an
operating business model for each underlying renewable energy
asset, the sensitivities have been conducted on the acquisition
models of these assets. The following sensitivities assume the
relevant input is changed over the entire useful life of each of
the underlying renewable energy assets, while all other variables
remain constant. All sensitivities have been calculated
independently of each other.
The Directors consider the changes in inputs to be within a
reasonable expected range based on their understanding of market
transactions. This is not intended to imply that the likelihood of
change or that possible changes in value would be restricted to
this range.
31 December 2019
---------------------------------------- -----------------------------------------------
Change in Change in
fair value NAV per Share
Input Change in input (US$ million) (US$ cents)
---------------------------------------- --------------- -------------- --------------
+ 0.5% (5.5) (2.8)
Discount rate - 0.5% 6.1 3.1
P90 (11.9) (5.9)
Electricity production (change from P50) P10 11.2 5.6
- 10.0% (4.3) (2.1)
Merchant Period Electricity Prices + 10.0% 4.3 2.1
+ 10.0% 4.0 2.0
Operations & maintenance expenses 10.0% (4.1) (2.0)
Discount rate
The sensitivity demonstrates the impact of a change in the
post-tax cost of equity applied to the equity interest of all of
the Company's renewable energy asset investments as at 31 December
2019. A range of + / - 0.5% has been considered to determine the
resultant impact on the Company's NAV per share and the fair value
of its solar asset investments.
Electricity production
The Company's solar asset investments are valued based upon a
forecast P50 solar energy generation profile (being a 50%
probability that this generation estimate will be met or exceeded).
A technical adviser has derived this generation estimate by taking
into account a range of irradiation datasets, satellite and
ground-based measurements, and site-specific loss factors including
module performance degradation, module mismatch and inverter
losses. These items are then considered in deriving the anticipated
production of the individual solar asset (MWh per annum) based upon
a 50% probability of exceedance.
The sensitivity shown looks at the impact on the fair value of
solar asset investments and NAV per share of a change of production
estimates to P90 (90% likely probability of exceedance) and a P10
generation estimate (10% probability of exceedance).
As P10 generation estimates were not independently obtained for
each solar asset on or about the time of the asset acquisition, the
Directors have determined a proxy P10 estimate for those assets by
assessing the relationship between the independently determined P50
and P90 generation estimates for each of the assets in the
Operating Portfolio (e.g. a 1-year P90 generation estimate might be
92.5% of a 1-year P50 generation estimate, implying that it is 7.5%
lower than the P50 generation estimate).
In determining the proxy P10 generation estimate, the Directors
have assumed that the relationship between a P50 generation
estimate and a P10 generation estimate is the same as that between
a P50 generation estimate and a P90 generation estimate in absolute
terms. Therefore a 1-year P10 generation estimate by this
methodology would be 107.5% (i.e. 100% + 7.5%) of the asset's P50
generation estimate.
merchant period Electricity Prices
Each of the assets underlying the Company's solar asset
investments have long-term PPAs in place with creditworthy energy
purchasers and thus the PPA prices are not impacted by energy price
changes during this period. For the post-PPA period of each solar
asset, the Directors use long-term electricity price forecasts that
have been prepared by a market consultant in their determination of
the fair value of the Company's operating solar asset
investments.
The sensitivities show the impact of an increase / decrease in
power prices for each year of the power price curve for each plant
over the plant's remaining economic life after the conclusion of
the existing PPAs. A flat 10% increase / decrease in market
electricity prices from forecasted levels over the remaining asset
life of all plants have been used in the sensitivity analysis.
Although a 10% increase / decrease is not typical, this figure has
been used as merchant period prices are determined upon the
discretion of expert market consultants.
Operating Expenses
The operating costs of the assets underlying the Company's solar
asset investments include annual operations and maintenance
(O&M), asset management (AM), insurance expenses, land lease
expenses, major maintenance and general administration expenses.
Most operating expenses for the Solar Power Assets are contracted
and as such there typically little variation in annual operating
costs. However, there may be cases where all operating costs are
recontracted at a 10% premium or discount.
The sensitivity above assumes a 10% increase / decrease in
annual operating costs for all underlying assets and the resultant
impact on the Company's fair value of investments and NAV per
share.
18. SHARE CAPITAL
Share Capital reduction
Ordinary shares Share capital premium reserve Total
number USD USD USD shareholders equity
------------------------ --------------- ------------- ------------- ----------------------- --------------------
As at 10 January 2019 - - - - -
Issue of fully paid
ordinary shares at
USD0.01 200,092,323 2,000,923 198,089,350 - 200,090,273
Equity issue costs - - (4,000,000) - (4,000,000)
Transfer to capital
reduction reserve - - (194,000,000) 194,000,000 -
Dividends - - - (1,820,633) (1,820,633)
------------------------ --------------- ------------- ------------- ----------------------- --------------------
As at 31 December 2019 200,092,323 2,000,923 89,350 192,179,367 194,269,640
------------------------ --------------- ------------- ------------- ----------------------- --------------------
Share capital and share premium account and capital reduction
reserve
The Company has an authorised share capital of 500,000,000
ordinary shares.
On incorporation the Company issued 1 ordinary share of $0.01
which was fully paid up.
On 10 April 2019, the Board approved the proposed placing and
offer for subscription (together the Placing) of up to 200 million
ordinary shares of $0.01 each in the capital of the Company at a
price of $1 per ordinary share, raising gross proceeds from the
Placing of $200 million.
Following a successful application to the High Court and
lodgement of the Company's statement of capital with the Registrar
of Companies, the Company was permitted to cancel its share premium
account. This was effected on 21 June 2019 by a transfer of the
balance of $194 million from the share premium account to the
capital reduction reserve. The capital reduction reserve is classed
as a distributable reserve and dividends to be paid by the Company
are to be offset against this reserve.
The Company paid a dividend of 0.50 cents per share, totalling
$1,000,461 for the period ending 30 September 2019. The dividend
was paid on 7 February 2020. For the period of 2019, the Company
paid a total of 0.91 cents.
19. RESERVES
The nature and purpose of each of the reserves included within
equity at 31 December 2019 are as follows:
-- Share premium reserve: represents the surplus of the gross
proceeds of share issues over the nominal value of the shares, net
of the direct costs of equity issues and net of conversion amount.
As at 31 December 2019 the share premium account has a balance of
$89,350.
-- Capital reduction reserve: represents a distributable reserve
(which may be utilised in respect of dividend payouts) created
following a court approved reduction in capital. As at 31 December
2019 the capital reduction reserve has a balance of
$192,179,367.
-- Capital reserve: represents cumulative net gains and losses,
of a capital nature, recognised in the Statement of Profit and Loss
and Other Comprehensive Income. As at 31 December 2019 the capital
reserve has a balance of $319,371.
-- Retained earnings represent cumulative net gains and losses,
of an income nature, recognised in the Statement of Profit and Loss
and Other Comprehensive Income. As at 31 December 2019, retained
earnings reflects a loss of $173,291.
The only movements in these reserves during the period are
disclosed in the statement of changes in equity.
20. NET ASSET VALUE PER SHARE
Basic NAV per share is calculated by dividing the Company's net
assets as shown in the statement of financial position that are
attributable to the ordinary equity holders of the Company by the
number of ordinary shares outstanding at the end of the period. As
there are no dilutive instruments outstanding, basic and diluted
NAV per share are identical.
31 December 2019
USD
------------------------------------------------ ----------------
Net assets per Statement of Financial Position 194,415,720
Ordinary shares in issue as at 31 December 2019 200,092,323
------------------------------------------------ ----------------
NAV per share - Basic and diluted 0.972
------------------------------------------------ ----------------
21. CASH FLOW STATEMENT RECONCILIATION
IAS 7 Statement of Cash Flows require additional disclosures
about changes in an entity's financing liabilities, arising from
both cash flow and non-cash flow items. As at 31 December 2019 the
Company has no financing liabilities and therefore no further
disclosure is required.
22. TRANSACTIONS WITH RELATED PARTIES
The Company and the Directors are not aware of any person who,
directly or indirectly, jointly or severally, exercises or could
exercise control over the Company. The Company does not have an
ultimate controlling party.
Details of related parties are set out below:
NON-EXECUTIVE DIRECTORS
Directors are paid fees of GBP40,000 per annum. In addition to
this, Gillian Nott receives GBP20,000 per annum in respect of
serving as Chair of the Board and Jamie Richards receives GBP10,000
per annum in respect of serving as Chair of the Audit
committee.
Total Directors' fees of $230,105 were incurred in respect of
the period with none being outstanding and payable at the period
end.
SUBSIDIARY
On 20 May 2019, the Company issued a loan of $15 million to its
subsidiary USF Holding Corp. On 31 December 2019, the Company
issued a second loan of $28 million to its subsidiary USF Holding
Corp. The principal portions of the loans are repayable in 7 years
from issuance. The loans bear interest at rates of 5% and 4.1%
respectively, payable semi-annually in arrears.
INVESTMENT MANAGER
The Investment Manager is entitled to management fees under the
terms of the Investment Management Agreement. The Company shall pay
to the Investment Manager an annual fee (exclusive of value added
tax, which shall be added where applicable) payable quarterly in
arrears calculated at the rate of:
Assets under management Fee based on NAV
-------------------------- ----------------
< $500 million 1.0% per annum
-------------------------- ----------------
$500 million to $1 billion 0.9% per annum
-------------------------- ----------------
> $1 billion 0.8% per annum
-------------------------- ----------------
Based on the Net Asset Value on the last Business Day of the
relevant quarter.
The Management Fee due in respect of each quarter shall be
invoiced by the Manager to the Company as at the final Business Day
of the relevant quarter, and shall be due and payable in the
following manner:
a) no later than 10 Business Days after the Payment Date, 90
percent of the Management Fee shall be paid to the Manager in cash
to such bank account as the Manager may nominate for this purpose;
and
10 percent of the Management Fee shall be paid to the Manager or
an Associate (as directed by the Manager) in the form of Ordinary
in accordance with the provisions stated in the Investment
Management Agreement.
For the avoidance of doubt, where there are C Shares in issue,
the advisory fee will be charged on the Net Asset Value
attributable to the Ordinary Shares and C Shares respectively.
A management fee of $1,393,870 was incurred during the period,
of which $491,142 remained payable at 31 December 2019.
In addition to the management fee, the Manager shall also be
entitled to payment of the following:
a) a fee for any successful arrangement of debt services payable
at a rate of 0.5% of the debt face value; and
b) a fee for any oversight of asset construction services
payable at market rates, negotiated on an arms' length basis and
subject to the approval of the Board.
The Manager provides debt arranging services to the Fund,
including contacting and liaising with capital providers,
negotiating borrowing terms, obtaining credit ratings, implementing
interest rate hedging strategies and executing documentation. The
Manager was successful in securing debt, interest rate hedging and
letter of credit facilities at competitive terms for the Fund,
providing diversification to the Fund's capital sources.
For this service, the Manager receives debt arranging fees of
0.5% of the face value of new third-party debt and letter of credit
facilities.
During the year ended 31 December 2019, the Manager successfully
negotiated new debt and banking facilities totalling $48.5
million.
For the year ended 31 December 2019, debt arranging fees of
$242,710 was paid or payable to the Manager by the Company or its
subsidiaries.
The Investment Manager provides construction services to the
Fund. The primary focus of these activities is to ensure that
construction service providers successfully deliver projects on
time and cost. Key tasks include construction project management,
regular site visits, contract supervision, identification and
resolution of potential issues and construction payment
approvals.
Due to the early stage of construction of the assets, no
construction services fees have not yet been accrued or charged.
Upon establishment of the arms-length terms, fees will be charged
for construction services.
23. CAPITAL COMMITMENTS
The Company had no contingencies and no other significant
capital commitments at the reporting date.
24. POST BALANCE SHEET EVENTS
In January 2020, the Company announced that it had executed
binding agreements with affiliates of Heelstone Renewable Energy,
LLC, to acquire 100% of the cash equity interests in an
approximately 177MWDC portfolio of twenty-two operating
utility-scale solar power projects located in North Carolina,
Oregon, and California. The Company announced the closing of the
acquisition on 13 March 2020.
On 30 January, it was announced that the Investment Manager, had
been the victim of a fraud in relation to contracted construction
payments totalling $6.9 million. The payments were made from the US
bank account of a USF project Company to a third-party US bank
account. The Company has now fully recovered the $6.9m. Following,
there is no impact on the Company's Net Asset Value. In addition,
there has been no impact to the relevant construction schedules or
budgets.
There were no further events after reporting date which requires
disclosure.
19. Directors and advisers
Directors Administrator and secretary
Appointed: 15 February 2019 JTC (UK) Limited
Gillian Nott The Scalpel
Jamie Richards 18th Floor, 52 Lime Street
Rachael Nutter London
Josephine Tan EC3M 7AF
Registered office Corporate Brokers
Cenkos Securities PLC (from 2 July 2019)
6, 7 & 8 Tokenhouse Yard
London
EC2R 7AS
Fidante Capital (until 1 July 2019)
1 Tudor Street
London
EC4Y 0AH
Macquarie Capital (Europe) Limited
(from 2 July 2019 until 29 October 2019)
The Scalpel Ropemaker Place
18th Floor, 52 Lime Street 28 Ropemaker Street
London London
EC3M 7AF EC2Y 9HD
Investment Manager
New Energy Solar Manager Pty Limited
Level 15
100 Pacific Highway
North Sydney
NSW 2060
Legal Advisers
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2EG
[1] Since incorporation on 10 January 2019
[2] Total return to shareholders based on reinvested dividends
paid throughout the period and share price movement since the issue
price of $1.00.
[3] The ongoing charges ratio is calculated in accordance with
the Association of Investment Companies ("AIC") methodology. The
estimated total cost as laid out in the prospectus was 1.35% based
on proceeds of $250 million. As total proceeds of the IPO were $200
million, this ratio is slightly higher than estimated at IPO.
4 Estimates utilise the first year of each plant's electricity
production once operational or acquired by the Investment Manager;
and assume all plants are owned by USF on a 100% basis and that all
plants under construction are fully operational.
5 According to Lazard's Levelized Cost of Energy Analysis dated November 2019
6 Target yield is 5.5% once fully operational and on a fully
invested and geared basis. An initial target annual dividend of
2-3% on the IPO issue price in respect of the period from listing
until 31 March 2020 or, if later, when all the Solar Power Assets
are fully operational.
7 US 10 Year Treasury Note, UK 10 Year Gilt
8 CO(2) Emission Reduction is calculated using the United States
Environmental Protection Agency's "Avoided Emissions and Generation
Tool", which estimates the regional displacement of fossil fuels
for a new solar PV installation.
[9] Tax equity financing is a financing structure with partner
equity investors who utilise federal and state income tax
benefits
[10] Funds committed to Acquisition Two and Acquisition Three at
December 2019. Funds committed to refinancing Acquisition Four at
March 2020.
[11] The stated strategy of the Company is to deliver stable
returns to shareholders through investing in a diversified
portfolio of utility-scale solar power plants and associated
infrastructure, which may include transmission and storage (e.g.
batteries) assets which will typically be co-located with the solar
power plant (together, Solar Power Assets).
[12] The stated strategy of the Company is to deliver stable
returns to shareholders through investing in a diversified
portfolio of utility-scale solar power plants and associated
infrastructure, which may include transmission and storage (e.g.
batteries) assets which will typically be co-located with the solar
power plant (together, Solar Power Assets).
[13] Asset acquired after the period ended 31 December 2019
[14] Commercial Operation Date, dates italicised indicate
estimated dates
[15] Capacity-weighted average remaining PPA term
[16] Asset acquired after the period ended 31 December 2019
[17] Asset acquired after the period ended 31 December 2019.
[18] Timing and quantum of refinancing of Acquisition Four is at
USF's option, remaining capital may also be allocated to further
acquisitions instead of or along with refinancing.
[19] UK utility-scale solar includes all installed solar PV with
DC capacity of 5MWDC and above
[20] For projects placed in service before the end of 2023, the
ITC is 30%, 26%, or 22% if the projects begin construction in 2019,
2020, or 2021 respectively. For projects placed in service after
the end of 2023, the ITC is 10%.
[21] Includes assets acquired after the period ended 31 December
2019.
[22] Total return to shareholders based on dividends paid
throughout the period and share price movement since the issue
price of $1.00.
[23] Includes mark-to-market revaluation of associated interest
rate swaps of $2.9 million.
[24] The operational period debt includes loan balances as of
commencement of operation.
[25] Calculated using data from the US Environmental Protection
Agency
[26] Calculated using data from the US Energy Information
Administration (principal agency of the US Federal Statistical
System)
[27] CO(2) Emission Reduction is calculated using the United
States Environmental Protection Agency's "Avoided Emissions and
Generation Tool", which estimates the regional displacement of
fossil fuels for a new solar PV installation.
[28] Calculated using data from the US Environmental Protection
Agency
[29] Calculated using data from the US Energy Information
Administration (principal agency of the US Federal Statistical
System)
[30] Includes mark-to-market revaluation of associated interest
rate swaps of $2.9 million
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR ZZGMFZVKGGZZ
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