TIDMGCP
RNS Number : 2950O
GCP Infrastructure Investments Ltd
29 May 2020
GCP Infrastructure Investments Limited
("GCP Infra" or the "Company")
LEI 213800W64MNATSIV5Z47
This announcement contains Inside Information
Half-yearly report and financial statements for the period ended
31 March 2020
The Directors of the Company are pleased to announce the
Company's half-yearly results for the period ended 31 March 2020.
The half-yearly report and financial statements can be accessed via
the Company's website at www.gcpinfra.com and will be posted to
shareholders over the course of the next few weeks.
GCP Infrastructure Investments Limited
ABOUT THE COMPANY
GCP Infrastructure Investments Limited (the "Company") is the
only UK listed fund focused primarily on investments in UK
infrastructure debt.
The Company seeks to provide shareholders with regular,
sustained, long-term dividend income and to preserve the capital
value of its investments over the long term by generating exposure
to infrastructure debt and/or similar assets. It is currently
invested in a diversified, partially inflation-protected portfolio
of investments, primarily in the renewable energy, social housing
and PFI sectors.
The Company is a FTSE 250, closed-ended investment company
incorporated in Jersey. It was admitted to the Official List and to
trading on the London Stock Exchange's Main Market in July 2010.
Since then it has grown to a market capitalisation of c.GBP1.0
billion at 31 March 2020.
AT A GLANCE
HY18 HY19 HY20
--------------------------- ------- ------- ------
Market capitalisation GBPm 1,029.6 1,107.0 992.6
Net assets GBPm 982.3 987.1 964.7
Dividends for the period p 3.80 3.80 3.80
Share price p 117.80 126.20 113.00
NAV per share p 112.39 112.54 109.83
Profit for the period GBPm 39.5 33.6 17.2
--------------------------- ------- ------- ------
HIGHLIGHTS FOR THE PERIOD
-- Dividends of 3.8 pence per share paid or declared for the six
month period to 31 March 2020 (31 March 2019: 3.8 pence per
share)
-- Total shareholder return(1) for the period of -8.1% (31 March
2019: 4.5%) and total shareholder return(1) since IPO in 2010 of
105.8%
-- Profit for the period of GBP17.2 million (31 March 2019:
GBP33.6 million). For information on financial performance for the
period, refer to the financial review below.
-- Loans advanced totalling GBP98.2 million, secured against UK
renewable energy, social housing and PFI projects
-- Company NAV per ordinary share at 31 March 2020 of 109.83
pence per share (31 March 2019: 112.54 pence per share)
-- Third-party independent valuation of the Company's partially
inflation--protected investment portfolio at 31 March 2020 of
GBP1.1 billion (31 March 2019: GBP1.1 billion)
-- Post period end, the Company made further advances of GBP2.5
million and received repayments of GBP16.5 million.
1. Alternative performance measure ("APM"); for definition and
calculation methodology, refer to the APMs section after the
glossary.
Ian Reeves CBE, Chairman of GCP Infra, commented:
"10 years from IPO, GCP Infra has delivered on its core
objectives of regular, sustained, long-term dividend income,
capital preservation and diversification for shareholders. It has
done so in a market landscape that has materially shifted over the
same period. The Company remains committed to continue to deliver
on its core objectives and, with the targets established in this
report, we believe continues to offer a highly attractive
risk-adjusted return for its shareholders."
INVESTMENT OBJECTIVES AND KPIs
The Company primarily invests in UK infrastructure debt and/or
similar assets to meet the following key objectives:
Dividend income Diversification Capital preservation
To provide shareholders To invest in a diversified To preserve the capital
with regular, sustained, portfolio of debt and/or value of its investments
long-term dividends. similar assets secured over the long term.
against UK infrastructure
projects.
Key performance indicators
The Company has paid The investment portfolio The valuation of the
a dividend of 7.6 pence is exposed to a wide Company's investments
for the seventh consecutive variety of assets in exceeds the principal
year. terms of project type value outstanding. The
and source of underlying Company's ordinary shares
cash flow. have predominately traded
at a premium to their
NAV since IPO in 2010.
3.8p 49 109.83p
Dividends per share for Number of investments NAV per share
the six month period at 31 March 2020 at 31 March 2020
to 31 March 2020
GBP17.2m 11.1%(1) 113.00p
Profit for the six month Size of largest investment Share price at
period ended 31 March as a percentage of total 31 March 2020
2020 assets
---------------------------- --------------------------- --------------------------
Further information on Company performance can be found in the
financial review below.
1. The size of the largest investment (the Cardale PFI loan) is
calculated by reference to the percentage of total assets excluding
other receivables and prepayments. The Cardale PFI loan is secured
on a cross-collateralised basis against 14 separate operational PFI
projects, with no exposure to any individual project being in
excess of 10% of the total portfolio.
PORTFOLIO AT A GLANCE
The Company's portfolio comprises underlying assets located
across the UK which fall under the following classifications:
Number Percentage
of of
Sector assets portfolio
-------------------- ------ ----------
Solar 52,765 20%
Energy efficiency 3 1%
PFI 183 25%
Hydro-electric 2 1%
Supported living 951 15%
Biomass 760 10%
Wind 11 21%
Anaerobic digestion 19 7%
-------------------- ------ ----------
Senior ranking security
43%
Weighted average annualised yield(1)
8.1%
Average life
14 years
Partially inflation protected
39%
1. Alternative performance measure ("APM"); for definition and
calculation methodology, refer to the APMs section after the
glossary.
CHAIRMAN'S INTERIM STATEMENT
I am pleased to present the half-yearly report of the Company
for the period ended 31 March 2020.
Introduction
The Company generated income of GBP25.4 million, total profit of
GBP17.2 million, paid dividends of 3.8 pence per share and
delivered a total shareholder return(1) of -8.1% for the
period.
In this, the year of the tenth anniversary of the Company's IPO,
it is a natural time to look back and reflect on the period since
the Company's listing, and to consider the future. Over the life of
the Company we have seen the macro environment and investment
backdrop change significantly.
Central bank interest rates have reduced to all-time lows and,
even before the current Covid-19 crisis, there was an acceptance
that an interest rate environment characterised by 'lower for
longer' had become the base case expectation. The yield on 15 year
gilts has fallen from 3.9% at IPO to 0.4% at the time of writing.
Against this backdrop, the Company has received significant capital
returns earlier than expected; c.GBP300 million has been repaid to
the Company over the last 24 months. This capital has been
reinvested successfully into attractive investments; however, a key
risk remains around the Company's ability to continue to reinvest
at the required rate of return without changing the risk profile of
its portfolio.
The investable universe has changed. Public sector support
mechanisms have shifted over time and the Company has been able to
adapt to these shifts by diversifying its investments across PPP,
renewables and social housing. With a number of key historic
mechanisms expiring or ceasing, the UK is in need of new mechanisms
to deliver the private sector financed infrastructure it will
require over the next decade. At the same time, the attractiveness
of infrastructure as a sector has never been higher. Asset classes
within infrastructure (such as solar) have matured over time as
deployment has increased, with an associated reduction in the risk
of and required return on those investments. Long-term cash flows
supported by physical assets and public sector support are highly
desirable for investors seeking attractive risk--adjusted returns,
particularly relative to less predictable, traditional sources of
income. A decrease in the availability of assets, and higher
competition for maturing assets, have combined to reduce the
returns available within this sector.
Dividends
It is central to the Company's investment objective to deliver
'regular, long-term and sustained' dividends to shareholders. In
each of the past seven financial years the Company has paid annual
dividends of 7.6 pence per share. In light of the factors
identified above, and following an extensive review of the
sustainability of the Company's dividend, the Directors have
determined that it will target(2) an annual dividend of 7.0 pence
per share with effect from the next financial year commencing on 1
October 2020. In determining this target dividend(2) , the
Directors intend to reflect what they consider to be a sustainable
level of dividend distributions, based principally on the forecast
interest income accrued by the Company under normal operating
conditions. For the avoidance of doubt, it is the Directors current
expectation that the Company will pay dividends of 1.9 pence per
ordinary share in respect of each of the quarters ended 30 June and
30 September 2020. Further detail of the rationale for the
Company's annual dividend target(2) can be found below.
Operational overview
The world is experiencing a major pandemic which has resulted in
unprecedented restrictions on people's movement. The Board
considers the Company's focus on availability--based cash flows
means the Company is well placed to weather the impact of Covid-19.
To date, the material impacts have been centred around the supply
chain for waste wood, to which the Company has exposure through
three projects (representing c.9.8% of the Company's portfolio) and
the progress of certain construction--stage projects (representing
c.0.5% of the Company's portfolio). In the medium term, the Company
expects Covid-19 to have a negative impact on electricity prices
resulting from a reduced global demand for energy. Collectively,
the forecast impact of these circumstances is not expected to be
material, further analysis on the impact of Covid-19 and the
potential impact of electricity price falls is presented in the
Investment Adviser's report below.
Financial performance
The Company generated a profit of GBP17.2 million from total
income of GBP25.4 million in the period. Earnings per share of 1.96
pence compared with adjusted earnings per share(1) of 3.8 pence,
supported dividend payments of 3.8 pence per share. The net asset
value ("NAV") reduced by 1.8 pence per share primarily due to
downward revaluations of the long-term electricity price forecasts
and the reversal to the previously enacted reduction to the
corporation tax rate from 1 April 2020. These revisions have been
reflected in the statement of comprehensive income in line with the
Company's accounting policies and have impacted profitability for
the period. Further detail on valuation movements can be found in
the Investment Adviser's report below.
The Company experienced significant volatility in its share
price as a result of the Covid-19 pandemic, in line with global
equity markets. This caused the share price to drop to a discount
to NAV for the first time since IPO. At the end of the period, the
share price was 113.00 pence, representing a c.2.9% premium to NAV.
The financial review below provides further details of the
Company's financial performance for the period.
Investment activity
In February 2020, the Company completed the refinance of c.GBP80
million of senior loans in four onshore wind farms to which the
Company had an existing subordinated investment. This resulted in a
net repayment to the Company of c.GBP20 million. In the period,
additional investments of c.GBP26 million were made to existing
projects across all sectors.
In addition to the onshore wind refinance, the Company received
repayments of c.GBP41 million, which included c.GBP26 million from
the disposal of a portfolio of small renewable investments acquired
by the Company as part of the UK Green Investment Bank transaction
in 2017. Whilst the Company is not a natural seller of assets, the
unique circumstances of this portfolio meant the Company decided to
benefit from a transaction which has generated a return equivalent
to an IRR c.10% on the applicable assets. Other repayments of
c.GBP10 million represented scheduled amortisation of underlying
investments.
Further detail of the Company's investment and repayment
activity is provided below.
Financing
The Company's financing arrangements remained unchanged in the
period with no new equity capital raised. The Board remains
grateful for the ongoing support of its shareholders. The revolving
credit facilities, which were fully utilised at the start of the
period, were partially repaid using the proceeds of loan
repayments. GBP153 million was outstanding at the end of the
period.
Market outlook
The impact of Covid-19 has dominated the final month of the
reporting period and the time since. Whilst the lockdown on the
movement of people has a number of immediate direct impacts for as
long as it remains in place, predominantly relating to the
availability of people and/or parts to service assets, there are
likely to be significant medium and long--term indirect
implications.
The Company's focus on availability-based assets has meant the
loan interest income received by the Company has not been, and is
not expected to be, materially impacted by the Covid-19 lockdown.
In the medium and longer term, in addition to reductions in
electricity prices, Covid-19 is likely to contribute to a low
central bank interest rate environment for a longer period.
Further significant fiscal stimulus has been injected into the
economy in an attempt to mitigate the impact of the virus. The UK
Government's balance sheet will look very different coming out of
this crisis compared with going into it. Appetite, and capacity,
for publicly financed infrastructure investment is likely to be
impacted. The National Infrastructure Strategy, due to have been
published in late spring 2020, is likely to be further delayed and
the cancellation of the UN Climate Change Conference scheduled in
Glasgow at the end of the year is likely to further set back the
implementation of policies intended to support the 2015 Paris
Climate Change Agreement.
Brexit continues to contribute additional uncertainty in the
medium term. The current transition period is due to expire at the
end of 2020. In the absence of an agreement ahead of this time, or
an extension to it, there remains the risk of cost and volume
friction in the UK's access to EU markets. This would include a
number of supply chains on which renewables projects in the
Company's portfolio rely. Further, the operation of the Single
Electricity Market on the island of Ireland remains unclear in a
hard Brexit scenario.
Notwithstanding a backdrop of uncertainty, the need for
infrastructure investment in the UK remains as relevant as ever.
The Covid-19 crisis has highlighted weaknesses in the healthcare
and social systems that infrastructure has a role in addressing.
The UK's emission reduction commitments have not gone away.
Significant infrastructure investment is required across all
emitting sectors to be on track to achieve these ambitious
targets.
Existing infrastructure needs to be upgraded and maintained, as
well as adapted to meet the evolving needs of technology and a
growing and ageing population. The Company remains well placed to
benefit from investment opportunities as and when policies are
developed to support the private sector financing of such
infrastructure.
Risks
The Directors consider that the principal risks have remained
substantially unchanged in the reporting period, apart from the
inclusion of the Covid-19 risk. The principal risks of the Company
include (but are not limited to) execution risk, portfolio risk,
financial risk and other risks.
Since the publication of the Company's 2019 annual report, the
residual risk in respect of a number of the principal risks has
increased as a result of Covid-19. Further details can be found
below and on pages 42 to 48 of the Company's 2019 annual report and
financial statements.
Mr Ian Reeves CBE
Chairman
28 May 2020
1.Alternative performance measure ("APM"); for definition and
calculation methodology, refer to the APMs section after the
glossary
2.The target dividend set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
INVESTMENT ADVISER'S REPORT
The Company seeks to provide shareholders with long-term
dividends and preserve the capital value of its investments through
exposure to a diversified portfolio of UK infrastructure
projects.
49
Number of investments at 31 March 2020
8.1%
Annualised yield
INVESTMENT OBJECTIVE AND POLICY
Investment objective
The Company's investment objective is to provide shareholders
with regular, sustained, long-term dividends and to preserve the
capital value of its investment assets over the long term.
Investment policy and strategy
The Company seeks to generate exposure to the debt of UK
infrastructure Project Companies, their owners or their lenders,
and related and/or similar assets which provide regular and
predictable long-term cash flows.
Core projects
The Company will invest at least 75% of its total assets,
directly or indirectly, in investments with exposure to
infrastructure projects with the following characteristics (core
projects):
-- pre-determined, long-term, public sector backed revenues;
-- no construction or property risks; and
-- benefit from contracts where revenues are availability based.
In respect of such core projects, the Company focuses
predominantly on taking debt exposure (on a senior or subordinated
basis) and may also obtain limited exposure to shareholder
interests.
Non-core projects
The Company may also invest up to an absolute maximum of 25% of
its total assets (at the time the relevant investment is made) in
non-core projects, taking exposure to projects that have not yet
completed construction, projects in the regulated utilities sector
and projects with revenues that are entirely demand based or
private sector backed (to the extent that the Investment Adviser
considers that there is a reasonable level of certainty in relation
to the likely level of demand and/or the stability of the resulting
revenue).
There is no, and it is not anticipated that there will be any,
outright property exposure to the Company (except potentially as
additional security).
Diversification
The Company will seek to maintain a diversified portfolio of
investments and manage its assets in a manner which is consistent
with the objective of spreading risk. No more than 10% in value of
its total assets (at the time the relevant investment is made) will
consist of securities or loans relating to any one individual
infrastructure asset (having regard to risks relating to any
cross--default or cross-collateralisation provisions). This
objective is subject to the Company having a sufficient level of
investment capital from time to time, the ability of the Company to
invest its cash in suitable investments and the investment
restrictions in respect of 'outside scope' projects described
above.
It is the intention of the Directors that the assets of the
Company are (as far as is reasonable in the context of a UK
infrastructure portfolio) appropriately diversified by asset type
(e.g. PFI healthcare, PFI education, solar power, social housing,
biomass etc.) and by revenue source (e.g. NHS Trusts, local
authorities, FiT, ROCs etc.).
Non-financial objectives of the Company
The key non-financial objectives of the Company are:
-- to maintain strong relationships with all key stakeholders of
the Company, including (but not limited to) shareholders and
borrowers;
-- to create sustained value for all stakeholders; and
-- to develop and increase the understanding of the investment
strategy of the Company and infrastructure as an investment
class.
Key policies
Distribution
The Company seeks to provide its shareholders with regular,
sustained, long--term dividend income. The Company has previously
offered a scrip dividend alternative and anticipates that it will
continue to do so whilst shares typically trade at a premium to
NAV.
Leverage and gearing
The Company intends to make prudent use of leverage to finance
the acquisition of investments and enhance returns for
shareholders. Structural gearing of investments is permitted up to
a maximum of 20% of the Company's NAV immediately following
drawdown of the relevant debt.
INFRASTRUCTURE SECTOR OVERVIEW AND UPDATE
UK infrastructure sector overview
In the March 2020 Budget, the UK Government announced, in
response to the UK's National Infrastructure Commission's 2018
Assessment, the proposed publication in late spring 2020 of the
UK's first National Infrastructure Strategy. The Budget further
committed to increased government spending on transport, digital
connectivity, carbon capture and storage, electric vehicle charging
infrastructure, flood and water infrastructure and housing.
Any private sector role in the finance of this infrastructure is
expected to be further detailed in the National Infrastructure
Strategy. However, the Budget supported the Investment Adviser's
view that limiting government borrowing seems to be less of a
driver in policy formation than it has been historically. Revenue
support mechanisms, such as PFI and renewable subsidies, remain
less attractive public sector procurement tools than
historically.
Covid-19 has thrown this position wide open. Whilst the need for
the investment identified by the Budget remains as relevant (and in
certain cases even more so), the Government's balance sheet is
likely to look very different to that on which the Budget was
based. This could point to an increased role for the private sector
in financing new capital investment.
Sector update: PPP/PFI
Sector exposure
25% of portfolio
GBP270 million
Revenue support for new infrastructure remains a delegated power
within the UK's devolved administrations. In England, the
Government has been clear that it does not intend to use or
replicate the PFI or PF2 models of procurement for new
infrastructure. Scotland and Wales have continued to use variants
of these models, in the mutual investment model and (formerly) the
non--profit distributing model, to procure new projects, albeit on
a significantly reduced scale compared to PFI.
An Audit Scotland report published in January 2020 highlighted
concerns over the transparency in decision making relating to the
use of private finance in infrastructure projects. This, alongside
the established position in England, is likely to mean future
public-private partnership for infrastructure development in the UK
will be based on a different model. The Government's response to
the National Infrastructure Commission's report, in the form of the
UK's first national infrastructure strategy, is expected to
indicate a direction of travel.
Whilst Covid-19 has, in certain cases, materially impacted the
end use of PFI assets (such as hospitals and schools), this has not
impacted the level of availability-based payments being made by
those assets. Further, the UK Government has stated that local
authorities will not be able to exercise force majeure provisions
to provide relief to payment (or other) obligations.
Sector update: Supported Living
Sector exposure
15% of portfolio
GBP158 million
The Company retains a positive view on the fundamentals of the
supported living sector. The model has proven healthcare benefits,
is provided at a lower cost to alternative healthcare provision and
remains undersupplied in the availability of dedicated units. The
central Government budget to fund housing under this model remains
well protected and unaffected by wider changes to Universal
Credit.
However, uncertainty has been created by the Regulator of Social
Housing's ("RSH") assessment of a number of Registered Providers
that operate in this sector (including a number to which the
Company has exposure) as non-compliant from a financial viability
and governance perspective. The Company has continued to work with
those affected Registered Providers to which it is exposed to
address the RSH's concerns. This work has focused on those
governance issues which the Registered Providers are able to
influence (i.e. people, processes and systems), and in the
Company's view it remains difficult to see a long-term resolution
to the financial viability concerns without further cooperation and
support from the RSH.
Whilst Covid-19 has impacted the day--to--day operations of the
Company's supported living portfolio, including limits placed on
non--essential visitors (which includes non--essential
maintenance), there is not expected to be any material impact in
the level of housing benefit received by the Registered Providers
as a result. Lease income has generally continued to be serviced,
albeit with some delays in payment occurring as a result of staff
availability.
Sector update: Renewable energy
Sector exposure
60%(1) of portfolio
GBP660 million
September 2019 saw the UK's third contract for difference
("CfD") auction complete, with record low prices being achieved for
offshore wind, remote island wind and advanced conversion
technologies (waste-to-energy gasification) at GBP39.65/MWh (2012
prices) for projects in delivery year 2023/24. This was less than
the long-term wholesale electricity price forecast at the time,
demonstrating the value placed by investors on long term certainty
of income. Further, the UK Government has announced its intention
to include established technologies (such as onshore wind and solar
PV) in the next auction round (due in 2021) and is currently
consulting on a number of changes to the CfD regime, including the
categorisation of offshore wind in future auctions.
Renewables investments have suffered from falling long-term
electricity price forecasts, driven by reductions in global gas
price forecasts, in the reporting period. This is likely to be
further compounded by a fall in electricity demand as a result of
Covid-19. The Company adopts in the valuation of some renewable
investments a blend of the last four quarterly forecasts provided
by Afry, a leading independent market consultant. The potential
impact of Covid-19 on electricity price forecasts was not available
for inclusion in the valuations at 31 March, but such impact has
now been assessed by replacing, as part of the Company's forecast
price curve calculation method, the prior Q1 forecast prices with
Afry's updated Q1 forecasts that reflect the likely impacts of
Covid-19. The impact of this change, representing a c.1.3% overall
reduction in forecast prices, which would result in a 0.5%
reduction to the NAV at the period end, is considered immaterial.
The Company's sensitivity to electricity prices is further detailed
below. Future quarterly valuations published by the Company will
include electricity price forecasts as updated for the potential
impacts of Covid-19.
Price forecasts are driven by the consultant's underlying
long-term assumptions and the Company notes the following areas of
potential future uncertainty:
-- wholesale fuel prices, in particular natural gas, as the
typical marginal price setter in the GB and Irish markets;
-- forecasts of electricity demand, which is likely to be driven
by GDP growth, energy efficiency measures and the rate of uptake of
electric vehicles and electric heating (the latter two essential in
meeting the UK's emission reduction targets);
-- deployment of renewables, which has a 'cannibalising' effect
on price due to its low marginal cost. Higher renewable deployment
assumptions therefore lead to lower long-term prices. The
Investment Adviser considers the level of deployment here will be
driven by:
-- (i) appetite amongst investors for unsubsidised renewable investment;
-- (ii) policy, such as the removal of the current planning
restriction on new onshore wind in England; and
-- the deployment of interconnection with other markets, such as
continental Europe, which would reduce the impacts of
intermittency, and electricity storage.
In addition to the expected medium-term impact of reduced
electricity prices, Covid-19 has impacted renewable investments in
other ways. These are primarily centred on the availability of
spare parts and labour to service assets, in maintaining the
availability of those assets, and the availability of waste wood
for the Company's biomass investments, which has reduced as a
result of less construction and demolition activity. One biomass
project to which the Company is exposed has brought forward its
annual shutdown to reduce the impact of supply chain
constraints.
Refer below for additional analysis on the impact of
Covid-19.
1. Includes energy efficiency, which represents 1% of the portfolio.
DIVID STRATEGY
Dividends
During the period the Investment Adviser has assisted the Board
with a review of the long-term sustainability of the Company's
dividend. This review has concluded that the Company will target1
an annual dividend of 7.0 pence per ordinary share with effect from
the start of its financial year commencing October 2020.
The Company's dividend target1 has been based on two key drivers
which the Investment Adviser and the Directors have considered in
combination.
Macro environment
Since the Company's IPO in 2010, the yield on a 15-year gilt has
decreased by 354 bps. This is considered a 'risk free' instrument
with a similar duration to the Company's investment portfolio and
therefore forms the basis of the determination of discount rates by
Gravis, the Investment Advisor in evaluating and structuring
investments, and Mazars as the Company's independent valuation
agent. In maintaining the dividend level over the previous 7 years,
the Company has effectively increased the marginal return over the
risk-free rate it has invested at by an equivalent amount. This is
not sustainable in an environment where interest rates continue to
be at all-time lows, and the Investment Adviser's expectation is
that a low interest rate environment will endure over at least the
medium-term.
Investment pipeline
The Company relies on investments in public-sector backed UK
infrastructure to meet its objective of delivering 'regular,
long-term and sustained' dividends to shareholders. The evolution
of government policy, and the availability of public-sector
support, have a direct impact on the Company's ability to source
new investments.
As has been previously identified by the Company, the historic
mechanisms that the Company has benefited from have largely closed
to new projects (including, for example, PFI, PF2 and the
renewables obligation). The material investment activity achieved
by the Company over recent years has therefore been focused on
secondary markets.
At the same time, over the last ten years infrastructure as an
alternative asset class has significantly matured. Preqin estimate
that, in 2019, $98 billion was invested into the sector, compared
with c. $40 billion in 2010. Infrastructure assets are long-term,
have high upfront capital costs and benefit from a high cash yield
associated with the repayment of these costs, and come with the
security of physical assets delivering an essential service. These
characteristics have been made more attractive to investors given
more traditional sources of income deliver less yield on a
risk-adjusted basis (including as a result of the interest rate
environment discussed above). As a result, the Company is faced
with a reducing pool of assets in the primary and secondary
markets, and increased appetite for, and capital chasing, the same
pool of assets. The inevitable result, which is being experienced
across each sector the Company is exposed to, is a decrease in the
returns available from new investments. Historically the Company
has been able to target new sectors early and capture enhanced
returns before such sectors mature. Whilst it will continue to seek
to do so in those sectors that are available, new public sector
support is required to generate such opportunities.
In the two year period from 1 April 2018 to 31 March 2020, the
Company has received c.GBP300 million in capital repayments from
its investment portfolio. Of this, over GBP200 million has been
received earlier than anticipated when the applicable original
investment was made.
Notwithstanding the factors above, the Company has been able to
invest such amounts into attractive opportunities in both existing
sectors and new ones, such as offshore wind. Whilst early
prepayments remain difficult to forecast (and in some cases have
resulted from the Company proactively refinancing or making
disposals), it is seen as prudent to ensure the Company is able to
re-invest any capital it receives in investment opportunities that
match the risk profile anticipated in its investment policy and the
historic investments made by the Company.
The Investment Adviser has reviewed whether any tangential
change to the investment policy could be proposed to shareholders
that would enable the Company to maintain dividends at historic
levels over the long-term and not materially change the Company's
risk profile. No geographical, structural or sector-based shift has
been identified that would, in the view of the Investment Adviser
and Board, represent an acceptable change in risk profile of the
Company.
In light of the above, the Investment Adviser and the Directors
believe an annual dividend target1 of 7.0 pence per ordinary share
will enable the Company to reinvest repayments of capital whilst
maintaining both a consistent risk profile and the scale of its
asset base and, by extension, its market capitalisation. In
determining this target(1) , the Investment Adviser and the Board
have reviewed the sustainability of the such dividend level against
a number of metrics, most notably the adjusted performance measure
based on interest income accruing to the benefit of the Company
from the underlying investment portfolio.
1. The target dividend set out above is a target only and not a
profit forecast or estimate and there can be no assurance that it
will be met.
INVESTMENT AND PORTFOLIO REVIEW
Portfolio summary
At 31 March 2020, the Company was exposed to 49 investments with
a total valuation of GBP1.1 billion.
At the period end, 5% of the portfolio was exposed to assets in
their construction phase.
Portfolio by income type
PPP 25%
Unitary charge 19%
Gate fee (contracted) 3%
ROC 1%
Electricity (fixed/floor) 1%
Lease income 1%
-------------------------- ---
RENEWABLES 60%
ROC 25%
Electricity (merchant) 18%
FiT 12%
RHI 3%
Electricity (fixed/floor) 1%
Gas (merchant) 1%
-------------------------- ---
SOCIAL HOUSING 15%
Lease income 15%
-------------------------- ---
Portfolio by sector type
PPP 25%
Healthcare 8%
Education 6%
Waste (PPP) 5%
Leisure 2%
Housing (PPP) 2%
Energy efficiency 1%
Justice 1%
-------------------- ---
RENEWABLES 60%
Wind (onshore) 14%
Solar (commercial) 11%
Biomass 10%
Solar (rooftop) 10%
Anaerobic digestion 7%
Wind (offshore) 7%
Hydro 1%
-------------------- ---
SOCIAL HOUSING 15%
Supported living 15%
-------------------- ---
Portfolio by annualised yield
>10% 10%
8-10% 30%
<8% 60%
----- ---
Portfolio by average life (years)
>30 13%
20-30 26%
10-20 59%
<10 2%
----- ---
Portfolio by investment type(1)
Senior 43%
Subordinated 57%
------------- ---
1. Includes exposure to shareholder interests of c.3%.
Top ten investments
Key
1 Project type
2 % of total assets
3 Cash flow type
GCP Cardale PFI(1)
1 PFI/PPP
2 11.1%
3 Unitary charge
GCP Bridge Holdings(2)
1 Various
2 8.2%
3 ROCs/FiT/PPA/Unitary charge
GreenCo Alpha Holdings(3)
1 Offshore wind
2 6.2%
3 ROCs/PPA
Gravis Solar 1
1 Commercial solar
2 5.6%
3 ROCs/FiT/PPA
Gravis Asset Holdings H Notes(4)
1 Onshore wind
2 5.6%
3 ROCs/PPA
GCP Programme Funding(5)
1 Supported living
2 4.6%
3 Rental income
GCP Social Housing 1
1 Supported living
2 3.8%
3 Rental income
GCP Rooftop Solar Finance
1 Rooftop solar
2 3.7%
3 FiT
GCP Biomass 1
1 Anaerobic digestion
2 3.7%
3 ROCs/FiT
GCP Green Energy 1
1 Commercial solar
2 3.6%
3 ROCs/FiT
Top ten revenue counterparties % of total assets
-------------------------------------- -----------------
Power NI Energy Limited 12%
The Renewable Energy Company Limited 9%
Bespoke Supportive Tenancies Limited 7%
Ørsted Salg & Service A/S 7%
Statkraft Markets GmbH 6%
SmartestEnergy Limited 5%
Gloucestershire County Council 5%
British Gas Trading Limited 4%
Good Energy Limited 4%
Office of Gas and Electricity Markets 3%
-------------------------------------- -----------------
Top ten project service providers % of total assets
---------------------------------------------- -----------------
Vestas Celtic Wind Technology Limited 10%
Solarplicity Services Limited 9%
ASG Maintenance Limited 9%
Ørsted Salg & Service A/S 7%
Burmeister & Wain Scandinavian Contractor A/S 7%
Urbaser Limited 5%
Agrikomp Limited 4%
Engie 3%
Robertson Facilities Management Limited 3%
Barn FM Limited 2%
---------------------------------------------- -----------------
1. The Cardale loan is secured on a cross--collateralised basis
against 14 separate operational PFI projects.
2. The Bridge Holdings loan is secured against seven individual projects.
3. GreenCo Alpha Holdings Limited A Notes.
4. Gravis Asset Holdings Limited A Notes.
5. GCP Programme Funding 1 Limited Series 1 Notes.
Investments and repayments during the period
During the period, the Company made 15 advances totalling
GBP98.2 million; GBP25.9 million under 13 existing facilities and
GBP72.3 million under two new facilities. The Company received
total repayments of GBP133.5 million; GBP9.6 million scheduled
repayments and six unscheduled repayments of GBP123.9 million, two
of which were full repayments, maintaining the number of
investments at 49 at the end of the period.
The Company benefited from the refinance of senior loans secured
against four onshore wind farms in which it has a subordinated
investment. This saw the Company refinance c.GBP80 million of new
senior loans to repay c.GBP65 million of existing senior loans and
enable the release of c.GBP23 million (including the release of
cash reserves). In doing this, the Company benefits from a lower
cost of overall funding associated with the increased maturity of
offshore wind as an asset class. This is compared with when the
original senior loans were put in place and a more advanced stage
of development of the specific projects.
A repayment of c.GBP26 million was received from the disposal of
a portfolio of small renewable investments acquired by the Company
as part of the wider acquisition of investments from the UK Green
Investment Bank plc in 2017. The portfolio of investments, which
was held alongside a number of third-party investors, was valued at
a significant premium to par. In response to a sale opportunity
being presented to the Investment Adviser, it was recommended to
the Board to capture this premium through a disposal, representing
an IRR of c.10% on this investment.
Investments and repayments post period end
Post period end, the Company made further advances of c.GBP2.5
million and received total repayments of c.GBP16.5 million
including a loan with a value of c.GBP8.3 million which was secured
against a number of PFI assets.
The Company sees a risk of additional early prepayments in those
mature renewable sectors that have benefited from significant yield
compression in recent years, meaning equity values have increased
to the point that significant prepayment costs can be absorbed
within such valuations. The Company estimates that investments with
a value of c.GBP10 million have a high likelihood of being prepaid
in the next twelve months due to such circumstances. In such event,
the Company will benefit from early prepayment fees.
A detailed breakdown of the movements in valuation of the
investment portfolio is provided below.
INVESTMENTS AND REPAYMENTS (GBPm)
Investments and repayments GBPm
--------------------------- -------
New investments 72.3
Further advances 25.9
Scheduled repayments (9.6)
Unscheduled repayments (123.9)
Net repayment (35.3)
--------------------------- -------
Sector analysis
----------------------------------------------------------
Investments (GBPm) Repayments (GBPm)
4.1 Anaerobic digestion (0.8)
4.4 Biomass (1.2)
- Hydro (6.1)
0.4 Offshore wind -
74.6 Onshore wind (109.4)
- Commercial solar (7.2)
1.3 Rooftop solar (1.2)
10.7 PFI (2.2)
2.7 Supported living (5.4)
------------------ ------------------- -----------------
Investments and repayments post GBPm
period end
-------------------------------- ------
New investments -
Further advances 2.5
Scheduled repayments (8.2)
Unscheduled repayments (8.3)
Net repayment (14.0)
-------------------------------- ------
Sector analysis for post period end
----------------------------------------------------------
Investments (GBPm) Repayments (GBPm)
2.0 Anaerobic digestion (0.2)
- Biomass -
- Hydro -
- Offshore wind (6.0)
- Onshore wind -
- Commercial solar -
0.2 Rooftop solar -
0.3 PFI (10.3)
- Supported living -
------------------ ------------------- -----------------
Pipeline of investment opportunities
The Investment Adviser maintains an active pipeline that can be
used to reinvest capital returned to the Company by way of
scheduled or unscheduled repayments. Further, the Company continues
to review opportunities to optimise the structure of its portfolio,
which may include additional investments into existing projects.
The Company has an active pipeline equivalent to c.GBP50 million of
new opportunities, mainly in the secondary renewables sectors.
The Investment Adviser is reviewing a limited number of
secondary investment opportunities in the PFI sector, but does not
expect this to be a material area of capital deployment in the
future. The Board and the Investment Adviser will closely monitor
any new Government mechanisms targeted at asset classes
historically served by PFI and/or PPP to determine whether such
mechanisms represent attractive investment opportunities.
The Company has suspended making new investments in the
supported living sector outside of existing commitments, pending
further clarity over the impact of the regulator's assessment on
Registered Providers in this sector and the resolution of the RSH's
concerns, as detailed above.
Portfolio performance update
The main impact on performance in the period has been the
reduction in long-term electricity price forecasts. A sensitivity
analysis of the Company's exposure to electricity prices is shown
below.
The Investment Adviser continues to actively work with its
investee companies to determine opportunities for value
enhancement, to provide additional coverage against debt service or
to enhance the value of shareholder interests. This includes
potential life extensions, refinancing, software and hardware
upgrades and/or optimisation of operating costs. During the period,
the Company benefited from a c.GBP1.4 million valuation gain from
the refinance of four onshore wind projects to which the Company
has a subordinated exposure.
During the period, the Company took control of three gas-to-grid
anaerobic digestion projects secured against senior loans held by
the Company. This was prompted by poor operational performance and
lack of additional financing from the project's shareholders. Since
taking control, the Company has replaced the operations and
maintenance contractor and has made available an additional
c.GBP6.5 million for capital improvement works that it has
identified as being required. There has been no valuation impact
from these changes.
In January 2018 the Company subscribed for loan notes to provide
funding for the acquisition of a portfolio of 22 ground--mounted
solar projects across the UK. These solar projects have all been
accredited as eligible for UK Government subsidy payments under
either the renewables obligation or the feed-in tariff schemes.
As noted in the Company's 2019 annual report, these projects
have been the subject of ongoing audits by Ofgem, the regulator of
the applicable subsidy regimes. The regulator has a duty to ensure
subsidy recipients are and remain properly accredited and to
monitor ongoing compliance, and has been engaging in industry-wide
audits over a number of years, which have increased since closure
of the renewables obligation and feed-in tariff schemes to new
entrants.
The audits by Ofgem in respect of the Company's solar projects
include a review of the validity of the initial accreditation for
subsidies, the applications for which were made under the previous
ownership. The Company and the Investment Adviser continue to work
with Ofgem to address the queries it has raised. The Company is
also considering what further action may be required to protect its
investments, depending on any decisions reached by the regulator.
The Directors and the Investment Adviser currently believe that the
outcome of the Ofgem audits will not have a material impact on the
Company's NAV once concluded.
The weighted average discount rate used across the Company's
portfolio at 31 March 2020 was 7.40% (30 September 2019:
7.58%).
Valuation performance attribution
The specific factors that have impacted the valuation in the
reporting period are summarised in the table below.
Driver Description Impact Impact
(GBPm) (pps)
------------------------ --------------------------------------------------------------------------- ------- ------
Actual performance Increased generation/revenues versus expectations. 4.4 0.50
Adjustments to project-specific term assumptions across shareholder
Project assumptions interests. 4.3 0.49
Discount rates Reduced discount rates. 2.5 0.28
Adjusted forecast to reflect increased recovery expectations for previously
Forecast recoveries revalued investments. 1.5 0.17
------------------------ --------------------------------------------------------------------------- ------- ------
Total upward valuation movements 12.7 1.44
---------------------------------------------------------------------------------------------------- ------- ------
Power price assumptions Impact of falling power prices in the period. (16.1) (1.84)
Corporation tax
assumptions Impact of increased long-term corporation tax rate from 17% to 19%. (4.5) (0.51)
Actual performance Decreased generation/revenues versus expectations. (2.9) (0.33)
Adjustments to project-specific term assumptions across shareholder
Project assumptions interests. (2.2) (0.25)
Debt restructuring Implementation of amended loan terms arising from debt restructurings. (1.5) (0.17)
Litigation costs Contribution to litigation costs. (0.8) (0.08)
------------------------ --------------------------------------------------------------------------- ------- ------
Total downward valuation movements (28.0) (3.18)
---------------------------------------------------------------------------------------------------- ------- ------
Net valuation movements attributable to the timing of debt service
Interest receipts payments. (3.5) (0.40)
Unwinding of premia associated with the historic reduction of interest
rates on the loans
Loan prepayments which were prepaid in the period. (1.5) (0.17)
------------------------ --------------------------------------------------------------------------- ------- ------
Total other valuation movements (5.0) (0.57)
---------------------------------------------------------------------------------------------------- ------- ------
Total net unrealised movements (20.3) (2.31)
---------------------------------------------------------------------------------------------------- ------- ------
Sensitivities
This section details the sensitivity of the value of the
investment portfolio to a number of the risk factors to which it is
exposed. A summary of the overall investment portfolio risks, and
the Investment Adviser's approach to risk, can be found on page 43
of the Company's 2019 annual report.
Electricity prices
A number of the Company's investments rely on market electricity
prices for a component of their revenues. Changes in electricity
prices will therefore impact a borrower's ability to service debt
or, in cases where the Company has stepped into projects and/or has
direct exposure through its investment structure, impact on overall
returns. The graph below shows the forecast impact on NAV per share
of a given percentage change in electricity prices over the full
life of the forecast period.
In light of the material reductions in electricity price
forecasts during the period, it is likely that further price
forecast reductions will result in the elimination of any overall
cash flow coverage on debt service that exists on a number of the
Company's senior and subordinated loan investments.
The downward revaluations that are likely to be recognised in
such scenarios are included in the table below.
The independent electricity price forecasts available for the
valuations used as part of the 31 March 2020 NAV had not been
updated for the potential impacts of Covid-19. These have since
become available. Replacing the prior Q1 2020 curve with the
Covid-19 adjusted Q1 2020 curve as part of the Company's price
curve calculation method, in which an average of the last four
quarterly publications from Afry, an independent market consultant,
is used, results in a c.1.3% fall in the average forecast price
with changes focused on the next five years. The overall impact of
this on the 31 March valuation would have been a 0.5% reduction to
the NAV and is not considered material to the Company.
Sensitivity applied to base case electricity price forecast
assumption
(10%) (5%) 0% 5% 10%
----------------------------- ------ ------- ---- ----
NAV impact (pence per share) (4.87) (2.50) - 1.44 2.88
----------------------------- ------ ------- ---- ----
Inflation
A number of the Company's investments (making up c.39% of the
investment portfolio by value) have some form of inflation
protection. This is structured as a direct link between the return
and realised inflation (relevant to the social housing portfolio
and certain renewable investments) and a principal indexation
mechanic which increases the principal value of the Company's loans
outstanding by a share of realised inflation over a pre-determined
strike level (typically 2.75-3.00%).
Covid-19 analysis
The Company and Investment Adviser have conducted a detailed
review of the potential impacts of Covid-19 on the operational,
financing and investment activities of the Company.
Operationally, the business continuity plans of all of the
Company's key service providers have been implemented effectively.
This has enabled service providers to continue to deliver the
applicable services whilst staff are working from home, with
service level commitments being met so far under these
conditions.
Covid-19 is not expected to impact the Company's ability to
remain compliant with its revolving credit arrangements. The Board
and Investment Adviser have determined that sufficient headroom
exists between the financial covenant limits and current positions
to protect the Company in reasonable downside scenarios (including
in relation to investment valuation and performance). Further, the
Company remains conscious of any impact Covid-19 may have on wider
credit markets, and the Company's ability to refinance its
revolving credit arrangements by March 2021. The Board and
Investment Adviser will continue to monitor these factors closely
as part of decisions relating to new investments, use of available
cash and/or use of the undrawn facility.
Substantially all of the Company's investments are
availability-based infrastructure assets and therefore are not
currently expected to be materially impacted by the reduced demand
for goods and services that is occurring as a result of
restrictions on the movement of people.
However, the scale of the Covid-19 disruption means a number of
the Company's investments are likely to be impacted. These impacts
can be broadly divided into two:
-- the direct impacts of social distancing or isolation for as
long as such measures last, which mainly affect availability of
people and spare parts; and
-- the indirect, medium and longer-term impacts of Covid-19 on
the economy, which assumes a period of reduced GDP growth (or
recession) with associated reduction in demand for goods and
services. The Investment Adviser has engaged with all investee
companies to determine any impacts in each case.
One of the Company's biomass investments, representing c.3% of
the investment valuation, has ceased operations due to a lack of
availability of waste wood arising from Covid-19 and its resultant
reduction in construction and demolition activities. The Company
has exposure to two further projects, representing c.6.8% of
investment valuation, which rely on waste wood as an input
feedstock and which are likely to be impacted by a prolonged
lockdown. Construction is likely to be delayed on three small PPP
assets to which the Company has exposure (representing c.0.3% of
investment value) as a result of Covid-19.
Collectively, the forecast impact of these circumstances is not
expected to be material on the basis that significant restrictions
on movement do not persist for a material time period in the
context of the term of the applicable investments. The Company will
continue to re-assess this position over time. Elsewhere, the
supply chains upon which the Company's investments rely to supply,
operate, maintain and use assets have substantially continued to
function, albeit in certain cases under different working
arrangements.
Over the medium and long term, the Company is exposed to changes
in inflation and electricity prices. Since the reporting date, the
Investment Adviser has evaluated the impact of revised electricity
prices forecasts that include reduced demand for electricity over
the medium term. This is further detailed above. Outside of these
factors, the availability-based nature of revenues across
substantially all of the Company's investments means the Company is
well placed to manage any medium to long--term economic impacts of
Covid-19.
Covid-19 risk
The Directors and the Investment Adviser consider that the
principal risks have remained substantially unchanged in the
period, apart from the inclusion of the Covid-19 risk noted
below.
Since the publication of the Company's 2019 annual report, the
residual risk in respect of a number of the principal risks has
increased as a result of Covid-19. Further details can be found in
the table below and above and on pages 42 to 48 of the Company's
2019 annual report and financial statements.
CATEGORY: OTHER
---------------------- ----------------------------- ------------------------- ----------------------------
Change in residual
Risk Impact How the risk is risk over the year
managed
---------------------- ----------------------------- ------------------------- ----------------------------
Covid-19 Substantially all The crisis has been Increase
The Covid-19 outbreak of the Company's evolving and changing At the date of publication,
has led to severely investments are rapidly and its a global pandemic
reduced movement availability-based full effect on the has occurred.
of people and goods infrastructure assets macro environment
in the UK. and therefore are in the UK and globally
not currently expected is uncertain. The
to be materially Investment Adviser
impacted by the has been in close
reduced demand for contact with borrowers
goods and services to identify the
that is occurring potential impact
as a result of restrictions. of Covid-19 in order
A sustained period to establish and
of restricted movement implement plans
of people and goods to mitigate. The
may have a more Board and the Investment
significant impact Adviser continue
where limited availability to monitor the situation
of labour and parts closely.
impacts on the operational
performance of assets.
Over the medium
term, the Company
expects Covid-19
to have a negative
impact on electricity
prices resulting
from a reduced global
demand for energy.
Further analysis
on the potential
impact of electricity
price falls are
presented above.
---------------------- ----------------------------- ------------------------- ----------------------------
FINANCIAL REVIEW
The Company made 15 advances totalling GBP98.2 million in the
period and delivered a total shareholder return(1) of -8.1%.
Operating review
The Company generated operating income of GBP25.4 million (31
March 2019: GBP41.2 million) including loan interest income of
GBP45.7 million offset by net unrealised valuation losses of
GBP20.3 million. These losses are predominately attributable to
downward revisions of long-term electricity price forecasts and the
reversal to the previously enacted reduction to the corporation tax
rate from 1 April 2020. Refer to the valuation attribution table
above for further details.
Operating income was offset by administration costs of GBP5.7
million (31 March 2019: GBP5.6 million). The Company's ongoing
charges ratio1 has remained static year on year at 1.1% (31 March
2019: 1.1%).
Finance costs have increased by GBP0.5 million reflecting the
Company's revolving credit facilities being substantially fully
drawn for the period.
Total profit generated for the period was GBP17.2 million (31
March 2019: GBP33.6 million).The reduction year on year reflects
the impact of net unrealised valuation losses as detailed
above.
Cash generation
The Company received loan principal payments of GBP133.5
million, made a repayment of GBP12 million on the Company's
revolving credit facilities and made 15 advances totalling GBP98.2
million in the period (31 March 2019: GBP93.9 million in principal
payments, GBP56.1 million net drawdown and 18 advances totalling
GBP39.1 million respectively). Interest receipts of GBP27.1 million
were used along with principal repayments to pay cash dividends of
GBP32.6 million (31 March 2019: GBP24.4 million and GBP31.9 million
respectively). The Company aims to manage its cash position
effectively by minimising cash balances, while maintaining the
financial flexibility to pursue a pipeline of investment
opportunities.
The Directors have assessed the Company's cash resources and
availability of funding as part of the assessment carried out on
Covid-19. The emergence of Covid-19 has, to date, not had a
significant impact upon cash receipts at portfolio level and it is
not anticipated that this will change. The Company held cash
balances of c.GBP30.5 million at the period end and does not expect
the level of annual expense will increase materially. The Directors
and the Investment Adviser believe that together with scheduled
loan interest receipts and repayments and the undrawn amounts
available under the credit facilities, this will provide sufficient
liquidity for the Company.
Dividends
The Company declared dividends of 3.8 pence per share in respect
of the six months to 31 March 2020. On an annualised basis, this
represents a yield of 6.7% against the share price at 31 March
2020.
Share price performance
The Company has delivered a total shareholder return(1) (share
price growth plus dividends reinvested) of -8.1% over the past six
months and 105.8% since IPO in 2010. The Company experienced
significant volatility in its share price as a result of the
Covid-19 pandemic, in line with global equity markets. This caused
the share price to drop to a discount to NAV for the first time
since IPO. The share price has since recovered and at the period
end the Company's shares were trading at a 2.9% premium to NAV. The
share price at 31 March 2020 was 113.00 pence per share. Further
details on share movements are disclosed in note 9.
Financing review
The Company issued 601,350 new shares in the period as part of
its scrip dividend alternative. During the period, the Company
utilised GBP12 million of cash received through repayments to repay
part of the Company's revolving credit facilities. The Company
intends to commence a review of its financing arrangements in the
coming months with a view to refinancing the Facilities in advance
of the date of expiry. The balance of each financing tranche at the
period end is shown in the table below:
Facility Commitment Drawn at 31 March 2020 Margin (bps) Expiry
----------------- -------------- ---------------------- ------------ ----------
Fixed tranche GBP50 million GBP50 million 190 March 2021
Revolving tranche GBP115 million GBP103 million 190 March 2021
----------------- -------------- ---------------------- ------------ ----------
Total GBP165 million GBP153 million
----------------- -------------- ---------------------- ------------ ----------
The Company remains modestly geared at the period end with a
loan to value (borrowings as a percentage of net assets) of
16%.
1. Alternative performance measure ("APM"); for definition and
calculation methodology, refer to the APMs section after the
glossary.
STATEMENT OF DIRECTORS' RESPONSBILITIES
Under the terms of the Disclosure Guidance and Transparency
Rules ("DTR") of the FCA, the Directors are responsible for
preparing the half-yearly report and unaudited interim condensed
financial statements in accordance with applicable regulations.
The Directors confirm to the best of their knowledge that:
-- the unaudited interim condensed set of financial statements
has been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU;
-- the Chairman's interim statement and the Investment Adviser's
report constitute the Company's interim management report, which
includes a fair review of the information required by DTR 4.2.7R
(indication of important events during the first six months and
description of principal risks and uncertainties for the remaining
six months of the year); and
-- the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein).
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Jersey governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
On behalf of the Board
Mr Ian Reeves CBE
Chairman
28 May 2020
INDEPENT REVIEW REPORT
To GCP Infrastructure Investments Limited
Conclusion
We have been engaged by GCP Infrastructure Investments Limited
(the "Company") to review the unaudited interim condensed set of
financial statements in the half-yearly financial report for the
six months ended 31 March 2020 of the Company which comprises the
unaudited interim condensed statement of comprehensive income, the
unaudited interim condensed statement of financial position, the
unaudited interim condensed statement of changes in equity, the
unaudited interim condensed statement of cash flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the unaudited interim condensed set of
financial statements in the half-yearly report and financial
statements for the six months ended 31 March 2020 is not prepared,
in all material respects, in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU and the DTR of the UK's
Financial Conduct Authority (the "UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly report and financial statements and consider whether it
contains any apparent misstatements or material inconsistencies
with the information in the unaudited interim condensed set of
financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly report and financial statements is the
responsibility of, and has been approved by, the Directors. The
Directors are responsible for preparing the half-yearly report and
financial statements in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The Directors are
responsible for preparing the unaudited interim condensed set of
financial statements included in the half-yearly report and
financial statements in accordance with IAS 34 as adopted by the
EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the unaudited interim condensed set of financial statements in the
half-yearly report and financial statements based on our
review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement letter to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Steven David Stormonth
For and on behalf of
KPMG Channel Islands Limited
Chartered Accountants and
Recognised Auditors
Jersey
28 May 2020
UNAUDITED INTERIM CONDENSED STATEMENT OF COMPREHENSIVE
INCOME
For the period 1 October 2019 to 31 March 2020
Period Period
ended ended
31 March 31 March
2020 2019
Notes GBP'000 GBP'000
-------------------------------------------------------------------------- ----- -------- --------
Income
Net income/gains on financial assets at fair value through profit or loss 3 25,387 31,365
Other income 8 9,859
-------------------------------------------------------------------------- ----- -------- --------
Total income 25,395 41,224
-------------------------------------------------------------------------- ----- -------- --------
Expense
Investment advisory fees 11 (4,306) (4,389)
-------------------------------------------------------------------------- ----- -------- --------
Operating expenses (1,366) (1,248)
-------------------------------------------------------------------------- ----- -------- --------
Total expenses (5,672) (5,637)
-------------------------------------------------------------------------- ----- -------- --------
Total operating profit before finance costs 19,723 35,587
-------------------------------------------------------------------------- ----- -------- --------
Finance costs (2,513) (2,035)
-------------------------------------------------------------------------- ----- -------- --------
Total profit and comprehensive income for the period 17,210 33,552
-------------------------------------------------------------------------- ----- -------- --------
Basic and diluted earnings per share (pence) 6 1.96 3.83
-------------------------------------------------------------------------- ----- -------- --------
All of the Company's results are derived from continuing
operations.
The accompanying notes below form an integral part of the
financial statements.
UNAUDITED INTERIM CONDENSED STATEMENT OF FINANCIAL POSITION
As at 31 March 2020
(Audited)
As at As at
31 March 30 September
2020 2019
Notes GBP'000 GBP'000
------------------------------------------------------ ----- ----------- ------------
Assets
Cash and cash equivalents 30,469 2,477
Other receivables and prepayments 186 135
Financial assets at fair value through profit or loss 10 1,089,000 1,144,650
------------------------------------------------------ ----- ----------- ------------
Total assets 1,119,655 1,147,262
------------------------------------------------------ ----- ----------- ------------
Liabilities
Other payables and accrued expenses 7 (2,575) (3,078)
Interest bearing loans and borrowings 8 (152,395) (164,088)
------------------------------------------------------ ----- ----------- ------------
Total liabilities (154,970) (167,166)
------------------------------------------------------ ----- ----------- ------------
Net assets 964,685 980,096
------------------------------------------------------ ----- ----------- ------------
Equity
Share capital 9 8,784 8,777
Share premium 9 944,522 943,789
Capital redemption reserve 101 101
Retained earnings 11,278 27,429
------------------------------------------------------ ----- ----------- ------------
Total equity 964,685 980,096
------------------------------------------------------ ----- ----------- ------------
Ordinary shares in issue 878,368,489 877,767,139
------------------------------------------------------ ----- ----------- ------------
NAV per ordinary share (pence per share) 109.83 111.66
------------------------------------------------------ ----- ----------- ------------
Signed and authorised for issue on behalf of the Board of
Directors.
Mr Ian Reeves CBE Mr David Pirouet FCA
Chairman Director
28 May 2020 28 May 2020
The accompanying notes below form an integral part of the
financial statements.
UNAUDITED INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY
For the period 1 October 2019 to 31 March 2020
Capital
Share Share redemption Retained Total
capital premium reserve earnings equity
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ----- ------- ------- ---------- -------- --------
At 1 October 2018 8,760 941,706 101 34,958 985,525
------------------------------- ----- ------- ------- ---------- -------- --------
Total profit and comprehensive
income for the period - - - 33,552 33,552
Equity shares issued 9 11 1,366 - - 1,377
Share issue costs - (27) - - (27)
Dividends 5 - - - (33,303) (33,303)
------------------------------- ----- ------- ------- ---------- -------- --------
At 31 March 2019 8,771 943,045 101 35,207 987,124
------------------------------- ----- ------- ------- ---------- -------- --------
At 1 October 2019 8,777 943,789 101 27,429 980,096
------------------------------- ----- ------- ------- ---------- -------- --------
Total profit and comprehensive
income for the period - - - 17,210 17,210
Equity shares issued 9 7 762 - - 769
Share issue costs 9 - (29) - - (29)
Dividends 5 - - - (33,361) (33,361)
------------------------------- ----- ------- ------- ---------- -------- --------
At 31 March 2020 8,784 944,522 101 11,278 964,685
------------------------------- ----- ------- ------- ---------- -------- --------
The accompanying notes below form an integral part of the
financial statements.
UNAUDITED INTERIM CONDENSED STATEMENT OF CASH FLOWS
For the period 1 October 2019 to 31 March 2020
Period Period
ended ended
31 March 31 March
2020 2019
Notes GBP'000 GBP'000
------------------------------------------------------------------------ ----- -------- --------
Cash flows from operating activities
Total operating profit before finance costs 19,723 35,587
Purchase of financial assets (98,157) (39,095)
Repayment of financial assets 133,480 93,866
Net unrealised loss on investments at fair value through profit or loss 3 20,327 7,136
Decrease in other payables and accrued expenses (226) (188)
(Increase)/decrease in other receivables and prepayments (69) 201
------------------------------------------------------------------------ ----- -------- --------
Net cash flow generated from operating activities 75,078 97,507
------------------------------------------------------------------------ ----- -------- --------
Cash flows from financing activities
Share issue costs (29) (27)
Proceeds from interest bearing loans and borrowings - 18,911
Repayment of interest bearing loans and borrowings (12,000) (75,000)
Dividends paid 5 (32,592) (31,926)
Finance costs paid (2,465) (1,034)
------------------------------------------------------------------------ ----- -------- --------
Net cash flow used in financing activities (47,086) (89,076)
------------------------------------------------------------------------ ----- -------- --------
Increase in cash and cash equivalents 27,992 8,431
Cash and cash equivalents at beginning of the period 2,477 2,335
------------------------------------------------------------------------ ----- -------- --------
Cash and cash equivalents at end of the period 30,469 10,766
------------------------------------------------------------------------ ----- -------- --------
Net cash flow used in operating activities includes:
Loan interest - cash 3 27,144 24,356
Deposit interest received 3 8 15
------------------------------------------------------------------------ ----- -------- --------
Non-cash items
Purchase of financial assets (capitalised loan interest) 3 (18,570) (14,145)
------------------------------------------------------------------------ ----- -------- --------
The accompanying notes below form an integral part of the
financial statements.
NOTES TO THE UNAUDITED INTERIM CONDENSED FINANCIAL
STATEMENTS
For the period 1 October 2019 to 31 March 2020
1. General information
GCP Infrastructure Investments Limited is a public company
incorporated and domiciled in Jersey on 21 May 2010 with
registration number 105775. The Company is governed by the
provisions of the Law and the CIF Law.
The Company is a closed-ended investment company and its
ordinary shares are traded on the Main Market of the London Stock
Exchange.
The Company makes infrastructure investments, typically by
acquiring interests in predominantly debt instruments issued by
infrastructure Project Companies (or by their existing lenders or
holding vehicles) that are contracted by UK public sector bodies to
design, finance, build and operate infrastructure projects and by
investing in other assets with a similar economic effect to such
instruments.
2. Significant accounting policies
2.1 Basis of preparation
The unaudited interim condensed financial statements for the six
month period 1 October 2019 to 31 March 2020 have been prepared in
accordance with IAS 34 Interim Financial Reporting, as adopted by
the EU.
The unaudited interim condensed financial statements do not
include all the information and disclosures required in the annual
financial statements and should be read in conjunction with the
Company's annual report and financial statements for the year ended
30 September 2019. The financial statements for the year ended 30
September 2019 were audited by KPMG Channel Islands Limited, who
issued an unqualified audit opinion thereon.
The audited financial statements of the Company for the year
ended 30 September 2019 were prepared in accordance with IFRS as
adopted by the EU.
The financial information contained in the unaudited interim
condensed financial statements for the period 1 October 2019 to 31
March 2020 has not been audited, but has undergone a review by the
Company's auditor in accordance with International Standards on
Review Engagements (UK & Ireland) 2410, Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity, issued by the Auditing Practices Board for use in the
UK.
The unaudited interim condensed financial statements have been
prepared under the historical cost convention, as modified by the
revaluation of financial assets held at fair value through profit
or loss.
The accounting policies adopted in the preparation of the
unaudited interim condensed financial statements are consistent
with those followed in the preparation of the Company's annual
financial statements for the year ended 30 September 2019, except
for the new standards and amendments to standards disclosed
below.
New standards, amendments and interpretations
In the current period, there have been a number of amendments to
IFRS. These include annual improvements to IFRS, changes in
standards, legislative and regulatory amendments, changes in
disclosure and presentation requirements. None of these amendments
have had any material impact on these or prior years' financial
statements. Further to the above, there are no new IFRS or IFRIC
interpretations that are issued but not effective that would be
expected to have a material impact on the Company's financial
statements.
Going concern
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has the resources to continue in business for the foreseeable
future and for a period of at least twelve months from the date of
the authorisation of these unaudited interim condensed financial
statements. The Directors' assessment included consideration of the
availability of the Company's credit facilities, cash flow
forecasts and stress scenarios, including the potential downside
impacts from Covid-19. Further detail on Covid-19 is included
above.
Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern. Therefore, the unaudited
interim condensed financial statements have been prepared on a
going concern basis. The Company has in place revolving credit
facilities which are due to expire in March 2021. The Company
intends to commence a review of its financing arrangements in the
coming months with a view to refinancing the Facilities in advance
of the date of expiry.
In addition to the above mentioned, as part of the Company's
annual report and financial statements for the year ended 30
September 2019, the Directors undertook a longer-term assessment of
the Company, the results of which can be found in the viability
statement on page 49 of the aforementioned report.
The Directors have revisited the analysis completed at the year
end in light of the Covid-19 crisis and believe it continues to
represent a robust assessment of the viability of the Company.
2.2 Significant accounting judgements and estimates
The preparation of unaudited interim condensed financial
statements in accordance with IFRS requires the Directors of the
Company to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amounts
recognised in the unaudited interim condensed financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future.
(a) Critical accounting estimates and assumptions
Fair value of instruments not quoted in an active market
The valuation process is dependent on assumptions and estimates
which are significant to the reported amounts recognised in the
unaudited interim condensed financial statements, taking into
account the structure of the Company and the extent of its
investment activities (refer to note 10 for further
information).
(b) Critical judgements
Assessment as an investment entity
The Directors have determined that the SPVs through which the
Company invests fall under the control of the Company in accordance
with the control criteria prescribed by IFRS 10 and therefore meet
the definition of subsidiaries. In addition, the Directors continue
to hold the view that the Company meets the definition of an
investment entity and therefore can measure and present the SPVs at
fair value through profit or loss. This process requires a
significant degree of judgement, taking into account the complexity
of the structure of the Company and extent of investment activities
(refer to note 11 of the annual report and financial statements for
the year ended 30 September 2019).
Functional and presentation currency
Items included in the unaudited interim condensed financial
statements of the Company are measured in the currency of the
primary economic environment in which the Company operates.
The primary objective of the Company is to generate returns in
Pound Sterling, its capital-raising currency. The Company's
performance is evaluated in Pound Sterling. Therefore, the
Directors consider Pound Sterling as the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions and have adopted it as the
Company's presentation currency. All values have been rounded to
the nearest thousand pounds (GBP'000) except where otherwise
indicated.
Segmental information
For management purposes, the Company is organised into one main
operating segment. All of the Company's activities are
interrelated, and each activity is dependent on the others.
Accordingly, all significant operating decisions are based upon the
analysis of the Company as one segment. The financial results from
this segment are equivalent to the unaudited interim condensed
financial statements of the Company as a whole. The following table
analyses the Company's underlying operating income per geographical
location. The basis for attributing the operating income is the
place of incorporation of the underlying counterparty.
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------- -------- --------
Channel Islands 8 15
United Kingdom 25,387 41,209
---------------- -------- --------
Total 25,395 41,224
---------------- -------- --------
3. Operating income
The table below analyses the Company's operating income for the
period per investment type:
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------------------------------------------- -------- --------
Interest on cash and cash equivalents 8 15
Net income/gains on financial assets at fair value through profit or loss 25,387 31,365
Other income(1) - 9,844
-------------------------------------------------------------------------- -------- --------
Total 25,395 41,224
-------------------------------------------------------------------------- -------- --------
1. Other income above includes unscheduled (early) prepayment
fees for the repayment of certain loans.
The table below analyses the net income/gains derived from the
Company's financial assets at fair value through profit or
loss:
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------------------------- -------- --------
Loan interest - cash 27,144 24,356
Loan interest - capitalised 18,570 14,145
Unrealised gains on investments at fair value through profit or loss 8,796 12,194
Unrealised losses on investments at fair value through profit or loss (29,123) (19,330)
---------------------------------------------------------------------- -------- --------
Total 25,387 31,365
---------------------------------------------------------------------- -------- --------
The table below analyses the unrealised movements through profit
or loss by the type of movement:
31 March 31 March
2020 2019
GBP'000 GBP'000
---------------------------------------------------------------------------------------------- -------- --------
Unrealised gains on investments at fair value through profit or loss 8,796 12,194
Unrealised losses on investments at fair value through profit or loss (29,123) (19,330)
---------------------------------------------------------------------------------------------- -------- --------
Net unrealised movements on investments at fair value through profit or loss (20,327) (7,136)
---------------------------------------------------------------------------------------------- -------- --------
Upward movements in valuation due to increased forecast cash flows and reduced discount rates 12,667 6,510
Downward movements in valuation due to reduced forecast cash flows (28,028) (8,449)
Other unrealised movements on investments at fair value through profit or loss(2) (4,996) (5,197)
---------------------------------------------------------------------------------------------- -------- --------
Net unrealised movements on investments at fair value through profit or loss (20,327) (7,136)
---------------------------------------------------------------------------------------------- -------- --------
2.Other unrealised movements on investments at fair value
through profit or loss are attributable to the timing of debt
service payments and the unwinding of premia associated with the
historic reduction in discount rates on the loans which were
prepaid in the period.
4. Taxation
Profits arising in the Company for the period 1 October 2019 to
31 March 2020 are subject to tax at the standard rate of 0% (31
March 2019: 0%) in accordance with the Income Tax (Jersey) Law
1961, as amended.
5. Dividends
Total dividends paid or declared for the period 1 October 2019
to 31 March 2020 were 3.8 pence per share (31 March 2019: 3.8 pence
per share) as follows:
31 March 31 March
2020 2019
Quarter ended Dividend Pence GBP'000 GBP'000
-------------------------------------------- ------------------------ ----- -------- --------
Current period dividends
Second interim
31 March 2020/19 dividend 1.9 - -
31 December 2020/19 First interim dividend 1.9 16,683 16,658
-------------------------------------------- ------------------------ ----- -------- --------
Total 3.8 16,683 16,658
---------------------------------------------------------------------- ----- -------- --------
Prior period dividends
Fourth interim
30 September 2019/18 dividend 1.9 16,678 16,645
30 June 2019/18 Third interim dividend 1.9 - -
-------------------------------------------- ------------------------ ----- -------- --------
Total 3.8 16,678 16,645
---------------------------------------------------------------------- ----- -------- --------
Dividends in statement of changes in equity 33,361 33,303
Dividends settled in shares(1) (769) (1,377)
---------------------------------------------------------------------- ----- -------- --------
Dividends in cash flow statement 32,592 31,926
---------------------------------------------------------------------- ----- -------- --------
1. The dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
On 24 April 2020, the Company announced a second interim
dividend of 1.9 pence per ordinary share amounting to GBP16.7
million (including dividends settled in shares) which will be paid
on 10 June 2020 to ordinary shareholders on the register as at 11
May 2020.
In accordance with the Company's constitution, in respect of the
ordinary shares, the Company will distribute the income it receives
to the fullest extent that is deemed appropriate by the
Directors.
In declaring a dividend, the Directors consider the payment
based on a number of factors, including accounting profit, fair
value treatment of investments held, future investments, reserves,
cash balances and liquidity. The payment of a dividend is
considered by the Board and is declared on a quarterly basis.
Dividends due to the Company's shareholders are recognised when
they become payable.
Dividends payable on new shares issued during the respective
financial period can be funded partly from share premium, to
reflect the premium received on the issuance of new shares
(excluding shares issued pursuant to the scrip dividend facility)
and partly from retained earnings. The funding of dividends out of
share premium shall not exceed the share premium to NAV of the
relevant share issue, in any such circumstance.
6. Earnings per share
Basic and diluted earnings per share are calculated by dividing
profit for the period attributable to ordinary equity holders of
the Company by the weighted average number of ordinary shares in
issue during the period.
Weighted
average
Total number
of
profit ordinary Pence
GBP'000 shares per share
---------------------------------------------- ------- ----------- ---------
Period ended 31 March 2020
Basic and diluted earnings per ordinary share 17,210 878,017,596 1.96
---------------------------------------------- ------- ----------- ---------
Period ended 31 March 2019
Basic and diluted earnings per ordinary share 33,552 876,576,712 3.38
---------------------------------------------- ------- ----------- ---------
7. Other payables and accrued expenses
(Audited)
31 March 30 September
2020 2019
GBP'000 GBP'000
------------------------------------ -------- ------------
Investment advisory fees 2,129 2,255
Other payables and accrued expenses 446 823
------------------------------------ -------- ------------
Total 2,575 3,078
------------------------------------ -------- ------------
8. Interest bearing loans and borrowings
(Audited)
31 March 30 September
2020 2019
GBP'000 GBP'000
----------------------------- -------- ------------
Revolving credit facilities 153,000 165,000
Unamortised arrangement fees (605) (912)
----------------------------- -------- ------------
Total 152,395 164,088
----------------------------- -------- ------------
The table below analyses the movement for the period:
(Audited)
31 March 30 September
2020 2019
GBP'000 GBP'000
------------------------------------------ -------- ------------
Opening balance 165,000 146,089
Proceeds from revolving credit facilities - 93,911
Repayment of revolving credit facilities (12,000) (75,000)
------------------------------------------ -------- ------------
Total 153,000 165,000
------------------------------------------ -------- ------------
The Company has secured revolving credit facilities comprising
GBP115 million with RBSI, ING and NIBC ("Facility A") and GBP50
million with RBSI and ING ("Facility B"). The revolving credit
facilities are secured against the portfolio of certain underlying
assets held by the Company. Facility A and Facility B are repayable
in March 2021. Interest on amounts drawn under Facility A and
Facility B is charged at LIBOR plus 1.9% per annum. A commitment
fee is payable on undrawn amounts of 0.67% on Facility A. No
commitment fee is payable on Facility B as this is fixed to be
fully drawn for the life of the loan. The Company intends to
commence a review of its financing arrangements in the coming
months with a view to refinancing the Facilities in advance of the
date of expiry.
At the beginning of the period, both Facility A and Facility B
were fully drawn down. In February 2020, the Company repaid GBP12
million on Facility A. At 31 March 2020, Facility A had GBP103
million drawn down and Facility B was fully drawn down at GBP50
million.
All amounts drawn under the revolving credit facilities are to
be used in or towards the making of investments in accordance with
the Company's investment policy. The revolving credit facilities
include loan-to-value(1) and interest cover covenants that are
measured at Company level. The Company has remained compliant with
all loan covenants throughout the financial period and has
significant headroom against these measures at 31 March 2020.
9. Authorised and issued share capital
(Audited)
31 March 2020 30 September 2019
-------------------- --------------------
Number Number
of of
Share capital shares GBP'000 shares GBP'000
-------------------------------------- ----------- ------- ----------- -------
Ordinary shares issued and fully paid
At 1 October 2019/2018 877,767,139 8,777 876,065,400 8,760
Dividends settled in shares(2) 601,350 7 1,701,739 17
-------------------------------------- ----------- ------- ----------- -------
Total 878,368,489 8,784 877,767,139 8,777
-------------------------------------- ----------- ------- ----------- -------
Share capital is representative of the nominal amount of the
Company's ordinary shares in issue.
The Company is authorised in accordance with its Memorandum of
Association to issue up to 1.5 billion ordinary shares, 300 million
C shares and 300 million deferred shares, each having a par value
of one pence per share.
(Audited)
31 March 30 September
2020 2019
Share premium GBP'000 GBP'000
------------------------------------------------- -------- ------------
Premium on ordinary shares issued and fully paid
Opening balance 943,789 941,706
Dividends settled in shares(2) 762 2,138
Share issue costs (29) (55)
------------------------------------------------- -------- ------------
Total 944,522 943,789
------------------------------------------------- -------- ------------
Share premium represents amounts subscribed for share capital in
excess of nominal value less associated issue costs of the
subscription.
Dividends payable on new shares issued for cash in the
respective quarterly period can be funded partly from share
premium, to reflect the premium received on the issue of those
shares, and partly from retained earnings, to reflect the time over
which those proceeds have been fully invested. The funding of
dividends out of share premium shall not exceed the share premium
to NAV of the relevant issue.
1. Alternative performance measure ("APM"); for definition and
calculation methodology, refer to the APMs section after the
glossary.
2. The dividends settled in shares are where shareholders have
elected to take the scrip dividend alternative.
The Company's share capital is represented by one class of
ordinary shares; quantitative information about the Company's share
capital is provided in the statement of changes in equity. The
table below shows details of shares issued in the period under the
Company's scrip dividend alternative. The scrip reference price
below is calculated as the average of the Company's closing middle
market price, as derived from the Daily Official List of the London
Stock Exchange, for the five consecutive business days commencing
on the ex--dividend date, and is the price at which the shares are
issued.
Number Scrip
of
Date shares reference Description Period
issued price
----------------- ------- --------- -------------------------------- ----------------
Ordinary shares issued 1 July 2019
in respect of the offer to 30 September
22 November 2019 299,117 130.12p of a scrip dividend alternative 2019
----------------- ------- --------- -------------------------------- ----------------
Ordinary shares issued 1 October 2019
in respect of the offer to 31 December
9 March 2020 302,233 125.64p of a scrip dividend alternative 2019
----------------- ------- --------- -------------------------------- ----------------
Total 601,350
----------------- ------- --------- -------------------------------- ----------------
At 31 March 2020, the Company's issued share capital comprised
878,368,489 ordinary shares, none of which were held in
treasury.
The ordinary shares carry the right to dividends out of the
profits available for distribution attributable to each share
class, if any, as determined by the Directors. Each holder of an
ordinary share is entitled to attend meetings of shareholders and,
on a poll, to one vote for each share held.
10. Financial instruments
10.1 Capital management
The Company is funded from equity balances, comprising issued
ordinary share capital, as detailed in note 9, and retained
earnings, in addition to revolving credit facilities, as detailed
in note 8.
The Company may seek to raise additional capital from time to
time, to the extent that the Directors and the Investment Adviser
believe the Company will be able to make suitable investments, with
consideration given to any quantum of loan repayments due.
The Company raises capital on a highly conservative basis only
when it has a clear view of a robust pipeline of highly advanced
investment opportunities. The Company may borrow up to 20% of its
NAV at any such time borrowings are drawn down. At the period end,
borrowings amounted to 16% of NAV (30 September 2019: 17%).
10.2 Financial risk management objectives
The Company has an investment policy and strategy as summarised
above that sets out its overall investment strategy and its general
risk management philosophy and has established processes to monitor
and control these in a timely and accurate manner. These guidelines
are the subject of regular operational reviews undertaken by the
Investment Adviser to ensure that the Company's policies are
adhered to as it is the Investment Adviser's duty to identify and
assist in the control of risk. The Investment Adviser reports
regularly to the Directors, who have ultimate responsibility for
the overall risk management approach.
The Investment Adviser and the Directors ensure that all
investment activity is performed in accordance with the investment
guidelines. The Company's investment activities expose it to
various types of risk that are associated with the financial
instruments and markets in which it invests. Risk is inherent in
the Company's activities and it is managed through a process of
ongoing identification, measurement and monitoring. The financial
risks to which the Company is exposed include market risk, which
includes other price risk, and interest rate risk, credit risk and
liquidity risk.
The spread of Covid-19 has had a number of key impacts on
economies which include but are not limited to: supply chain
disruptions, unavailability of personnel, a negative impact on
financial markets and liquidity constraints. Substantially all of
the Company's investments are availability based and therefore not
materially impacted by the current reduced demand for goods and
services. The Directors and the Investment Adviser continue to
assess the potential impact of Covid-19 across the business in
order to instigate appropriate mitigation plans.
10.3 Market risk
There is a risk that market movements in interest rates, credit
markets and observable yields may decrease or increase the fair
value of the Company's financial assets without regard to the
assets' underlying performance. The fair value of the Company's
financial assets is measured and monitored on a quarterly basis by
the Investment Adviser with the assistance of the Valuation
Agent.
The valuation principles used are based on a discounted cash
flow methodology, where applicable. A fair value for each asset
acquired by the Company is calculated by applying a relevant market
discount rate to the contractual cash flows expected to arise from
each asset. At period end, the fair value of three assets (30
September 2019: three assets) was determined on the basis of the
Directors' estimate of recoverable value due to operational
performance issues of the underlying assets.
The Valuation Agent determines the discount rate that it
believes the market would reasonably apply to each investment
taking into account, inter alia, the following significant
inputs:
-- Pound Sterling interest rates;
-- movements of comparable credit markets; and
-- observable yields on other comparable instruments.
In addition, the following are also considered as part of the
overall valuation process:
-- general infrastructure market activity and investor sentiment; and
-- changes to the economic, legal, taxation or regulatory environment.
The Valuation Agent exercises its judgement in assessing the
expected future cash flows from each investment. Given that the
investments of the Company are generally fixed-income debt
instruments (in some cases with elements of inflation protection)
or other investments with a similar economic effect, the focus of
the Valuation Agent is on assessing the likelihood of any
interruptions to the debt service payments, in light of the
operational performance of the underlying asset. Where appropriate,
the Valuation Agent will also consider long-term assumptions that
have a direct impact on valuation, such as power prices, inflation
and availability.
In the second quarter of the financial period, the Covid-19
outbreak led to severely reduced movement of people and goods in
the UK. The crisis has been evolving and changing rapidly and its
full effect on the macro environment in the UK and globally is
uncertain. To date, the material impacts have been focused around
the supply chain for waste wood, which has impacted operations at
three of the Company's investments (representing c.9.8% of the
Company's portfolio) and the progress of certain construction-stage
projects (representing c.0.5% of the Company's portfolio). Over the
medium term the Company expects Covid-19 to have a negative impact
on electricity prices resulting from a reduced global demand for
energy. Further analysis on the potential impact of electricity
price falls are presented above.
The Valuation Agent carries out quarterly valuations of the
financial assets of the Company.
These valuations are reviewed by the Investment Adviser and the
Directors. The subsequent NAV produced is also reviewed and
approved by the Directors on a quarterly basis.
The table below shows how changes in discount rates affect the
changes in the valuation of financial assets at fair value. The
range of discount rates used reflects the Investment Adviser's view
of a reasonable expectation of valuation movements across the
portfolio in a six month period.
31 March 2020
Change in discount rate 0.50% 0.25% 0.00% (0.25%) (0.50%)
-------------------------------------------------------------- --------- ---------- --------- --------- ---------
Valuation of financial assets at fair value (GBP'000) 1,050,465 1,069,427 1,089,000 1,109,318 1,130,309
Change in valuation of financial assets at fair value through
profit or loss (GBP'000) (38,535) (19,573) - 20,318 41,309
-------------------------------------------------------------- --------- ---------- --------- --------- ---------
At 31 March 2020, the discount rates used in the valuation of
financial assets ranged from 5.00% to 10.38%.
30 September 2019 (audited)
Change in discount rate 0.50% 0.25% 0.00% (0.25%) (0.50%)
--------------------------------------------------------------- --------- --------- --------- --------- ---------
Valuation of financial assets at fair value (GBP'000) 1,103,603 1,123,784 1,144,650 1,166,234 1,188,569
Change in valuation of financial assets at fair value through
profit or loss (GBP'000) (41,047) (20,866) - 21,584 43,919
--------------------------------------------------------------- --------- --------- --------- --------- ---------
At 30 September 2019, the discount rates used in the valuation
of financial assets ranged from 5.25% to 14.20%.
10.4 Interest rate risk
Interest rate risk has the following effect:
Fair value of financial assets
Interest rates are one of the factors which the Valuation Agent
takes into account when valuing the financial assets.
Future cash flows
The Company primarily invests in senior and subordinated debt
instruments of infrastructure Project Companies. The financial
assets have fixed interest rate coupons, albeit with some inflation
protection, and, as such, movements in interest rates will not
directly affect the future cash flows payable to the Company.
Interest rate hedging may be carried out to seek protection
against falling interest rates in relation to assets that do not
have a minimum fixed rate of return acceptable to the Company in
line with its investment policy and strategy.
Where the debt instrument is subordinated, the Company is
indirectly exposed to the gearing of the infrastructure Project
Companies. The Investment Adviser ensures as part of its due
diligence that the Project Company debt ranking senior to the
Company's investment has been, where appropriate, hedged against
movement in interest rates, through the use of interest rate
swaps.
Borrowings
During the period, the Company made use of its revolving credit
facilities, which were used to finance investments made by the
Company. Details of the revolving credit facilities are given in
note 8.
Any potential financial impact of movements in interest rates on
the cost of borrowings on the Company is mitigated by the
short-term nature of such borrowings.
10.5 Credit risk
Credit risk refers to the risk that the counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company. The assets
classified at fair value through profit or loss do not have a
published credit rating; however, the Investment Adviser monitors
the financial position and performance of the Project Companies on
a regular basis to ensure that credit risk is appropriately
managed.
The Company is exposed to differing levels of credit risk on all
its assets. Per the unaudited interim condensed statement of
financial position, the Company's total exposure to credit risk is
GBP1,120 million (30 September 2019: GBP1,147 million), being the
balance of total assets less other receivables and prepayments. As
a matter of general policy, cash is held at a number of financial
institutions to spread credit risk, with cash awaiting investment
being held on behalf of the Company at banks carrying a minimum
rating of A-1, P-1 or F1 from Standard & Poor's, Moody's or
Fitch respectively or in one or more similarly rated money market
or short-dated gilt funds. The amount of working capital that may
be held at RBSI is limited to GBP3.5 million, with any excess
uninvested/surplus cash to be transferred to other financial
institutions with minimum credit ratings described above. It is
also recognised that the arrival of ring-fenced banking had an
impact on the availability of A-rated banks.
Before an investment decision is made, the Investment Adviser
performs extensive due diligence complemented by professional
third-party advisers, including technical advisers, financial and
legal advisers, and valuation and insurance experts. After an
investment is made the Investment Adviser uses detailed cash flow
forecasts to assess the continued creditworthiness of Project
Companies and their ability to pay all costs as they fall due. The
forecasts are regularly updated with information provided by the
Project Companies in order to monitor ongoing financial
performance.
The Project Companies receive a significant portion of revenue
from government departments and public sector or local authority
clients.
The Project Companies are also reliant on their subcontractors,
particularly facilities managers, continuing to perform their
service delivery obligations such that revenues are not disrupted.
The credit standing of each significant subcontractor is monitored
by the Investment Adviser on an ongoing basis, and significant
exposures are reported to the Directors quarterly.
The concentration of credit risk to any individual project did
not exceed 10% of the Company's portfolio at the period end, which
is the maximum amount permissible per the Company's investment
policy. The Investment Adviser regularly monitors the concentration
of risk, based upon the nature of each underlying project to ensure
appropriate diversification and risk remains within acceptable
parameters.
The concentration of credit risk associated with counterparties
is deemed to be low due to asset and sector diversification. The
underlying counterparties are typically public sector entities
which pay pre-determined, long-term, public sector backed revenues
in the form of subsidy payments (i.e. FiT and ROCs payments) for
renewables transactions, unitary charge payments for PFI
transactions or lease payments for social housing projects. In the
view of the Investment Adviser and Board, the public sector
generally has both the ability and willingness to support the
obligations of these entities.
The credit risk associated with each Project Company is further
mitigated because the cash flows receivable are secured over the
assets of the Project Company, which in turn has security over the
assets of the underlying projects. The debt instruments held by the
Company are held at fair value, and the credit risk associated with
these investments is one of the factors which the Valuation Agent
takes into account when valuing the financial assets.
The Investment Adviser regularly monitors the concentration of
risk based upon the nature of each underlying project to ensure
appropriate diversification and risk remains within acceptable
parameters.
Changes in credit risk affect the discount rate. The sensitivity
of the fair value of the financial assets at fair value through
profit or loss is disclosed above. The Directors have assessed the
credit quality of the portfolio at the period end and, based on the
parameters set out above, are satisfied that the credit quality
remains within an acceptable range for long-dated debt.
10.6 Liquidity risk
Liquidity risk is defined as the risk that the Company will
encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or
another financial asset. Exposure to liquidity risk arises because
of the possibility that the Company could be required to pay its
liabilities earlier than expected. The Company's objective is to
maintain a balance between continuity of funding and flexibility
through the use of bank deposits and interest bearing loans and
borrowings.
The following table analyses all of the Company's financial
assets and liabilities into relevant maturity groupings based on
the remaining period from 31 March 2020 to the contractual maturity
date. The Directors have elected to present both assets and
liabilities in the liquidity disclosure below to illustrate the net
liquidity exposure of the Company.
All cash flows in the table below are on an undiscounted
basis.
Less than One to Three to Greater
than
one month three months twelve twelve Total
months months
31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------ --------- ------------ --------- ---------- ---------
Financial assets
Cash and cash equivalents 30,469 - - - 30,469
Other receivables and prepayments - - 186 - 186
Financial assets at fair value through profit or loss 8,710 43,549 88,818 2,077,600 2,218,677
------------------------------------------------------ --------- ------------ --------- ---------- ---------
Total financial assets 39,179 43,549 89,004 2,077,600 2,249,332
------------------------------------------------------ --------- ------------ --------- ---------- ---------
Financial liabilities
Other payables and accrued expenses - (2,575) - - (2,575)
Interest bearing loans and borrowings - - (157,325) - (157,325)
------------------------------------------------------ --------- ------------ --------- ---------- ---------
Total financial liabilities - (2,575) (157,325) - (159,900)
------------------------------------------------------ --------- ------------ --------- ---------- ---------
Net exposure 39,179 40,974 (68,321) 2,077,600 2,089,432
------------------------------------------------------ --------- ------------ --------- ---------- ---------
Less than One to Three to Greater
than
one month three months twelve twelve Total
months months
30 September 2019 (audited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------ --------- ------------ -------- --------- ---------
Financial assets
Cash and cash equivalents 2,477 - - - 2,477
Other receivables and prepayments - - 135 - 135
Financial assets at fair value through profit or loss 25,053 68,489 76,647 2,195,237 2,365,426
------------------------------------------------------ --------- ------------ -------- --------- ---------
Total financial assets 27,530 68,489 76,782 2,195,237 2,368,038
------------------------------------------------------ --------- ------------ -------- --------- ---------
Financial liabilities
Other payables and accrued expenses - (3,078) - - (3,078)
Interest bearing loans and borrowings - - (4,408) (167,163) (171,571)
------------------------------------------------------ --------- ------------ -------- --------- ---------
Total financial liabilities - (3,078) (4,408) (167,163) (174,649)
------------------------------------------------------ --------- ------------ -------- --------- ---------
Net exposure 27,530 65,411 72,374 2,028,074 2,193,389
------------------------------------------------------ --------- ------------ -------- --------- ---------
10.7 Fair values of financial assets
Basis of determining fair value
The Valuation Agent carries out quarterly valuations of the
financial assets of the Company. These valuations are reviewed by
the Investment Adviser and the Directors. The subsequent NAV
produced is reviewed and approved by the Directors on a quarterly
basis.
The basis for the Valuation Agent's valuations is described in
note 10.3.
Fair value measurements
Investments are measured and reported at fair value and are
classified and disclosed in one of the following fair value
hierarchy levels depending on whether their fair value is based
on:
-- Level 1: quoted prices in active markets for identical assets or liabilities;
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices); and
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
An investment is always categorised as Level 1, 2 or 3 in its
entirety. In certain cases the fair value measurement for an
investment may use a number of different inputs that fall into
different levels of the fair value hierarchy. In such cases, an
investment level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement. The assessment of the significance of a particular
input to the fair value measurement requires judgement and is
specific to the investment.
The Company recognises transfers between levels of the fair
value hierarchy at the end of the reporting period during which the
change has occurred.
The table below analyses all investments held by the level in
the fair value hierarchy into which the fair value measurement is
categorised:
(Audited)
31 March 30 September
Fair value 2020 2019
hierarchy GBP'000 GBP'000
------------------------------------------------------ ----------- -------- ------------
Financial assets at fair value through profit or loss
Loan notes Level 2 885,478 960,344
Loan notes Level 3 203,522 184,306
------------------------------------------------------ ----------- -------- ------------
The Directors have classified financial instruments as Level 2
or Level 3 depending on whether or not there is a consistent data
set comparable and observable market transactions. Due to the
limited number of comparable and observable market transactions,
the Directors have classified the Company's investments in biomass
and anaerobic digestion as Level 3 (30 September 2019: Level 3). In
addition, three investments have been determined on the basis of
the Directors' estimate of recoverable value due to operational
performance issues of the underlying assets. These comprise two
investments in PFI projects and one investment in a biomass project
(30 September 2019: two PFI projects and one biomass project) and
have therefore been categorised as Level 3 on that basis.
There was one transfer to from Level 2 to Level 3 in the period.
(30 September 2019: no transfers between Level 2 and Level 3). A
loan advanced in June 2019 in support of the acquisition of four
operational on-farm anaerobic digestion facilities, previously
classified as Level 2, has been reclassified as Level 3 to bring
the treatment in line with other investments in this sector.
Discount rates between 7.2% and 10.3% (30 September 2019: 7.0%
and 14.2%) were applied to the investments categorised as Level
3.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and end of the period:
(Audited)
31 March 30 September
2020 2019
GBP'000 GBP'000
---------------------------------------------------------------------- -------- ------------
Opening balance 184,306 234,924
Purchases 9,151 16,360
Repayments (1,352) (59,274)
Unrealised gains on investments at fair value through profit or loss 2,614 4,388
Unrealised losses on investments at fair value through profit or loss (2,951) (12,092)
Transfers from Level 2 11,754 -
---------------------------------------------------------------------- -------- ------------
Closing balance 203,522 184,306
---------------------------------------------------------------------- -------- ------------
During the period, a loan advanced in June 2019 in support of
the acquisition of four operational on-farm anaerobic digestion
facilities, previously classified as Level 2, has been reclassified
as Level 3 to bring the treatment in line with other investments in
this sector.
For the Company's financial instruments categorised as Level 3,
changing the discount rates used to value the underlying
instruments alters the fair value. A change in the discount rates
used to value the Level 3 investments would have the following
effect on profit:
31 March 2020
Level 3 0.50% 0.25% 0.00% (0.25%) (0.50%)
------------------------------------------------------------------------- ------- ------- ------- ------- -------
Valuation of financial assets at fair value (GBP'000) 198,300 200,881 203,522 206,223 208,988
Change in valuation of financial assets at fair value through profit or
loss (GBP'000) (5,222) (2,641) - 2,702 5,467
------------------------------------------------------------------------- ------- ------- ------- ------- -------
30 September 2019
Level 3 0.50% 0.25% 0.00% (0.25%) (0.50%)
------------------------------------------------------------------------- ------- ------- ------- ------- -------
Valuation of financial assets at fair value (GBP'000) 179,110 181,677 184,306 187,000 189,760
Change in valuation of financial assets at fair value through profit or
loss (GBP'000) (5,196) (2,629) - 2,694 5,454
------------------------------------------------------------------------- ------- ------- ------- ------- -------
In determining the discount rates for calculating the fair value
of financial assets at fair value through profit or loss, movements
to Pound Sterling interest rates, comparable credit markets and
observable yield on comparable instruments could give rise to
changes in the discount rate.
The Directors consider the inputs used in the valuation of
investments and the appropriateness of their classification in the
fair value hierarchy. In particular, the Directors are satisfied
that significant inputs into the discount rate, other than in
respect of the investments classed as Level 3 as noted above are
market observable. Should the valuation approach change, causing an
investment to meet the characteristics of a different level of the
fair value hierarchy, it will be reclassified accordingly in the
appropriate period.
11. Related party disclosures
As defined by IAS 24 Related Party Disclosures, parties are
considered to be related if one party has the ability to control
the other party or exercise significant influence over the other
party in making financial or operational decisions.
Directors
The non-executive Directors are considered to be the key
management personnel of the Company. Directors' remuneration
including expenses for the period totalled GBP209,000 (31 March
2019: GBP186,000). At 31 March 2020, liabilities in respect of
these services amounted to GBP90,000 (30 September 2019:
GBP90,000).
At 31 March 2020, Mr Paul De Gruchy, together with his family
members, held 551,904 (0.06% of ordinary shares in issue) ordinary
shares in the Company (30 September 2019: 504,938 (0.06% of
ordinary shares in issue) ordinary shares in the Company.
Mr Clive Spears retired as a Director on 13 February 2020
following the conclusion of the 2020 AGM.
Investment Adviser
The Company is party to an Investment Advisory Agreement with
the Investment Adviser, which was most recently amended and
restated on 13 December 2017, pursuant to which the Company has
appointed the Investment Adviser to provide advisory services
relating to the assets on a day-to-day basis in accordance with its
investment objectives and policies, subject to the overall
supervision and direction of the Board of Directors. As a result of
the responsibilities delegated under this agreement, the Company
considers it to be a related party by virtue of being 'key
management personnel'. Under the terms of the Investment Advisory
Agreement, the notice period of the termination of the Investment
Adviser by the Company is 24 months. The remuneration of the
Investment Adviser is set out below.
For its services to the Company, the Investment Adviser receives
an annual fee at the rate of 0.9% (or such lesser amount as may be
demanded by the Investment Adviser at its own absolute discretion)
multiplied by the sum of:
-- the NAV of the Company; less
-- the value of the cash holdings of the Company pro rata to the
period for which such cash holdings have been held.
The Investment Adviser is also entitled to claim for expenses
arising in relation to the performance of certain duties and, at
its discretion, 1% of the value of any transactions entered into by
the Company (where possible, the Investment Adviser seeks to charge
this fee to the borrower).
The Investment Adviser receives a fee of 0.25% of the aggregate
gross proceeds from any issue of new shares in consideration for
the provision of marketing and investor introduction services. The
Investment Adviser has appointed Highland Capital Partners Limited
("Highland Capital") to assist it with the provision of such
services and pays all fees due to Highland Capital out of the fees
it receives from the Company.
The Company's Investment Adviser is authorised as an AIFM by the
FCA under the AIFMD regulations. The Company has provided
disclosures on its website, incorporating the requirements of the
AIFMD regulations. The Investment Adviser receives an annual fee of
GBP70,000 in relation to its role as the Company's AIFM, increased
annually at the rate of the RPI.
During the period, the Company expensed GBP4,306,000 (31 March
2019: GBP4,389,000) in respect of investment advisory fees and
expenses, marketing fees, and transaction management and
documentation services and an additional GBP500,000 (31 March 2019:
GBPnil) was capitalised to the cost of an investment in respect of
transaction management services. At 31 March 2020, liabilities in
respect of these services amounted to GBP2,129,000 (30 September
2019: GBP2,255,000).
The directors of the Investment Adviser also sit on the boards
of, and control, several SPVs through which the Company invests.
The Company has delegated the day-to-day operations of these SPVs
to the Investment Adviser through the Investment Advisory
Agreement.
The voting directors of the Investment Adviser hold directly or
indirectly, and together with their family members, 2,272,707
ordinary shares in the Company (30 September 2019: 2,173,052
ordinary shares).
The non-voting directors of the Investment Adviser hold directly
or indirectly, and together with their family members, 7,096,321
ordinary shares in the Company (30 September 2019: 6,941,847
ordinary shares).
12. Subsequent events after the report date
Dividend
The Company declared, on 24 April 2020, a second interim
dividend of 1.9 pence per ordinary share, amounting to GBP16.7
million (including dividends settled in shares), which will be paid
on 10 June 2020 to ordinary shareholders who are recorded on the
register at close of business on 11 May 2020.
Covid-19
Whilst there remains significant uncertainty over the long--term
impact of Covid-19, the Directors and the Investment Adviser
believe its investments are well placed to weather this
uncertainty. To date there has been no material impact on the
performance of the Company's investments. One of the Company's
biomass investments, representing c.3% of investment valuations,
has ceased production as a result of the availability of waste
wood, which has significantly fallen due to the reduction in
construction and demolition activity as a result of Covid-19. Two
other projects, together representing an additional c.7% of
investment valuations, remain exposed to the waste wood supply
chain. The Directors continue to monitor developments closely and
respond accordingly.
Forecasts of the potential impact of Covid-19 on wholesale
electricity prices have become available to the Company following
the calculation of the valuations used in these financial
statements. Application of the revised forecasts to the Company's
forecast price curve calculation method, which takes the average of
the last four quarterly curves published by Afry, a leading
independent market consultant, results in an average reduction in
prices or 0.5% of NAV at the period end. The Directors have
assessed the impact of these revised prices on valuations and have
concluded that such impacts are not material.
Investments and repayments
Post period end, the Company made further advances of c.GBP2.5
million and received total repayments of c.GBP16.5 million
including a loan with a value of c.GBP8.3 million which was secured
against a number of PFI assets.
13. Non-consolidated SPVs
As explained in note 2.2, the Company invests through certain
SPVs which are not consolidated in these financial statements due
to the Company meeting the criteria of an investment entity and
therefore applying the exemption to consolidation under IFRS 10.
The Company has measured its financial interests in these SPVs at
fair value through profit or loss.
For details of the non-consolidated SPVs, refer to the Company's
annual report and financial statements for the year ended 30
September 2019; there have been no changes since publication.
14. Ultimate controlling party
It is the view of the Directors that there is no ultimate
controlling party.
GLOSSARY OF KEY TERMS
Adjusted net earnings
In respect of a period, a measure of the loan interest -
accrued(1) by the portfolio less total expenses and finance costs,
by the portfolio less total expenses and finance costs
AGM
Annual General Meeting of the Company
AIFM
Alternative Investment Fund Manager
AIFMD
Alternative Investment Fund Managers Directive
Average life
The weighted average term of the loans in the investment
portfolio
Borrower
The entity which issues loan notes to the Company, usually an
SPV
CBE
Commander of the Most Excellent Order of the British Empire
CfDs
Contracts for difference
CIF Law
Collective Investment Funds (Jersey) Law 1988
The Company
GCP Infrastructure Investments Limited
CPI
Consumer Price Index
C shares
A share class issued by the Company from time to time.
Conversion shares are used to raise new funds without penalising
existing shareholders. The funds raised are ring--fenced from the
rest of the Company until they are substantially invested
Deferred shares
Redeemable deferred shares of GBP0.01 each in the capital of the
Company arising from C share conversion
DTR
Disclosure Guidance and Transparency Rules
EGM
Extraordinary General Meeting of the Company
EU
European Union
FCA
Financial Conduct Authority
FiT
Feed-in tariff
FRC
Financial Reporting Council
IFRS
International Financial Reporting Standards
ING
ING Bank N.V.
IPO
Initial public offering
IRR
Internal rate of return
KPIs
Key performance indicators
KPMG
KPMG Channel Islands Limited
The Law
The Companies (Jersey) Law 1991 (as amended)
LIBOR
London interbank offered rate
Loan interest - accrued(1)
Measure of the quantum of interest accruing annually on the
investment portfolio, expressed in GBP terms
Loan to value(1)
Borrowings as a percentage of net assets
LSE
London Stock Exchange
MAR
Market Abuse Regulation
MW
Megawatt
MWh
Megawatt hour
NAV
Net asset value
NIBC
NIBC Financing N.V.
Official List
The Official List of the FCA
Ongoing charges ratio(1)
Annual percentage reduction in shareholder return as a result of
recurring operational expenses
Ordinary shares
The ordinary share capital of the Company
PFI
Private Finance Initiative
PF2
Private Finance Initiative 2
PPA
Power purchase agreement
PPP
Public-private partnership
Preqin
Preqin provides financial data and information on the
alternative assets market, as well as tools to support investment
in alternatives
Project Company
A special purpose company which owns and operates an asset
Public sector backed
All revenues arising from UK central Government or local
authorities or from entities themselves substantially funded by UK
central Government or local authorities, obligations of NHS Trusts,
UK registered social landlords and universities and revenues
arising from other Government-sponsored or administered initiatives
for encouraging the usage of renewable or clean energy in the
UK
RBSI
Royal Bank of Scotland International Limited
Revolving credit facilities
Credit facilities with RBSI, ING and NIBC
RHI
Renewable heat incentive
ROCs
Renewable obligation
RP
Registered providers
RPI
Retail Price Index
Senior ranking security
Security that gives a loan priority over other debt owed by the
issuer in terms of control and repayment in the event of default or
issuer bankruptcy
SPV
Special Purpose Vehicle
Total shareholder return(1)
Measure of share price growth plus dividends paid over time,
expressed as an annual percentage
UK Code
UK Corporate Governance Code published in 2018
UK FCA
The UK's Financial Conduct Authority
Weighted average discount rate
A rate of return used in valuation to convert a series of future
anticipated cash flows to present value under a discounted cash
flow approach. It is calculated with reference to the relative size
of each investment
1. Alternative performance measure ("APM"); for definition and
calculation methodology, refer to the APMs section below.
ALTERNATIVE PERFORMANCE MEASURES
The Board and the Investment Adviser assess the Company's
performance using a variety of measures that are not defined under
IFRS and are therefore classed as alternative performance measures
("APMs").
Where possible, reconciliations to IFRS are presented from the
APMs to the most appropriate measure prepared in accordance with
IFRS. All items listed below are IFRS financial statement line
items unless otherwise stated.
APMs should be read in conjunction with the unaudited interim
condensed statement of comprehensive income, unaudited interim
condensed statement of financial position and unaudited interim
condensed statement of cash flows, which are presented in the
unaudited interim condensed financial statements section of this
report. The APMs below may not be directly comparable with measures
used by other companies.
Adjusted earnings per share
In respect of a period, a measure of the loan interest -
accrued(1) by the portfolio less total expenses and finance costs,
divided by the weighted average number of shares in issue.
Period Period
ended ended
31 March 31 March
2020 2019
GBP'000 GBP'000
-------------------------------------------------------- ----------- -----------
Total profit and comprehensive income 17,210 33,552
Less: income/gains on fair value through profit or loss (25,387) (31,365)
Less: other income(2) - (9,844)
Add: loan interest - accrued(1) 41,670 40,267
Adjusted net earnings 33,493 32,610
-------------------------------------------------------- ----------- -----------
Weighted average number of shares 878,017,596 876,576,712
Adjusted earnings per share (pps) 3.8 3.7
-------------------------------------------------------- ----------- -----------
1. APM - refer to relevant APM above for further
information.
2. Other income above includes unscheduled (early) prepayment
fees for the repayment of certain loans.
Loan interest - accrued
In respect of a period, the measure of the quantum of interest
accruing on an investment.
Loan interest - accrued is based on the Company's right to
receive future cash flows from an investment, which forms a
component of investment cash flows used for the valuation of
financial assets at fair value through profit or loss under IFRS 9.
This metric is used in the calculation of adjusted earnings per
share(1) .
Loan to value
A measure of the indebtedness of the Company at period end,
expressed as interest bearing loans and borrowings as a percentage
of net assets.
Ongoing charges ratio
Ongoing charges ratio (previously Total Expense Ratios or TERs)
is a measure of the annual percentage reduction in shareholder
returns as a result of recurring operational expenses assuming
markets remain static and the portfolio is not traded.
This is a standard performance metric across the investment
industry and allows comparability across the sector.
Total shareholder return
A measure of the performance of a Company's shares over time. It
combines share price movements and dividends to show the total
return to the shareholder expressed as a percentage. It assumes
that dividends are reinvested in the shares at the time the shares
are quoted ex-dividend.
This is a standard performance metric across the investment
industry and allows comparability across the sector.
Weighted average annualised yield
The weighted average yield on the investment portfolio
calculated based on the yield of each investment weighted by the
principal balance outstanding on such investment, expressed as a
percentage.
The yield forms a component of investment cash flows used for
the valuation of financial assets at fair value through profit or
loss under IFRS 9.
1. APM - refer to relevant APM above for further
information.
CORPORATE INFORMATION
The Company
GCP Infrastructure Investments Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Contact: jerseyinfracosec@apexfs.com
Corporate website: www.gcpinfra.com
Directors
Ian Reeves CBE (Chairman)
Julia Chapman (Senior Independent Director)
David Pirouet
Paul De Gruchy
Michael Gray
Dawn Crichard
Clive Spears (resigned 13 February 2020)
Administrator, Secretary and registered office of the
Company
Apex Financial Services (Alternative Funds) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Tel: +44 (0)1534 847000
Advisers on English law
Stephenson Harwood LLP
1 Finsbury Circus
London EC2M 7SH
Advisers on Jersey law
Carey Olsen
47 Esplanade
St Helier
Jersey JE1 0BD
Depositary
Apex Financial Services (Corporate) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Financial Adviser and Broker
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
Tel: +44 (0)20 7710 7600
Public relations
Quill PR (Buchanan Communications)
107 Cheapside
London EC2V 6DN
Independent Auditor
KPMG Channel Islands Limited
37 Esplanade
St Helier
Jersey JE4 8WQ
Investment Adviser and AIFM
Gravis Capital Management Limited
24 Savile Row
London W1S 2ES
Tel: +44 (0)20 3405 8500
Operational Bankers
Lloyds Bank International Limited
9 Broad Street
St Helier
Jersey JE4 8NG
Royal Bank of Scotland International Limited
71 Bath Street
St Helier
Jersey JE4 8PJ
BNP Paribas S.A.
Jersey Branch
IFC 1
Esplanade
St Helier
Jersey JE1 5BP
Registrar
Link Market Services (Jersey) Limited
12 Castle Street
St Helier
Jersey JE2 3RT
Security Trustee
Gravis Capital Partners LLP
24 Savile Row
London W1S 2ES
Valuation Agent
Mazars LLP
Tower Bridge House
St Katharine's Way
London E1W 1DD
For further information please contact:
Gravis Capital Management Limited
Philip Kent
Dion Di Miceli +44 (0)20 3405 8500
Stifel Nicolaus Europe Limited
Mark Bloomfield
Nick Donovan +44 (0)20 7710 7600
Buchanan/Quill
Helen Tarbet
Sarah Gibbons-Cook
Henry Wilson +44 (0)20 7466 5000
Notes to the Editor
About GCP Infra
GCP Infra is a closed-ended investment company and FTSE-250
constituent whose shares are traded on the main market of the
London Stock Exchange. Its objective is to provide shareholders
with regular, sustained, long-term distributions and to preserve
capital over the long term by generating exposure to UK
infrastructure debt and related and/or similar assets. The Company
primarily targets investments in infrastructure projects with long
term, public sector-backed, availability-based revenues. Where
possible, investments are structured to benefit from partial
inflation protection. GCP Infra is advised by Gravis Capital
Management Limited.
S
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
IR LVLLLBELBBBF
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