TIDMNESF
RNS Number : 3516J
NextEnergy Solar Fund Limited
28 June 2017
28 June 2017
NextEnergy Solar Fund Limited ("NESF" or the "Company")
Final results for the year ended 31 March 2017
Consolidating on our leading position
NextEnergy Solar Fund announces its results for the year ended
31 March 2017.
Summary
-- Largest listed solar energy fund on the London Stock Exchange
in terms of both installed solar capacity and market
capitalisation, with c.483MW installed capacity across an
investment portfolio of 48 solar PV assets.
-- Significant operating asset outperformance - Energy generated
from the portfolio amounted to 394GWh, 3.3% above budget (despite
solar irradiation lower by 0.3%). Asset Management Alpha of
+3.6%.
-- Net Asset Value ("NAV") per share of 104.9p (2016: 98.5p)
grew from 98.5p to 104.9p over the
year mainly due to operating outperformance, increase in power
price forecasts, higher RPI inflation expectations and a reduction
in discount rates.
-- Equity discount rate lowered by 0.25% to 7.25% for unlevered
assets. Risk premium for levered assets unchanged at between 0.7%
to 1.0%.
-- Total Shareholder Return and NAV Total Return during the year
were 21.1% and 14.4% respectively (annualised returns since IPO
three years ago were 9.1% and 7.2% respectively).
-- Income was GBP35.3m with a cash dividend cover of 1.2x.
Reported profit for the year was GBP49.8m and earnings per share
were 13.81p.
-- On track to pay target dividend of 6.31p for the year.
Targeting a 6.42p dividend distribution for the next year ending 31
March 2018.
-- Strong pipeline of acquisition targets in negotiation and
further UK solar opportunities under consideration for over
269MW.
Financial highlights
As at 31 March 2017
NAV GBP478.6m
NAV per share 104.9p
Share price 110.5p
Dividend yield 5.7%
Number of shares 456.4m
Market capitalization GBP504.3m
Dividends in relation to the Financial Year 16/17 GBP20.7m
Net dividend cover 1.2x
Kevin Lyon, Chairman of NESF, commented:
"I am pleased to report another year of progress, in which we
consolidated our position as the largest listed renewable solar
energy fund in the UK.
This is a strong set of results. Over the last three years we
have met our target returns to investors, have achieved our key
growth objectives and have continued to demonstrate a sustainable
outperformance across our portfolio.
In the dynamic solar industry, NESF is well placed to take
advantage of the multiple growth opportunities available."
NESF's Investment Adviser will host a presentation meeting for
analysts at 10.00am today. A conference call facility for that
meeting will also be available. Please contact MHP Communications
on 020 3128 8100 or nextenergy@mhpc.com for more details.
For further information:
NextEnergy Capital Limited 020 3239 9054
Michael Bonte-Friedheim
Aldo Beolchini
Cantor Fitzgerald Europe 020 7894 7667
Sue Inglis
Fidante Capital 020 7832 0900
Robert Peel
Justin Zawoda-Martin
Macquarie Capital (Europe)
Limited 020 3037 2000
Nick Stamp
Shore Capital 020 7408 4090
Bidhi Bhoma
Anita Ghanekar
MHP Communications 020 3128 8100
Andrew Leach nextenergy@mhpc.com
Ivana Petkova
Luke Briggs
Notes to Editors:
NextEnergy Solar Fund
NESF is a specialist investment company that invests in
operating solar power plants in the UK. Its objective is to secure
attractive shareholder returns through RPI-linked dividends and
long-term capital growth. The Company achieves this by acquiring
solar power plants on agricultural, industrial and commercial
sites.
NESF has raised equity proceeds of GBP586m since its initial
public offering on the main market of the London Stock Exchange in
April 2014. It also has credit facilities of GBP269.8m in place
(GBP150m from a syndicate including MIDIS, NAB and CBA; MIDIS:
GBP54.3m; Bayerische Landesbank: GBP43.8m; and NIBC: GBP21.7m).
NESF is differentiated by its access to NextEnergy Capital Group
(NEC Group), its Investment Manager, which has a strong track
record in sourcing, acquiring and managing operating solar assets.
WiseEnergy is NEC Group's specialist operating asset management
division, providing solar asset management, monitoring and other
services to over 1,250 utility-scale solar power plants with an
installed capacity in excess of 1.8 GW.
Further information on NESF, NEC Group and WiseEnergy is
available at www.nextenergysolarfund.com, www.nextenergycapital.com
and www.wise-energy.eu.
Highlights
-- Investment portfolio as at the date of distribution of this
annual report of 48 solar PV plants for a total of c.483MW
installed capacity in operation. NESF is the largest listed solar
energy fund on the London Stock Exchange in terms of both installed
solar capacity and market capitalisation.
-- Significant operating asset outperformance - Energy generated
from the portfolio amounted to 394GWh, 3.3% above budget (despite
solar irradiation lower by 0.3%). This amounts to an Asset
Management Alpha of +3.6%.
-- Launch of a 350m shares placing programme and completion of
equity issuances for a total of GBP310.8m under the tap issuance
programme at the date of distribution of this report.
-- NAV per share grew from 98.5p to 104.9p over the year mainly
due to operating outperformance, changes in power price forecast,
higher RPI inflation expectations and a change in discount
rates.
-- Equity discount rate lowered by 0.25% to 7.25% for unlevered
assets. Risk premium for levered assets unchanged at between 0.7%
to 1.0%.
-- Total Shareholder Return and NAV Total Return during the year
were 21.1% and 14.4% respectively (annualised returns since IPO 3
years ago were 9.1% and 7.2% respectively).
-- Refinanced the Company's RCF through a GBP150m long term debt
financing with differentiating features accretive to NAV and
dividend cover.
-- Income was GBP35.3m with a cash dividend cover of 1.2x.
Reported profit for the year was GBP49.8m and earnings per share
were 13.81p.
-- On track to pay target dividend of 6.31p for the year.
Targeting a 6.42p dividend distribution for the next year ending 31
March 2018.
-- Strong pipeline of acquisition targets in negotiation and
further UK solar opportunities under consideration for over
269MW.
-- Proposed amendment to investment policy to allow up to 15% of
Gross Asset Value to be invested in solar assets outside of the
UK.
Corporate Summary
The Company is a closed-ended investment company limited by
shares, registered and incorporated in Guernsey under the Companies
(Guernsey) Law, 2008, as amended, on 20 December 2013, with
registered number 57739.
The Company is a Registered Closed-ended Collective Investment
Scheme regulated by the GFSC pursuant to the Protection of
Investors (Bailiwick of Guernsey) Law 1987, as amended.
The Company has 456,388,199 shares in issue, with no shares held
in Treasury, all of which are admitted to the premium listing
segment of the Official List of the UKLA and are traded on the
London Stock Exchange's main market for listed securities under the
ticker "NESF".
The Company makes its investments through UK HoldCos and
underlying SPVs which are ultimately wholly-owned by the Company.
References to the Company's activities (investments in solar PV
plants or debt financing) refer to activities through the UK
HoldCos. The UK HoldCos are registered and incorporated in England
and Wales under the Companies Act, 2006, as amended:
-- NextEnergy Solar Holdings Limited, incorporated on 24 March
2014, with registered number 08956168
-- NextEnergy Solar Holdings II Limited, incorporated on 13
February 2015, with registration number 09438822
-- NextEnergy Solar Holdings III Limited, incorporated on 20
July 2015, with registration number 09693016
-- NextEnergy Solar Holdings IV Limited, incorporated on 16
March 2016 with registration number 10066420
The Company controls the investment policy of each of the UK
HoldCos and their wholly-owned SPVs to ensure that each will act in
a manner consistent with the investment policy of the Company.
The Investment Manager is NextEnergy Capital IM Limited, a
company incorporated in Guernsey with registered number 57740
licensed under the POI Law and regulated by the GFSC. The
Investment Manager has appointed NextEnergy Capital Limited, a
company incorporated in England and Wales on 23 October 2006 with
registered number 05975223, to provide investment advice, pursuant
to an Investment Advisory Agreement.
Chairman's Statement
Introduction
I am pleased to present, on behalf of the Board, the Annual
Report and Audited Financial Statements for NextEnergy Solar Fund
Limited for the year ended 31 March 2017.
In the 3 years since our IPO the Company has rapidly grown to
establish itself as the largest solar energy focused investment
company listed on the London Stock Exchange in terms of both
installed capacity and market capitalisation.
At the date of distribution of this Annual Report, the Company's
portfolio comprised 48 assets amounting to c.483MW installed solar
capacity and an invested capital of c.GBP554m (2016: 33 assets,
c.414MW and c.GBP481m invested capital).
I am pleased to report that all the main targets and goals set
at the time of the IPO have been met or exceeded by the
Company.
Thanks to the approach of the Investment Manager, NESF has
acquired its portfolio at attractive values compared to market
average acquisition values, which will contribute to meeting NESF's
target cash dividend growth linked to RPI inflation.
Over the 3 years since IPO, NESF has achieved an annualised
Total Shareholder Return of 9.1% and an annualised NAV Total Return
of 7.2% (based on NAV and dividends per share paid), in line with
the target range of seven to nine percent equity return for
investors. This is a significant achievement considering the
challenging market conditions faced by the UK solar sector during
these 3 years.
In addition, NESF's operating asset management strategy has been
yielding consistent levels of over- performance in terms of
electricity generation compared to the Company's acquisition
budgets.
We continue to focus exclusively on solar power projects. Our
investment strategy is driven by our belief that solar power
projects have significantly less revenue, operating and financial
risk than other renewable energy technologies. We also believe that
the solar expertise of the NextEnergy Capital Group can be readily
transferred across geographies and the Board is believes from
soundings made from a number of our larger investors that
shareholders will support the proposal to broaden the investment
policy to permit up to 15% of Gross Asset Value to be invested in
solar assets in OECD countries (other than the UK).
During the year the Company has delivered a strong set of
operating and financial results and we have significantly increased
our asset base via further debt and equity capital raising
transactions.
Financial Results and Performance
Financial Results
In accordance with IFRS, the Company prepares its financial
statements considering the fair market value of its investments and
net assets of its various subsidiaries.
Profit before tax was GBP49.8m (2016: GBP2.0m) with earnings per
share of 13.81p (2016: 0.78p) positively impacted by an increase in
fair value of investments. Cash dividend cover was 1.2x (2016:
1.2x).
The Company's OCR was 1.2% (2016: 1.2%), in line with our
budget. The budgeted OCR for the next year ending 31 March 2018 is
1.1%, reflecting the advantage of a larger capital base for the
whole of next year.
Portfolio Performance
We are particularly pleased with the operational performance of
the portfolio during the year. Overall, energy generated by NESF's
plants was 394GWh, approximately 3.3% above our budget. This is the
Company's third year of energy generation outperformance relative
to budget. During the previous financial year, energy generation
from NESF's portfolio amounted to 225GWh.
During the year, solar irradiation across the portfolio was 0.3%
below our expectations (2016: +0.4% above expectation).
Nonetheless, NESF's asset management alpha was +3.6%, which
highlights how the principal driver for our continued
outperformance continues to rest with the structure and quality of
NESF's asset management organisation.
We did not experience any significant operational issues or
technical underperformance across the portfolio as a whole during
the course of the year. NESF's asset manager worked hard to prevent
and mitigate unexpected or planned outages due to works conducted
on the transmission grid by the various DNOs.
The electricity generated by our portfolio is equivalent to a
saving of c.156,560 tonnes of carbon emissions per annum and
sufficient to power some 100,000 households for a year. This is
roughly equivalent to powering a city the size of Southampton for
an entire year.
Net Asset Value
At the year end, the Company's NAV was GBP478.6m, equivalent to
104.9p per share (March 2016: NAV of GBP273.8m, 98.5p per share).
This 6.5% growth in NAV per share over the year was mainly driven
by an improved outlook for UK energy prices, sustained operating
outperformance, higher RPI inflation expectations and a minor
reduction in discount rates. It is also worth mentioning that
during the year new assets acquired or completed were NAV-accretive
at the time of completion or acquisition.
More specifically on developments in the UK energy sector,
during the year we experienced a dynamic and changing market. The
wholesale power market in the UK has on average moved upward for
reasons that include the depreciation of sterling vs. other
currencies immediately following the Brexit vote in June 2016, as
well as other short-term effects further described in detail in the
Investment Manager's Report. On balance this year we have
experienced the first upward review of long term price forecasts
since the Company's IPO 3 years ago. Our current estimates are 3.6%
higher than those used at the end of the previous reporting
year.
The unlevered discount rate was reduced by 0.25% down to 7.25%
to reflect the increasing market value for UK operating solar
assets, while we continue to value asset portfolios with leverage
at higher discount rates up to 8.25%. This, together with the
increase in long-term project leverage across the portfolio, led to
an increase during the reporting period in the weighted average
discount rate from 7.7% to 7.9%.
Further details on the Company's NAV and discount rate are
included in the Financial Review section.
Portfolio Growth
The Company's Investment Adviser carefully reviews acquisition
targets that are identified in the market. There has been
significant activity in the UK solar sector in terms of assets
being offered for sale. The Investment Adviser pursues only a small
proportion of opportunities it identifies.
During the first 6 months of the year the Company focused on
integrating the acquisition of the 2 assets that had been acquired
in the prior financial year as well as the ongoing operation of
those acquired previously. In the second part of the year, the
Investment Adviser focused on developing a strong pipeline of new
opportunities, raising additional capital and started executing new
acquisitions. As a result, the portfolio grew from 33 to 48 assets
at the date of distribution of this Report.
As the UK solar market continued to mature and reached the end
of its revenue-subsidised period, we have noticed greater
competition for large portfolios of operating assets. This was
particularly the case in auction-style sell-side processes in which
a wide range of established investors and new entrants were
involved. Our Investment Adviser upheld a very diligent approach
and sought to maintain our track record of investing at prices
below market average by focusing on smaller portfolios of several
solar plants to be built for us. Since our last capital increase in
November 2016, NESF had added another 73MW of attractively priced
assets and is in negotiation on another 269MW.
This strategy of focusing on smaller assets results both in an
accretion in the value of the Company's portfolio as well as in a
greater risk diversification through fragmentation, with an average
size of our solar PV plants of 10.6MW, excluding rooftop assets.
Larger PV plants offered on the secondary market are purportedly
associated with lower operating expenditure due to economies of
scale, but this is not necessarily a benefit for investors. Based
on the Investment Adviser's experience in bidding for these assets,
every efficiency and/or scale benefit (even those still
theoretical) is already priced in by vendors so that there is
limited scope for upside for acquirers. As a result, we have found
that larger assets or portfolios do not present any particular
economic advantage to acquirers due to scale. Besides, the
Company's position as the largest listed solar energy fund investor
in the UK solar market, allows our Operating Asset Manager to best
negotiate any service on behalf of NESF, thus recreating the same
economies of scale that would be available to the vendor of a
larger single asset.
Overall, considering each site's irradiation and ROC banding,
the group of assets added to the portfolio over the year was
secured at attractive investment values compared to the average
costs for solar plants observed in the market.
Capital Raising and Financing
The Company continued to secure support from its shareholders to
pursue its growth strategy. During last summer, the Company issued
64.1m new shares under the tap issuance programme. Afterwards,
following continuing market demand and a strong pipeline of
acquisitions, the Company launched a new Placing Programme in
respect of 350m new shares and issued 110.3m shares in November. A
scrip dividend was offered during the year, which allowed the
Company to issue an additional 4.0m shares taking the total voting
shares in issue to 456.4m. A further 44,646 shares will be issued
on 30 June 2017 by way of a scrip dividend. On 23 June 2017, the
Company also issued 115 million new shares further to the Company's
350m share issuance programme, taking the total shares in issue to
571.4 million. The strong demand from existing shareholders
underlines the backing we enjoy among parties that have supported
our growth since the IPO in April 2014. This new capital was used
to repay our existing RCF allowing no cash drag and a quick
deployment of the capital raised. The remaining capital was rapidly
deployed to secure new portfolio assets for the Company.
During the year, the Company took advantage of the strong
interest of institutional debt providers and banks to lend to the
UK solar sector to refinance its short-term credit facilities with
a long-term fully amortising debt facility. This refinancing was in
many respects an innovative transaction and included various
bespoke features that contributed to create additional value for
our shareholders. At year-end, the Company had total financial debt
outstanding of GBP269.8m (2016: GBP216.6m) on a pro-forma
look-through basis including project level debt. Of the total
financial debt, GBP248.1m was long-term fully amortising debt,
while the remainder of GBP21.7m was drawn under the Company's
short-term credit facilities. This represents a gearing level of
36% which is comfortably beneath our stated maximum debt- to-GAV
level of 50%.
Dividend and Dividend Growth
The Company continues to achieve all of its dividend and
dividend growth objectives. For the year under consideration, the
Company will have paid out a total dividend of 6.31p per share
(2016: 6.25p) in 4 quarterly distributions.
Our target is to grow dividends in line with UK retail price
index growth. Our disciplined investment track record has so far
resulted in a robust cash dividend cover of 1.2x which should allow
us to continue to meet this target. For the 2017/18 financial year,
the UK retail price index applicable to the value of ROCs is 1.8%
(as published by the Office for National Statistics) we are
therefore targeting to grow the dividend to 6.42p per share.
Corporate Governance and Regulation
The Board continues to review the Company's corporate governance
structure with a view to maintaining best- practice processes and
procedures. During the course of the year, the Board undertook a
review of its effectiveness, taking into account the views of the
external service providers and consultants of the Company. The
outcome of the review was that the Board and the Audit Committee
are functioning effectively. We undertake the Board's effectiveness
review on a yearly basis. Further details (including adhering to
the 2014 UK Corporate Governance Code and viability statement
reporting) on the Company's Corporate Governance can be found in
the Corporate Governance section on pages 61 to 69.
Market Developments and Outlook
At the Company's IPO in April 2014, the UK Government had a
target of 12GW of solar installed capacity by 2020. This target was
met in March 2017, 3 years ahead of the target date. This
accelerated growth is a striking success for the solar energy
industry and for the UK transition to a low-carbon economy.
At the same time, the ROC regime came to an end on 1 April 2017.
As such, newly constructed solar projects will not be eligible to
receive ROCs for the energy they generate. At present, there is no
other relevant mechanism of regulatory support or public subsidies
for industrial scale solar assets such as those targeted by
NESF.
Nevertheless, the cost of new solar energy installations
continues on a downward trajectory and as a result there is less or
no need for subsidies in many regions of the world for solar to be
cost competitive with other energy sources. Many recent energy
auctions in various jurisdictions globally have seen solar PV
without subsidy becoming cheaper than wind and even coal.
We expect the UK will experience a next stage of growth in solar
energy driven by cheaper system costs and possibly the integration
with electricity storage technologies. The recent UK's Fifth Carbon
Budget considers scenarios in which solar will reach between 20 and
40GW of installed capacity by 2030 compared to the current 12GW.
Solar plants built during this next phase will not require
Government incentives and will compete with other forms of
electricity generation.
NESF has multiple sources of continued growth. These growth
avenues include:
-- Acquiring solar plants previously built under the various FiT
and ROC regimes by parties looking to sell such assets;
-- Acquiring solar plants to be built in the future with
long-term power agreements entered into with creditworthy
electricity buyers;
-- Adding new technologies to our existing solar plant portfolio
(e.g. electricity storage, other technologies enhancing
productivity);
-- Investing in new capacity at existing sites where grid
connection capacity and permits allow, albeit such new capacity
will not benefit from previous ROC regimes from which the existing
site benefits; and
-- Acquiring solar plants in selected markets outside the UK
where attractive risk-adjusted returns can be achieved.
Considering in detail these 5 growth avenues:
Even without considering the new capacity installed at the very
end of Q1 2017, there is a significant secondary market opportunity
with a total 4.2GW of assets assumed to be held by non-long term
investors that could be acquired in due course. For this reason, we
expect to continue issuing equity under the current Placing
Programme during the next financial year to finance our attractive
and growing pipeline of acquisition targets.
In addition, the Investment Adviser is reviewing several
prospects, currently at an early stage of development but that
could represent an opportunity to grow the Company's portfolio with
value accretive acquisitions in line with its current risk profile
and investment policy. NESF has recently acquired all the necessary
project rights in respect of 4 sites for a total capacity of 60MW
that could be built in the next 12 to 24 months.
We also continue to review the opportunity to add new
technologies to our current portfolio with the objective of
increasing returns and mitigating risk exposure. We have not yet
implemented such new technologies on any of our sites, but expect
this to happen over the next 12 to 18 months, if not earlier.
Another growth avenue under analysis is the ability to add new
capacity to our existing sites, where our grid access and other
permits allow. This new capacity can benefit from the existing
significant investment made in grid connection infrastructure, but
would not qualify for the ROC regime from which the existing plant
benefits. Such incremental investments will be considered when they
are financially remunerative with limited market exposure.
Internationalisation represents a further attractive avenue for
the Company's growth. The growth in installed solar capacity in
other developed markets continues at a rapid pace, and we intend to
take advantage of attractive acquisition opportunities in markets
where the regulatory structures are well defined and targets offer
sound financial returns. We have proposed a special resolution at
the next AGM to amend the investment policy of NESF to allow
investments in OECD countries other than the UK for up to 15% of
GAV.
In parallel, we will continue to focus on maximising the
operating performance of the assets currently owned and exploring
further value-enhancing opportunities around the existing
portfolio.
The regulatory and political backdrop is also evolving
significantly. The UK is on track on its decision to leave the
European Union, having triggered Article 50 of the Treaty on
European Union on 29 March 2017. While the impact of Brexit on the
Company and on the renewable energy sector is still at this point
unclear, we believe it will have limited, if any, impact on the
UK's climate change policies or the regulation of the sector. We
will continue to monitor any Brexit effects on power prices, sector
regulation and growth opportunities carefully.
Kevin Lyon
Chairman of the Board of Directors
Strategic Report
Solar Energy within Renewable Energy Context
Renewable energy is defined as energy sourced from theoretically
inexhaustible sources and not derived from fossil or nuclear fuels.
The principal renewable generation sources include solar, wind,
geothermal, hydro and biomass.
The Company believes that, within renewable energy, solar
represents the most attractive risk-adjusted investment
opportunity. The low variability of solar irradiation over the
long-term, low on-going operating costs and low capital expenditure
requirements post- construction compare favourably with the
characteristics of other clean energy technologies.
In its third year of operation, the Company has contributed to
the reduction of greenhouse gas emissions into the Earth's
atmosphere. The amount of CO2 emissions avoided by the Company's
plants amounts to c.156,560 tonnes per annum. This amount is
expected to increase as the new plants being acquired are
commissioned and achieve a full year of operation.
Market Growth
2016 marked another very strong year for renewable energy
worldwide as renewables added 138GW of net power generating
capacity in 2016, compared to 101GW from coal, gas and nuclear. The
cumulative amount of installed renewable generating capacity as at
2016 stood at 2,006GW. This trend is expected to continue, with
renewable energy increasing its share of energy produced as well as
of new capacity added to the global grid. Out of this total global
share of the market, solar PV constitutes today a 330GW of
installed capacity and is estimated to grow to 600GW by 2020, based
on publicly announced targets.
The transition to cleaner energy is driven and defined by
important considerations, including the need to address climate
change, emissions of greenhouse gases into the Earth's atmosphere,
the relative rapidity in the construction of renewable energy
plants, concerns about reliance of hydrocarbon sourcing and
imports, the relative ease of constructing clean energy plants as
well as the rapidly declining unit investment cost of renewable
energy installations.
Developed countries and economies in transition across the globe
continue to embrace renewable energy as a key energy source to
satisfy increased energy demand and replace obsolete power
generation plants.
The Paris COP21 Agreement was ratified by 146 Countries
worldwide. It sets out a global action plan to put the world on
track to mitigate the negative consequences of climate change by
limiting global warming to below 2degC. Governments agreed to
undertake rapid reductions thereafter in accordance with the best
available science and to come together every 5 years to set more
ambitious targets.
The Department for BEIS reported that at the end of 2016 energy
from renewables represented 24.4% of all electricity generation in
the UK, and solar PV represented c.12.4% of renewable generation
for the full year 2016, which is a percentage change increase of
36.1% from the previous year to a record 10.3TWh.
On Friday 26 May 2017, the UK achieved a first time solar power
record as 8.7GW of solar power was generated at 1pm representing an
impressive 24.3% of the entire power demand in the UK. The
Company's portfolio contributed materially to this solar generation
with 4% (or 0.35 GW). This represented 1% of the entire power
generated in the UK at that time.
Also, earlier in April 2017, news reported how Britain went a
full day without using coal to generate electricity for the first
time since the 1880s.
Investment Objective and Policy
The Company's Investment Objectives and Policy are stated in the
Investment Manager's Report.
Corporate Group Structure
The Company is a Guernsey Registered Closed-ended Investment
Scheme. Further information is provided in the Corporate
Summary.
The Company has a 31 March financial year-end and announces
interim results in November and full year results in June. The
updated NAV is published on a quarterly basis and in the course of
any fundraising events during the financial year.
The Company's Board and Committees
The Company's Board of Directors comprises 3 independent,
non-executive directors. The Board's role is to manage and monitor
the Company in accordance with its terms of reference. The Board
monitors the Company's adherence to its investment policy, the
operational and financial performance of the Company and its
underlying assets, as well as the performance of the Investment
Adviser and other key service providers. In addition, the Board has
overall responsibility for the review and approval of the Company's
NAV valuations prepared by the Investment Manager and
Administrator. It also maintains the risk register, which it
monitors and updates on a regular basis. The structure of the Board
processes allows the members to test business controls and choice
of acquisitions to ensure they meet the strategy driving the
long-term dividend target.
The Investment Manager, Investment Adviser, Developer and
Operating Asset Manager
The Company's Investment Manager is NextEnergy Capital IM
Limited. The Investment Manager has appointed NextEnergy Capital
Limited to act as Investment Adviser in relation to the Company.
Michael Bonte-Friedheim, Aldo Beolchini and Abid Kazim comprise the
Investment Committee of the Investment Adviser, whose role is to
consider and, if thought fit, recommend actions to the Investment
Manager in respect of the Company's potential and actual
investments. Aldo Beolchini is a Director of the Investment
Manager.
-- Michael Bonte-Friedheim is Founding Partner and CEO of the
NextEnergy Capital Group. He has over 20 years' specialist
experience in the power and energy sector and was previously
Managing Director in Goldman Sachs energy and power investment
banking team in London and non-executive Chairman and CEO of listed
energy companies.
-- Aldo Beolchini is Managing Partner and CFO of the NextEnergy
Capital Group. He has over 15 years' experience in investment
banking and renewables. Mr Beolchini joined in 2008 and was
previously Vice President at Morgan Stanley Investment Banking and
an Officer at the Financial Guard Corps in Italy.
-- Abid Kazim is the UK Managing Director of the NextEnergy
Capital Group and has over 25 years' experience in strategy
development and large programme delivery, with a significant track
record in business outsourcing, transaction services, and service
management in the renewable energy sector.
The Company has also signed a project sourcing agreement with
NextPower Development Limited, another unit of the NextEnergy
Capital Group. The relationship has increased the efficiency of the
transactional process reflected in the size of the investment
pipeline and is a key driver for delivering dividend growth.
The Company has entered into an asset management framework
agreement with the Operating Asset Manager, WiseEnergy (GB)
Limited, an affiliate of the NextEnergy Capital Group. Under the
framework agreement, WiseEnergy (GB) Limited enters into individual
asset management contracts with each solar power plant entity
acquired by the Company and performs a broad and defined set of
asset management activities for each entity. The collective
experience of the NextEnergy Capital Group in managing and
monitoring solar PV plants best positions the Company to implement
efficiencies at both the investment and operating asset level. The
technical and operating outperformance of the portfolio to date
underlines the benefits of this comprehensive strategic
relationship.
The NextEnergy Capital Group is a privately-owned specialist
investment and asset manager focused on the solar sector. It was
formed in 2007 and has developed a unique track record in the
European solar sector. Prior to the IPO of the Company, it had
developed, financed, managed the construction of and owned 14 solar
projects in the UK and Italy. In addition, its asset management
activities now cover the management and monitoring of in excess of
1,250 utility-scale solar power plants and approximately 3,000
solar rooftop installations for a total capacity of over 1.8GW on
behalf of third-party equity investors and financing banks. Its
clients include listed solar funds (in addition to the Company),
private equity, family offices, renewable energy specialists and
other equity investors as well as some of Europe's leading lenders
to and financiers of the solar sector. The estimated value of the
assets managed and monitored by NextEnergy Capital Group amounts to
c.GBP4.3 billion. It has developed proprietary hardware and
software products and solutions to facilitate delivery of its
services to its client base. The NextEnergy Capital Group also
manages NextPower II LP, a EUR150m private equity fund dedicated to
solar PV investments in Italy.
NextEnergy Capital Group's team comprises some 88 dedicated
staff focused on the European solar sector. The team has a combined
investment track record of over 1GW in European solar transactions
and had roles in over EUR100 billion in European energy and
infrastructure transactions.
The Company, through its contractual arrangements with the
NextEnergy Capital Group, has access to a highly experienced
investment team and to a leading asset manager in the European
solar sector and expects to leverage this expertise to secure
further attractive solar power plant acquisitions and achieve
best-in-class technical, operational and financial performance from
its portfolio of operating plants. The wide range of services
provided by the NextEnergy Capital Group strategically positions
the Company to best resolve any potential technical and commercial
issues that may impact individual assets and drive best-in-class
performance. This ensures that the Company's solar PV plants are
operated as efficiently as possible to optimise their technical and
financial performances with a view to achieve and exceed the target
cash flow yield over their useful life span.
Activities of the NEC Group for NextEnergy Solar Fund
Limited
Investment Manager
NextEnergy Capital IM Limited
-- Full discretion to make investments in accordance with investment policy
-- Acts as AIFM of the Company
-- Responsible for risk management and portfolio management activities
-- Considers investment proposals, exclusively advanced by the Investment Adviser
-- The Board reviews activity of the Investment Manager to
ensure adherence to the Company's investment objective and
investment policy
-- Reports to the Company's Board comprehensively on all
technical, operational and financial issues
Investment Adviser
NextEnergy Capital Limited
-- Provides investment advice and recommendations to the Investment Manager
-- Identifies, in conjunction with the Developer, investment opportunities for the Company
-- Evaluates investment opportunities and co-ordinates external due diligence activities
-- Negotiates all project contracts with counterparts
-- Prepares investment proposals and provides general advice and
recommendations to the Investment Manager concerning the Company's
portfolio, financing, strategy, market developments, etc.
-- Reviews performance of the Company's portfolio together with the Operating Asset Manager
Developer
NextPower Development Limited
-- Sources and presents investment opportunities to the Company and its advisers
-- The Company has right of first offer over all suitable projects identified by the Developer
-- Identifies projects at all stages (pre-construction, construction and operation)
-- Structures and negotiates, in conjunction with the Investment Adviser, project contracts
-- Project manages pre-construction and construction phase
Operating Asset Manager
WiseEnergy (GB) Limited
-- Assumes asset management of solar power plants upon acquisition
-- Provides periodic technical, financial and administrative reports to the Company
-- Undertakes periodic site visits on each plant
-- Prepares technical and financial analysis of each site to
assess and identify potential improvements
-- Manages SPV administrative and financial functions and requirements
-- Ensures SPV's suppliers perform in accordance with contracts
-- Manages unexpected occurrences at plants and ensures prompt
response to any asset management requirements of the Company
Other Key Service Providers
In addition to the Investment Manager, Investment Adviser,
Developer and Operating Asset Manager, the Company has the
following key service providers:
Name Role
Ipes (Guernsey) Limited Administrator and Company
Secretary to the Company
PricewaterhouseCoopers Independent Auditor to the
CI LLP Company
PricewaterhouseCoopers Independent Auditor to the
LLP Company's Subsidiaries
Simmons & Simmons Legal adviser to the Group
LLP as to UK law
Mourant Ozannes Legal adviser to the Group
as to Guernsey law
Carey Olsen Legal adviser to the Group
as to Guernsey law
Stephenson Harwood Legal adviser to the Group
as to Debt Financing
Cantor Fitzgerald Financial Advisor and Broker
to the Company
Shore Capital & Corporate Broker to the Company
Limited
Fidante Capital Broker to the Company
Macquarie Capital Broker to the Company
(Europe) Limited
MHP Communications Media and Public Relations
Adviser
Capita Registrars Registrar and receiving agent
(Guernsey) Limited to the Company
Investment Outlook
The Company believes the investment outlook for UK solar remains
attractive. Over the course of the 2017/18 financial year it
expects to complete on investment opportunities secured under
letters of intent and exchanged contracts from a variety of
vendors. These opportunities are expected to include recently
constructed plants accredited under the 1.2 ROC regime or
previously constructed projects under the previous ROC regimes.
At the date of distribution of this annual report the Investment
Manager, together with the Developer, have identified a pipeline of
c.269MW of short-term acquisition targets and are actively
developing further opportunities.
The Company's market standing will continue to position the
Company as a pre-eminent participant in the UK solar market. In
addition, we will now leverage NextEnergy Capital Group's market
access in pursuing investment opportunities in selected markets
outside the UK, subject to approval by shareholders at the AGM.
Kevin Lyon
Chairman of the Board of Directors
Corporate Social Responsibility
There is an implied contract between business and society.
Businesses need a healthy environment and society to survive, and
communities also need successful businesses in order to progress,
therefore mitigating negative externalities and securing a
sustainable future.
The Company's activities are highly supportive of the
environment, as they comprise renewable energy investments that
directly address global environmental and climate change,
regulatory and political targets. For our investors, we seek both
to mitigate the risk of increased regulatory pressure, as well as
to improve the community relationship that will indirectly drive a
positive impact to the business.
The Company views the adoption of CSR and ESG principles as a
potent source of innovation and competitive advantage for its core
business. In this sense, it is committed to generating economic
value in a way that also produces value for society by addressing
its challenges and safeguarding the transition to a low- carbon
economy.
Increasing adverse social and economic pressures have pushed
landowners and local communities to look for alternative sources of
income and land use to support their financial sustainability.
Whilst solar farms present this alternative source of income to the
farmers and already benefit the local communities by giving them
comfort that the land will not be misused, the Company has an
ethical commitment to engage with them in a way that develops a
strong and long-lasting relationship for the entire life-time of
the project. This means getting involved in local projects for
outdoor recreation, wildlife conservation, education, and raising
awareness on benefits of solar farms for landowners and communities
alike with investments such as biodiversity and local energy
supply. By taking a proactive approach the Company creates what is
termed as shared value to its regular activities.
Sustainable Metrics
In order to maximise value creation, the Company accounts for
ESG metrics that relate to the value chain of its activities. By
proactively taking an additional step to traditional investment in
the photovoltaic solar industry, it aims to create higher standards
of long-term value in the entire industry.
One of the core ambitions of the Company is to build supportive
industry clusters for its projects in the UK. It believes it can
achieve this by mitigating ESG externalities and enhancing
relationships with stakeholders and developing projects that
improve the ecosystem and environmental outputs of the photovoltaic
solar plants it invests in.
As shown above, these actions create added value to the business
which studies show correlates with improved stock market
performance over time, whilst concurrently positively impacting
society. This leads to an optimal integration between the Company
and society, maximising return to investors as shareholders to the
Company and also as part of society. The ultimate result of which
is that society perceives the shared value and benefits generated
from the Company's activities, supporting future business, and
shareholders stimulate the Company to continue implementing its
strategy and investing in additional projects.
Implementing ESG Metrics in our portfolio
During the year, the Company continued with its efforts in
supporting local communities where its projects are located by
investing in educational activities and development
contributions.
Within a few miles of our Glebe Farm site in Bedfordshire is the
Harrold and Odell country park. The Company made a payment towards
an outdoor classroom area and agreed a regular amount for 5 years
to sponsor teaching materials for local schools to use.
Biodiversity
The Company, through its Investment Adviser and Operational
Asset Manager has made a commitment to ensure its leads best
practice in biodiversity in the solar industry. As a member for the
Solar Trade Association, the Company already ensures that it
complies with the 10 commitments for Land Management. Beyond this,
the Company has commissioned an independent Biodiversity review of
all its operational assets. The review has highlighted action plans
to take sites beyond planning and ecological minimum standards.
The Company has chosen 5 exemplar sites with unique habitats to
set a best practice standard which will be implemented across the
whole portfolio. One of the exemplar sites, Boxted is a former
airfield characterised by patchy grass land with bare areas and
risk of weed proliferation. The site is situated adjacent to public
footpaths hence represents a positive opportunity for showcasing
the improved habitat. The site is now home to bee hives, a pond and
grassland. Community boards explaining the fauna and flora which
can be now found at site including the nesting yellowhammer and
linnet have also been displayed.
Community
We believe educating the community about the local environment
is very important to improve their relationship with their own
society and stimulate the preservation of ecological systems. At
our Berwick Solar Farm, public information boards have been posted
for the local community and visitors. The existing site has been
enhanced with an outdoor classroom for schools.
The solar farm developers donated GBP34,000 to help the 4 local
Parish Councils support community projects.
One of the Company's goals is to continue deploying its efforts
engaging with the community and start implementing environmental
metrics in developing a biodiversity management plan to:
-- improve local stakeholder and community engagement and
education on the benefits of transforming solar plants into
ecosystem-friendly assets;
-- improve local wildlife habitat conditions and community
ecosystem services and well-being; and
-- play an active role in assisting the UK meet its biodiversity
and environmental policy targets.
This plan will allow the Company to optimise land use and
improve landscape conditions; whilst systematically assessing the
vulnerability of the projects and local communities to floods,
droughts, and other climate change risks. It will also create
opportunities for the community to learn more about the local
environment and wildlife.
The Company's first Community Interest Company ("CIC") was Birch
CIC near Colchester, Essex. The purpose of a CIC is to benefit the
community rather than solely benefitting the shareholders. The
goals are (i) to promote education of the environment and renewable
energy issues and to promote and develop the renewable energy solar
sector to transition towards a low carbon economy and to enhance
the social and environmental sustainability of the surrounding
communities and habitat and (ii) to benefit the local community by
supporting projects through the 2 nearby parishes, Birch Parish and
Messing cum Inworth Parish. Birch CIC will distribute around
GBP580k to the community over the operational life of the
plant.
We believe supporting local communities is of paramount
importance to sustain long-term relationships that help our solar
power plants access value creation opportunities that ultimately
contribute to their outperformance. By such means, the Company
intends to continue to build stronger and long-lasting
relationships that positively influence the efficiency and
responsible management of its portfolio.
Environmental
During the year, the Company's portfolio produced 394GWh of
clean energy. This is the equivalent of:
100,000 UK homes powered for one year
156,560 tonnes of CO2 emissions prevented per annum
United Nations Principles for Responsible Investment
In our fiduciary role as institutional investors, we believe
that ESG issues can affect the performance of investment portfolios
(to varying degrees across companies, sectors, regions, asset
classes and through time). NextEnergy Capital Group is committed to
the UNPRI, an independent, leading proponent of responsible
investment.
By being a signatory to UNPRI, NextEnergy Capital Group
companies work together to enhance the effectiveness by which it
implements the Principles for Responsible Investment, reflecting
the Company's initiative to incorporate ESG issues into investment
analysis, decision-making processes, ownership policies and
practices.
Investment Manager's Report
About NextEnergy Capital
The Investment Manager and Investment Adviser are both members
of the NextEnergy Capital Group. The NextEnergy Capital Group is a
specialist investment and operating asset manager focused on the
solar energy sector, with a 88-strong team of which 46 are focused
on the UK solar market. Through its operating asset management
division, WiseEnergy, the NextEnergy Capital Group manages and
monitors over 1,250 utility- scale solar plants and approximately
3,000 solar rooftop installations (comprising an installed capacity
of approximately 1.8GW and an estimated GBP4.3 billion asset value)
for a client base which includes leading European banks and equity
investors (including private equity funds, listed funds and
institutional investors). The NextEnergy Capital Group also manages
NextPower II LP, a EUR150m private equity fund dedicated to solar
PV investments in Italy.
Investment Objective
The Company seeks to provide investors with a sustainable and
attractive dividend that increases in line with RPI over the long
term. In addition, the Company seeks to provide investors with an
element of capital growth through the reinvestment of net cash
generated in excess of the target dividend in accordance with the
Company's investment policy.
Investment Policy
The Company invests exclusively in solar PV plants located in
the UK.
The Company intends to continue to acquire assets that are
primarily ground-based and utility-scale and which are on sites
that may be agricultural, industrial or commercial. The Company may
also acquire portfolios of residential or commercial
building-integrated installations. The solar PV plants that will be
targeted are anticipated to generate stable cash flows over their
asset lifespan.
The Company will typically seek to acquire sole ownership of
individual solar PV plants through SPVs, but may enter into joint
ventures or acquire majority interests, subject, in each case, to
the Company maintaining a controlling interest. Where an interest
of less than 100% in a particular solar PV plant is acquired, the
Company intends to secure controlling shareholder rights through
shareholders' agreements or other legal arrangements. Investments
by the Company in solar PV plants may be either by way of equity or
a mix of equity and shareholder loans.
The Company has built up a diversified portfolio of solar PV
plants and its investment policy contains restrictions to ensure
risk diversification. No single investment (or, if an additional
stake in an existing investment is acquired, the combined value of
both the existing and the additional stake) by the Company in any
one solar PV plant will constitute, at the time of investment, more
than 30% of the Gross Asset Value. In addition, the 4 largest solar
PV plants will constitute, at the time of investment, not more than
75% of the GAV.
The Company will, primarily, continue to acquire operating solar
PV plants, but may also invest in solar PV plants under development
(that is, at the stage of origination, project planning or
construction) when acquired. Such assets will constitute (at the
time of investment) not more than 10% of the GAV in aggregate.
The Company may also agree to forward-fund by way of secured
loans the construction costs of solar PV plants where it retains
the right (but not the obligation) to acquire the relevant solar
plant once operational. Such forward-funding will not fall within
the 10% restriction above but will be restricted to no more than
25% of the GAV (at the time such arrangement is entered into) in
aggregate and will only be undertaken where supported by
appropriate security (which may include financial instruments as
well as asset-backed guarantees).
The right to forward fund, subject to the above limitations,
enables the Company to retain flexibility in the event of changes
in the development pipeline over time. In addition, the Company
will not employ forward funding and engage in development activity
in relation to the same project or asset.
A significant proportion of the Company's income is expected to
result from the sale of the entirety of the electricity generated
by the solar PV plants within the terms of PPAs to be executed from
time to time. These are expected to include the sale of ROC's,
other regulated benefits and the sale of electricity generated by
the plants. Within this context, the Investment Manager expects to
conclude PPAs with creditworthy counterparties at the appropriate
time.
The Company will continue to diversify its third party
suppliers, service providers and other commercial counterparties,
such as developers, engineering and procurement contractors,
technical component manufacturers, PPA providers and landlords.
In pursuit of the Company's investment objective, the Company
may employ leverage, which will not exceed (at the time the
relevant arrangement is entered into) 50% of the GAV in aggregate.
Such leverage will be deployed for the acquisition of further solar
PV plants in accordance with the Company's investment policy. The
Company may seek to raise leverage at any of the SPV, UK Holdco or
Company level. The Company has a preference for medium- to
long-term amortising debt financing.
The Company invests with a view to holding its solar PV plants
until the end of their useful life. However, assets may be disposed
of or otherwise realised where the Investment Manager determines,
in its discretion, that such realisation is in the best interest of
the Company. Such circumstances may include (without limitation)
disposals for the purposes of realising or preserving value, or of
realising cash resources for reinvestment or otherwise. The Company
will seek to optimise and extend the lifespan of its assets and may
invest in their repowering and/or integration of ancillary
technologies (e.g. energy storage) on its solar PV plants to fully
utilise grid connections and balance the electricity grid with a
view to generating greater revenues. The Company expects to
re-invest any cash surplus (in excess of that required to meet the
Company's dividend target and on- going operating expenses) in
further investments, thereby supporting its long-term NAV.
The Company may invest cash held for working capital purposes
and pending investment or distribution in cash or near-cash
equivalents, including money market funds.
The Company may (but is not obliged to) enter into hedging
arrangements in relation to interest rates and/or power prices.
As required by the Listing Rules, any material change to the
investment policy of the Company will be made only with the
approval of the FCA and of its Shareholders by ordinary
resolution.
In the event of any breach of the Company's investment policy,
Shareholders will be informed of the actions to be taken by the
Investment Manager by an announcement issued through a Regulatory
Information Service or a notice sent to Shareholders at their
registered addresses in accordance with the Articles.
Portfolio Highlights and Performances
At year end the Company's portfolio included 41 separate solar
PV assets for a total installed capacity of c.454MW in operation
(2016: 33 PV assets for a total capacity of 414MW). In the period
following the year end, the Investment Manager continued with the
execution of the pipeline of secured opportunities. As a result, at
the date of distribution of this annual report, the Company has
announced the acquisition of a further 7 separate solar PV plants
increasing the total investment cost to c.GBP554m, representing a
total installed capacity of c.483MW in operation. All of the 48
solar plants in the portfolio were operational and connected to the
grid at the year end and qualified for ROC or FiT subsidies.
In the early part of the year, the Company focused on completing
and integrating the solar PV assets that had been acquired in the
preceding financial year. The NextEnergy Capital Group has actively
led the completion process of all the acquisitions made by the
Company. The completion process is subject to the satisfaction of
several conditions set in the interests of the Company, including
the plant satisfactorily passing strictly-defined technical and
performance tests. The details of these tests, and whether they
refer to the delivery of preliminary, intermediate or final
acceptance certificates (or PAC, IAC, FAC as they are known) vary
across the portfolio but in general terms these are required by the
Investment Manager to ensure that the Company settles the majority
of the acquisition consideration only as and when the target solar
PV plants demonstrate the desired level of quality and ability to
obtain and exceed the expected technical performances in the long
run.
The operational performance of the portfolio during the year was
very positive. The Investment Manager has provided in this report
details of the actual performance compared to expectation for 31 of
the portfolio solar PV plants, specifically only those plants that
have been managed and monitored by the Investment Adviser for at
least 3 months at the year end. As a result of the Company's
operating asset management strategy, this sub-portfolio of 31 solar
PV plants generated an outperformance of 3.3% above the budgeted
generation values, for a total generation of 394GWh. Solar
irradiation across the sub-portfolio was slightly below
expectations, registering 0.3% under budget.
Typically, energy generation of a solar PV asset is directly
correlated with the level of solar irradiation received by the PV
plant itself, such that a higher level of solar irradiation by any
percentage should normally result in a higher energy generation by
the same percentage. Active asset management practices and
technical improvements can positively affect the technical
performance of PV plants and thus impact this direct correlation
(as well as unplanned outages or technical issues can negatively
impact it). NESF defines as "Asset Management Alpha", the
difference between the delta of energy generation vs. budget and
the delta of solar irradiation vs. budget. The table below
summarises this analysis for the relevant periods since IPO:
Solar Irradiation Power Generation
(delta vs. (delta vs. Asset Management
Period Assets monitored budget) budget) Alpha
Full Year
2014/15 6 (0.4%) +4.8% +5.2%
First Half
2015/16 17 +2.9% +5.7% +2.8%
Full Year
2015/16 23 +0.4% +4.1% +3.7%
First Half
2016/17 31 +0.0% +3.2% +3.2%
Full Year
2016/17 31 (0.3%) +3.3% +3.6%
Cumulative
from IPO
to March
2017 31 +0.8% +4.0% +3.2%
The Asset Management Alpha allows the Company to identify a
"real" outperformance of the solar portfolio due to active
management having neutralised the effects of variation in solar
irradiation. The nominal outperformance is calculated as GWh
generated by the portfolio vs. the GWh expected in the assumptions
used at the time of acquisition. In this light, the "nominal"
outperformance of the Company's portfolio during the year ended 31
March 2017 was 3.3% whereas the Asset Management Alpha of 3.6%
during the year represents the "real" outperformance due to active
asset management. This value is in line with the Asset Management
Alpha value of +3.7% registered during the previous year on a
sub-portfolio of 23 plants. As a like-for-like comparison, during
the year the same sub-portfolio of 23 assets registered an Asset
Management Alpha of +3.1%.
The budgeted electricity generation and solar irradiation are
derived from the financial models prepared at acquisition of each
solar power plant and used to value and acquire such plant. An
on-going operating outperformance versus the acquisition budget is
expected to result in higher asset returns, other things being
equal.
NESF was the first of the 6 investment companies listed on LSE
focused on renewable energy to disclose the actual generating
performance of each asset compared to budget as well as the
information as to what extent the delta in energy generation was
due to exogenous weather conditions (i.e. delta in solar
irradiation vs. budget). Since then, all other renewable investment
companies have started to disclose this information to the benefit
of the listed sector transparency. Based on the information
publicly disclosed by each market participant, the Company's
portfolio has not only performed better than budget but it also
outperformed each of the listed peers in every reporting period
since its IPO in terms of Asset Management Alpha.
Investment Portfolio
The Investment Manager achieved a high level of diversification
in the Company's portfolio: At the date of distribution of this
report, the 48 solar PV plants are located across 23 different
counties of England and Wales, the largest one represents 7% of the
total installed capacity and the 4 largest solar PV plants
represent together 22% of the total installed capacity. Leaving
aside rooftop assets, the average size of the Company's solar PV
plants is 10.8MW and the Investment Manager will seek to maintain
this level of fragmentation which is considered beneficial to
Shareholders as it mitigates concentration risks. In addition, the
portfolio is diversified across 13 non- connected contractors, 13
different Tier 1 solar panel manufacturers and 8 Tier 1 inverter
manufacturers. This spread of counterparties effectively
diversifies the Company's key counterparty risks.
On the next page is a summary of the overall investment
portfolio at the date of distribution of this report with various
relevant breakdown analysis:
Remaining
life
Plant of the % of
Power capacity Investment plant Equity
plant Location Announcement Regime(1) Status(2)(8) (MW) (GBPm) (years) Proceeds
Higher
Hatherleigh Somerset 01/05/2014 1.6 Completed 6.1 7.3(6) 21.0 1.6%
Shacks 8.2
Barn Northants 09/05/2014 2.0 Completed 6.3 (6) 21.0 1.8%
Gover 11.1
Farm Cornwall 23/06/2014 1.4 Completed 9.4 (6) 22.6 2.4%
West 18.9
Bilsham Sussex 03/07/2014 1.4 Completed 15.2 (6) 22.6 4.1%
4.1
Brickyard Warwickshire 14/07/2014 1.4 Completed 3.8 (6) 22.6 0.9%
20.0
Ellough Suffolk 28/07/2014 1.6 Completed 14.9 (6) 22.0 4.3%
15.7
Poulshot Wiltshire 09/09/2014 1.4 Completed 14.5 (6) 23.0 3.4%
11.7
Condover Shropshire 29/10/2014 1.4 Completed 10.2 (6) 22.5 2.5%
Llywndu Ceredigion 22/12/2014 1.4 Completed 8.0 9.4 22.9 4.4%
Cock
Hill 23.3
Farm Wiltshire 22/12/2014 1.4 Completed 20.0 (6) 23.0 4.9%
Boxted 20.6
Airceld Essex 31/12/2014 1.4 Completed 18.8 (6) 23.0 1.6%
22.9
Langenhoe Essex 12/03/2015 1.4 Completed 21.2 (6) 22.9 3.8%
Park 7.7
View Devon 19/03/2015 1.4 Completed 6.5 (6) 23.0 3.1%
17.8
Croydon Cambridgeshire 27/03/2015 1.4 Completed 16.5 (6) 23.0 8.7%
Hawkers 14.5
Farm Somerset 13/04/2015 1.4 Completed 11.9 (6) 23.0 2.4%
Glebe 40.5
Farm Bedfordshire 13/04/2015 1.4 Completed 33.7 (6) 33.0 2.3%
11.1
Bowerhouse Somerset 18/06/2015 1.4 Completed 9.3 (6) 23.0 1.1%
10.8
Wellingborough Northants 18/06/2015 1.6 Completed 8.5 (6) 22.0 3.1%
Birch 5.3
Farm Essex 21/10/2015 FiT Completed 5.0 (6) 23.2 1.7%
Thurlestone
Leicester Leicestershire 21/10/2015 FiT Completed 1.8 2.3 16.1 2.0%
North 14.5
Farm Dorset 21/10/2015 1.4 Completed 11.5 (6) 23.0 5.0%
Ellough
Phase 8.0
2 Suffolk 03/11/2015 1.3 Completed 8.0 (6) 23.8 0.5%
Hall 5.0
Farm Leicestershire 03/11/2015 FiT Completed 5.0 (6) 23.7 1.1%
Decoy 5.2
Farm Lincolnshire 03/11/2015 FiT Completed 5.0 (6) 23.6 1.1%
Green
Farm Essex 26/11/2015 FiT Completed 5.0 5.8 24.0 1.2%
Fenland Cambridgeshire 11/01/2016 1.4 Completed 20.4 23.9(3)(4) 22.9 5.1%
Green
End Cambridgeshire 11/01/2016 1.4 Completed 24.8 29.0(3)(4) 23.0 6.2%
Tower
Hill Gloucestershire 11/01/2016 1.4 Completed 8.1 8.8(3)(4) 23.0 1.9%
Branston Lincolnshire 05/04/2016 1.4 Completed 18.9 27.9
Great
Wilbraham Cambridgeshire 05/04/2016 1.4 Completed 38.1 27.9
East
Berwick Sussex 05/04/2016 1.4 Completed 8.2 97.9(3)(5) 24.5 21.0%
Bottom
Plain Dorset 05/04/2016 1.4 Completed 10.1 97.9(3)(5) 28.4
Emberton Buckinghamshire 05/04/2016 1.4 Completed 9.0 97.9(3)(5) 28.1
(1) An explanation of ROC Regime is available at www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro
(2) As at Date of Distribution of this annual report.
(3) Acquired with project level debt already in place.
(4) Part of the Three Kings portfolio.
(5) Part of the Radius portfolio.
(6) Part of the Apollo portfolio.
(7) Greater than 100% due to debt financing.
(8) Completed - the asset is operational and the acquisition was completed.
Operational - the asset is operational but the acquisition is
not yet completed.
Remaining
life
Plant of the % of
Power capacity Investment plant Equity
plant Location Announcement Regime(1) Status(2)(8) (MW) (GBPm) (years) Proceeds
Kentishes Essex 22/11/2016 1.2 Operational 5.0 4.4 25.0 1.0%
Mill
Farm Herfordshire 04/01/2017 1.2 Operational 5.0 4.2 25.0 0.9%
Long
Ash
Lane Dorset 04/01/2017 1.2 Operational 5.0 5.7 25.0 1.2%
Bowden Somerset 04/01/2017 1.2 Operational 5.0 5.4 23.7 1.2%
Stalbridge Dorset 04/01/2017 1.2 Operational 5.0 5.3 25.0 1.1%
Aller
Court Somerset 21/04/2017 1.2 Operational 5.0 5.4 23.7 1.2%
Rampisham Dorset 21/04/2017 1.2 Operational 5.0 5.8 25.0 1.1%
Wasing Berkshire 21/04/2017 1.2 Operational 5.0 5.2 30.0 1.1%
Flixborough Lincolnshire 21/04/2017 1.2 Operational 5.0 5.0 25.0 1.2%
Hill
Farm Oxfordshire 21/04/2017 1.2 Operational 5.0 5.4 25.0 0.8%
Forest
Farm Hampshire 21/04/2017 1.2 Operational 3.0 3.2 25.0 1.3%
Birch
CIC Essex 12/06/2017 FiT. Completed 1.7 1.7 23.2 0.4%
Barnby
Moor Nottinghamshire 12/06/2017 1.2 Operational 5.0 5.4 24.9 1.1%
Bilsthorpe
Moor Nottinghamshire 12/06/2017 1.2 Operational 5.0 5.4 24.9 1.2%
Wickfield Wiltshire 12/06/2017 1.2 Operational 4.9 5.6 24.9 1.2%
Total 483.3 554.4 119.2%(7)
To be
Francis/Gourton Wrexham 12/06/2017 none built 10.0 - - -
To be
Gleeb Worcestershire 12/06/2017 none built 19.6 - - -
To be
Radbrook Warwickshire 12/06/2017 none built 20.7 - - -
To be
Moss Cheshire 12/06/2017 none built 9.5 - - -
Higher Hatherleigh
Location Wincanton, Somerset
Capacity 6.1MW
Regulatory Regime 1.6 ROCs
EPC Moser Baer/Daylighting
Power
Panels JA Solar
Inverter Power-One
Operational Since Apr-13
Acquisition Date May-14
YE March 2017 Since Acquisition
MWh Generated 5,752 17,605
Solar Irradiation
vs expectations (4.9%) (0.9%)
Energy Generation
vs Budget (1.3%) +4.4%
Shacks Barn
Location Silverstone, Northants
Capacity 6.3MW
Regulatory Regime 2.0 ROCs
EPC Moser Baer/Daylighting
Power
Panels JA Solar
Inverter Power-One
Operational Since Mar-13
Acquisition Date May-14
YE March 2017 Since Acquisition
MWh Generated 6,104 18,107
Solar Irradiation
vs expectations (2.1%) +1.4%
Energy Generation
vs Budget +6.1% +9.9%
Gover Farm
Location Truro, Cornwall
Capacity 9.4MW
Regulatory Regime 1.4 ROCs
EPC Moser Baer/Daylighting
Power
Panels BYD
Inverter ABB
Operational Since Oct-14
Acquisition Date Jun-14
YE March 2017 Since Acquisition
MWh Generated 8,879 20,550
Solar Irradiation
vs expectations (1.5%) +0.4%
Energy Generation
vs Budget (3.6%) +3.3%
Bilsham
Location Bognor Regis, West Sussex
Capacity 15.2MW
Regulatory Regime 1.4 ROCs
EPC Engie (GDF Suez)
Panels Renesola
Inverter ABB
Operational Since Nov-14
Acquisition Date Mar-15
YE March 2017 Since Acquisition
MWh Generated 16,443 34,670
Solar Irradiation
vs expectations +1.5% +0.8%
Energy Generation
vs Budget +5.2% +4.7%
Brickyard
Location Leamington Spa, Warwickshire
Capacity 3.8MW
Regulatory Regime 1.4 ROCs
EPC Moser Baer/Daylighting
Power
Panels BYD
Inverter ABB
Operational Since Nov-14
Acquisition Date Jul-14
YE March 2017 Since Acquisition
MWh Generated 3,569 7,749
Solar Irradiation
vs expectations (0.8%) +0.9%
Energy Generation
vs Budget +3.3% +5.4%
Ellough
Location Ellough, Suffolk
Capacity 14.9MW
Regulatory Regime 1.6 ROCs
EPC Lark Energy
Panels Hanwha Q Cells
Inverter Power Electronics
Operational Since Mar-14
Acquisition Date Jul-14
YE March 2017 Since Acquisition
MWh Generated 15,344 38,005
Solar Irradiation
vs expectations (1.5%) (1.7%)
Energy Generation
vs Budget +5.1% +5.5%
Poulshot
Location Trowbridge, Wiltshire
Capacity 14.5MW
Regulatory Regime 1.4 ROCs
EPC Moser Baer/Daylighting
Power
Panels BYD
Inverter ABB
Operational Since Mar-15
Acquisition Date Sep-14
YE March 2017 Since Acquisition
MWh Generated 13,966 22,254
Solar Irradiation
vs expectations (2.0%) (3.2%)
Energy Generation
vs Budget +3.1% +1.9%
Condover
Location Condover, Shropshire
Capacity 10.2MW
Regulatory Regime 1.4 ROCs
EPC Zaragoza Group
Panels Canadian Solar
Inverter Power Electronics
Operational Since Mar-15
Acquisition Date Oct-14
YE March 2017 Since Acquisition
MWh Generated 9,218 16,675
Solar Irradiation
vs expectations (2.7%) (2.9%)
Energy Generation
vs Budget (3.2%) +0.0%
Llwyndu
Location Blaenporth, Ceredigion
Capacity 8.0MW
Regulatory Regime 1.4 ROCs
EPC Greencells
Panels BYD
Inverter Huawei
Operational Since Feb-15
Acquisition Date Dec-14
YE March 2017 Since Acquisition
MWh Generated 7,439 11,554
Solar Irradiation
vs expectations (6.2%) (6.6%)
Energy Generation
vs Budget (2.0%) (1.1%)
Cock Hill Farm
Location Trowbridge, Wiltshire
Capacity 20.0MW
Regulatory Regime 1.4 ROCs
EPC Greencells
Panels Jinko Solar
Inverter Huawei
Operational Since Mar-15
Acquisition Date Dec-14
YE March 2017 Since Acquisition
MWh Generated 19,694 30,322
Solar Irradiation
vs expectations (2.1%) (3.7%)
Energy Generation
vs Budget +1.7% +1.2%
Boxted Airfield
Location Colchester, Essex
Capacity 18.8MW
Regulatory Regime 1.4 ROCs
EPC Push Energy
Panels Yingli
Inverter SMA
Operational Since Mar-15
Acquisition Date Mar-15
YE March 2017 Since Acquisition
MWh Generated 18,861 37,493
Solar Irradiation
vs expectations +1.0% +0.2%
Energy Generation
vs Budget +4.8% +3.9%
Langenhoe
Location Colchester, Essex
Capacity 21.2MW
Regulatory Regime 1.4 ROCs
EPC Push Energy
Panels Yingli
Inverter SMA
Operational Since Mar-15
Acquisition Date Oct-14
YE March 2017 Since Acquisition
MWh Generated 22,178 44,077
Solar Irradiation
vs expectations +3.7% +3.2%
Energy Generation
vs Budget +8.7% +7.7%
Park View
Location Ashburton, Devon
Capacity 6.5MW
Regulatory Regime 1.4 ROCs
EPC Sunetik
Panels Astronergy
Inverter SMA
Operational Since Mar-15
Acquisition Date Mar-15
YE March 2017 Since Acquisition
MWh Generated 6,405 10,031
Solar Irradiation
vs expectations (6.4%) (6.8%)
Energy Generation
vs Budget (2.8%) (1.9%)
Croydon
Location Royston, Cambridgeshire
Capacity 16.5MW
Regulatory Regime 1.4 ROCs
EPC Push Energy
Panels Yingli
Inverter SMA
Operational Since Mar-15
Acquisition Date Mar-15
YE March 2017 Since Acquisition
MWh Generated 16,073 31,619
Solar Irradiation
vs expectations +2.6% +2.5%
Energy Generation
vs Budget +6.7% +4.7%
Hawkers Farm
Location Theale, Somerset
Capacity 11.9MW
Regulatory Regime 1.4 ROCs
EPC Greencells
Panels Jinko Solar
Inverter Huawei
Operational Since Mar-15
Acquisition Date Apr-15
YE March 2017 Since Acquisition
MWh Generated 11,686 19,160
Solar Irradiation
vs expectations (3.9%) (4.1%)
Energy Generation
vs Budget (1.2%) +0.1%
Glebe Farm
Location Wellingborough, Northants
Capacity 33.7MW
Regulatory Regime 1.4 ROCs
EPC Bejulo
Panels Canadian Solar
Inverter SMA
Operational Since Mar-15
Acquisition Date May-15
YE March 2017 Since Acquisition
MWh Generated 33,596 59,629
Solar Irradiation
vs expectations +2.4% +2.2%
Energy Generation
vs Budget +8.2% +9.0%
Bowerhouse
Location Banwell, Somerset
Capacity 9.3MW
Regulatory Regime 1.4 ROCs
EPC Sunetik
Panels LDK
Inverter SMA
Operational Since Mar-15
Acquisition Date Jun-15
YE March 2017 Since Acquisition
MWh Generated 9,064 13,999
Solar Irradiation
vs expectations (2.6%) (3.5%)
Energy Generation
vs Budget (0.5%) (0.9%)
Wellingborough
Location Wellingborough, Northants
Capacity 8.5MW
Regulatory Regime 1.6 ROCs
EPC Lark Energy
Panels LDK
Inverter Power Electronics
Operational Since Mar-15
Acquisition Date Jun-15
YE March 2017 Since Acquisition
MWh Generated 8,278 13,856
Solar Irradiation
vs expectations (1.2%) (1.9%)
Energy Generation
vs Budget +4.5% +4.1%
Birch Farm
Location Colchester, Essex
Capacity 5.0MW
Regulatory Regime FiT
EPC Push Energy
Panels Yingli
Inverter Ingeteam
Operational Since Jun-15
Acquisition Date Sep-15
YE March 2017 Since Acquisition
MWh Generated 5,033 6,624
Solar Irradiation
vs expectations +1.6% +0.8%
Energy Generation
vs Budget +5.9% +4.2%
Thurlestone Leicester
Location Leicester, Leicestershire
Capacity 1.8MW
Regulatory Regime FiT
EPC Stepnell
Panels Znshine Solar
Inverter Power-One
Operational Since Apr-13
Acquisition Date Oct-15
YE March 2017 Since Acquisition
MWh Generated 1,529 1,853
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
North Farm
Location Wimborne, Dorset
Capacity 11.5MW
Regulatory Regime 1.4 ROCs
EPC British Solar Renewables
Panels Jinko Solar
Inverter Gamesa
Operational Since Mar-15
Acquisition Date Oct-15
YE March 2017 Since Acquisition
MWh Generated 11,731 14,828
Solar Irradiation
vs expectations (8.0%) (9.5%)
Energy Generation
vs Budget (5.1%) (6.1%)
Investment Manager's Report 31
Ellough Phase 2
Location Ellough, Suffolk
Capacity 8.0MW
Regulatory Regime 1.3 ROCs
EPC Lark Energy
Panels Hanwha Q Cells
Inverter Power Electronics
Operational Since Mar-16
Acquisition Date Aug-16
YE March 2017 Since Acquisition
MWh Generated 4,040 4,040
Solar Irradiation
vs expectations +9.2 +9.2
Energy Generation
vs Budget +14.5 +14.5
Hall Farm
Location Newbold Vernon, Leicestershire
Capacity 5.0MW
Regulatory Regime FiT
EPC Push Energy
Panels Hanwha Q Cells
Inverter Ingeteam
Operational Since May-16
Acquisition Date Nov-15
YE March 2017 Since Acquisition
MWh Generated 1,533 1,533
Solar Irradiation
vs expectations (5.1%) (5.1%)
Energy Generation
vs Budget +4.5% +4.5%
Decoy Farm
Location Crowland, Lincolnshire
Capacity 5.0MW
Regulatory Regime FiT
EPC Push Energy
Panels Hanwha Q Cells
Inverter Ingeteam
Operational Since Jan-16
Acquisition Date Nov-15
YE March 2017 Since Acquisition
MWh Generated 1,620 1,620
Solar Irradiation
vs expectations (3.0%) (3.0%)
Energy Generation
vs Budget +6.5% +6.5%
Green Farm
Location Wix, Essex
Capacity 5.0MW
Regulatory Regime FiT
EPC Moser Baer/Daylighting
Power
Panels Atersa
Inverter Power Electronics
Operational Since Dec-15
Acquisition Date Nov-15
YE March 2017 Since Acquisition
MWh Generated 886 886
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Fenland
Location Waterbeach, Cambridgeshire
Capacity 20.4MW
Regulatory Regime 1.4 ROCs
EPC Hanwha Q Cells
Panels Hanwha Q Cells
Inverter SMA
Operational Since Mar-15
Acquisition Date Jan-16
YE March 2017 Since Acquisition
MWh Generated 20,699 23,875
Solar Irradiation
vs expectations +0.7% +1.6%
Energy Generation
vs Budget +6.4% +7.1%
Green End
Location Ely, Cambridgeshire
Capacity 24.8MW
Regulatory Regime 1.4 ROCs
EPC Hanwha Q Cells
Panels Hanwha Q Cells
Inverter SMA
Operational Since Mar-15
Acquisition Date Jan-16
YE March 2017 Since Acquisition
MWh Generated 24,183 28,091
Solar Irradiation
vs expectations +0.0% +0.7%
Energy Generation
vs Budget +2.5% +3.8%
Tower Hill
Location Tytherington, Gloucestershire
Capacity 8.1MW
Regulatory Regime 1.4 ROCs
EPC Hanwha Q Cells
Panels Hanwha Q Cells
Inverter SMA
Operational Since Mar-15
Acquisition Date Jan-16
YE March 2017 Since Acquisition
MWh Generated 7,840 9,079
Solar Irradiation
vs expectations (2.1%) (1.2%)
Energy Generation
vs Budget +2.5% +3.6%
Branston
Location Branston, Lincolnshire
Capacity 18.9MW
Regulatory Regime 1.4 ROCs
EPC Goldbeck
Panels REC
Inverter SMA
Operational Since Mar-15
Acquisition Date Mar-16
YE March 2017 Since Acquisition
MWh Generated 18,620 18,620
Solar Irradiation
vs expectations +2.1% +2.1%
Energy Generation
vs Budget +5.8% +5.8%
Great Wilbraham
Location Great Wilbraham, Cambridgeshire
Capacity 38.1MW
Regulatory Regime 1.4 ROCs
EPC Abakus Bouygues
Panels REC
Inverter Schneider
Operational Since Mar-15
Acquisition Date Mar-16
YE March 2017 Since Acquisition
MWh Generated 36,754 36,754
Solar Irradiation
vs expectations +0.6% +0.6%
Energy Generation
vs Budget +1.8% +1.8%
Berwick
Location Polegate, East Sussex
Capacity 8.2MW
Regulatory Regime 1.4 ROCs
EPC Abakus Bouygues
Panels Renesola
Inverter SMA
Operational Since Mar-15
Acquisition Date Mar-16
YE March 2017 Since Acquisition
MWh Generated 9,166 9,166
Solar Irradiation
vs expectations +3.2% +3.2%
Energy Generation
vs Budget +6.3% +6.3%
Bottom Plain
Location Wareham, Dorset
Capacity 10.1MW
Regulatory Regime 1.4 ROCs
EPC Abakus Bouygues
Panels Renesola
Inverter SMA
Operational Since Dec-14
Acquisition Date Mar-16
YE March 2017 Since Acquisition
MWh Generated 10,250 10,250
Solar Irradiation
vs expectations (2.3%) (2.3%)
Energy Generation
vs Budget +0.0% +0.0%
Emberton
Location Emberton, Buckinghamshire
Capacity 9.0MW
Regulatory Regime 1.4 ROCs
EPC Goldbeck
Panels REC
Inverter Schneider
Operational Since Mar-15
Acquisition Date Mar-16
YE March 2017 Since Acquisition
MWh Generated 8,567 8,567
Solar Irradiation
vs expectations +0.3% +0.3%
Energy Generation
vs Budget (0.1%) (0.1%)
Kentishes
Location Braintree, Essex
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC Push Energy
Panels Hanwha Q Cells
Inverter Power Electronics
Operational Since Feb-17
Acquisition Date Nov-16
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Mill Farm
Location Great Munden, Herefordshire
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC Push Energy
Panels Hanwha Q Cells
Inverter Power Electronics
Operational Since Feb-17
Acquisition Date Dec-16
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Long Ash Lane
Location Bridport, Dorset
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC British Solar Renewables
Panels Jetion Solar
Inverter Gamesa
Operational Since Mar-17
Acquisition Date Dec-16
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Bowden
Location Templecombe, Somerset
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC British Solar Renewables
Panels Hanwha Q Cells
Inverter SMA
Operational Since Mar-17
Acquisition Date Dec-16
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Stalbridge
Location Sturminster Newton, Dorset
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC British Solar Renewables
Panels Hanwha Q Cells
Inverter SMA
Operational Since Mar-17
Acquisition Date Dec-16
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Aller Court
Location Langport, Somerset
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC British Solar Renewables
Panels Hanwha Q Cells
Inverter SMA
Operational Since Mar-17
Acquisition Date Feb-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Rampisham
Location Rampisham, Dorset
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC British Solar Renewables
Panels Hanwha Q Cells
Inverter SMA
Operational Since Mar-17
Acquisition Date Apr-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Wasing
Location Brompton, Berkshire
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC Greencells
Panels Hanwha Q Cells
Inverter Huawei
Operational Since Mar-17
Acquisition Date Feb-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Flixborough
Location Scunthorpe, Lincolnshire
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC Greencells
Panels Hanwha Q Cells
Inverter Power Electronics
Operational Since Mar-17
Acquisition Date Feb-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Hill Farm
Location Bicester, Oxfordshire
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC Greencells
Panels Hanwha Q Cells
Inverter Huawei
Operational Since Mar-17
Acquisition Date Apr-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Forest Farm
Location Southampton, Hampshire
Capacity 3.0MW
Regulatory Regime 1.2 ROCs
EPC Greencells
Panels Hanwha Q Cells
Inverter Huawei
Operational Since Mar-17
Acquisition Date Apr-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Birch CIC
Location Colchester, Essex
Capacity 1.7MW
Regulatory Regime 1.2 ROCs
EPC Push Energy
Panels Yingli
Inverter Ingeteam
Operational Since Jun-16
Acquisition Date Apr-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Barnby Moor
Location Retford, Nottinghamshire
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC Lark Energy
Panels Yingli
Inverter Power Electronics
Operational Since Mar-17
Acquisition Date Jun-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Bilsthrope
Location Bilsthrope, Nottinghamshire
Capacity 5.0MW
Regulatory Regime 1.2 ROCs
EPC Lark Energy
Panels Yingli
Inverter Power Electronics
Operational Since Mar-17
Acquisition Date Jun-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Wickfield
Location Swindon, Wiltshire
Capacity 4.9MW
Regulatory Regime 1.2 ROCs
EPC Lark Energy
Panels Yingli
Inverter Power Electronics
Operational Since Mar-17
Acquisition Date Jun-17
YE March 2017 Since Acquisition
MWh Generated N/A N/A
Solar Irradiation N/A N/A
vs expectations
Energy Generation N/A N/A
vs Budget
Current and Long Term Power Prices
During its third year, the Company experienced the first upward
trend in the UK wholesale power market since its IPO. Both
electricity spot prices and long term estimates have increased as a
result of, inter alia: 1) the depreciation immediately following
the Brexit vote in June 2016 of sterling vs. other currencies in
which natural gas contracts (the main driver for UK power prices)
are denominated internationally; and 2) the increase in energy
prices in continental Europe during last winter due to the
temporary shut-down of several French nuclear reactors for
extraordinary maintenance and security reasons.
Despite some of the drivers of this increase being short-term
related and ceasing to impact the UK market at the date of
distribution of this Report, on balance both short- and long-term
prices have increased during the year. Electricity spot prices rose
from c.GBP34/MWh in March 2016 to c.GBP42/MWh in March 2017(1) . In
addition, the market consensus on long-term power prices has also
changed in the estimates produced by the Company's appointed
independent market consultants. The Investment Manager continuously
reviews multiple inputs for power price forecasts and takes the
average of the 2 leading energy market consultants' long-term
projections to derive the power curve adopted in the valuation of
the Company's Portfolio. This approach allows mitigation of
inevitable forecasting errors as well as any delay in response from
the Company's consultants in publishing periodic (quarterly) or ad
hoc updates following any significant market development.
The power price forecasts employed by the Company also reflect
an assumed "solar capture" discount which reflects the difference
between the prices available on the market in the daylight hours of
operation of a solar plant versus the baseload prices included in
the power price estimates. This solar capture discount is estimated
by the Company's energy market consultants on the basis of a
typical load profile of a solar plant located in the UK and is
reviewed as frequently as the baseload power price forecasts.
The Company's current long-term power price forecast implies an
average growth rate of approximately 1.6% in real terms over the
20-year period starting April 2017. This represents an increase of
3.6% compared to those used at the end of the previous reporting
year (but still 29.1% below the assumptions employed at IPO). This
power price forecast also includes the latest downward revision
published by the Company's consultants in May 2017.
The financial performance of the Company and its NAV are
sensitive to further positive and negative movements in the short,
medium and long-term power prices. Detailed sensitivity analyses
are provided in the Financial Review section of this Annual Report.
It is worth noting that this exposure is significantly mitigated by
the balanced mix of revenues typical of the solar PV plants
acquired by the Company which, as at March 2018 are expected to
comprise c.57% of regulated revenues (ROCs and FiTs, mainly linked
to RPI) and c.43% of sale of electricity on the wholesale market
through PPAs.
Power Purchase Agreements
The Company's electricity sales strategy is designed to maximise
revenues whilst mitigating the negative impact of short-term
fluctuations in the power markets. During the year, this strategy
allowed for the flexibility required by the rapid growth of the
portfolio, so that the Company could build significant scale to
then optimise the PPA terms on the entire portfolio. In the context
of the GBP150m long-term financing closed in January 2017, the
Company retained flexibility on its electricity sales strategy and
thus the underlying Apollo portfolio does not have any fixed price
or floor price agreement that are usually associated with a
significant discount on the selling price vs. market.
As at 31 March 2017, the Company had a mix of PPA with fixed
prices for periods ranging from 3 months to 5 years. As a result of
these PPAs as well as of the UK regulatory framework, the Company
had a total of c.68% of its revenues linked to fixed power prices
and ROCs until March 2021, thereby mitigating the risk of dividend
reductions from volatility in the power price market.
The Investment Adviser is assisted by a specialist trading
advisor in constantly monitoring developments in the UK power
market and fixing prices when most appropriate for the next 12
months on a rolling basis.
Power Price Sensitivities
Taking into account the current level of performance of its
portfolio and based on the blended average of the market
consultant's power price forecasts, the Company expects to be able
to meet its long term RPI-linked dividend targets with a 1.2x
dividend cover (Management Case in the chart below).
The Investment Manager has performed 3 sensitivities on dividend
cover against different UK Power Price scenarios:
a) Even in a scenario in which power prices for the entire
period to 2037 were to fall 24% below current forecasts, the
Company would be able to meet a 1.0x dividend cover (Case A in the
chart below). In addition, it should be noted that, thanks to the
5-year grace period secured with the GBP150m long-term debt
refinancing transaction, NESF would meet its dividends targets for
the next 5 years even in the theoretical scenario in which the
power forecasts were to drop by 50% during that period.
Although commonly referred to as standard sensitivities in the
market, this parallel downward shift of the entire long-term power
curve by a fixed percentage mentioned above is an unlikely
scenario. The Investment Manager has therefore also developed 2
additional scenarios. The Company would also be able to meet its
targets in these 2 scenarios:
b) In a scenario in which power prices were to remain flat in
real terms at today's values, the Company would be able to meet its
dividend targets for the period to 2037 with a dividend cover of
1.1x (Case B in the chart below). This scenario is in line with the
downside case assumed by the Company's market consultants.
c) In an illustrative extreme downside case of declining power
prices, should price forecasts decline in real terms in a straight
line over the long term by a 1.6% annual rate (i.e. the exact
opposite of the current long term growth rate assumption and
equivalent to a price of GBP37/MWh by 2037 in real terms) then the
Company would still be able to meet a 1.0x dividend cover. It
should be noted that this is a purely theoretical scenario for
illustrative purposes only and is not supported by any downside
cases from the Company's market consultants, but it does provide
additional comfort on the dividend cover.
Financial Review
In summary, the Company performed very positively during the
year. Operating over-performance and a more favourable wholesale
energy market have contributed to deliver better than expected
earnings at portfolio level. Fund costs have continued to decrease
in percentage terms and financing activity contributed to create
significant value added to shareholders. The Company has met its
targets for dividend distribution and generation of surplus cash to
be re-invested in its portfolio or in further solar assets and
expects to continue increasing its dividends in line with RPI
inflation index.
Dividends to Shareholders
During the year, the Company moved from semi-annual to quarterly
dividend payments and as a consequence it paid dividends in
relation to 1 half year end and 3 quarterly accounting periods.
Specifically, NESF paid the second interim dividend for the
financial year ended 31 March 2016 (of 3.125p per Ordinary Share)
and the first 3 quarterly dividends for the year ended 31 March
2017 (each of 1.5775p per Ordinary Share). Therefore, during the
year NESF paid total dividends of 7.86p per Ordinary Share,
compared to the target annual dividend of 6.31p. But this greater
pay-out is due to the one-off transition from semi-annual to
quarter dividend payments. In relation to dividends for the year
ended 31 March 2017, the fourth and last quarterly dividend of
1.5775p per Ordinary Share (equal to GBP7,199,524) is expected to
be paid to shareholders in June 2017. As a result, the Company will
achieve its target for total dividend distribution for the full
financial year ended 31 March 2017 of 6.31p per Ordinary Share. The
summary of all dividends paid by the Company until the date of
distribution of this annual report is set out in the table
below.
As stated in the Chairman's Statement, the Company is targeting
to pay a dividend of 6.42p per share for the 2017/18 financial
year, which represents a growth in line with the RPI index
applicable to the underlying portfolio revenues.
During the year, the Company generated income of GBP35.3m and
had net operating costs of GBP5.0m. As a result, the net dividend
cover for the year was 1.2x. The table below provides additional
details and metrics.
Amount
per Ordinary
Month of Share Total
Dividends paid Payment (p) (GBP)
First interim for year
2014/15 Dec-14 2.6250 4,635,750
Second interim for year
2014/15 Jul-15 2.6250 6,309,188
First interim for year
2015/16 Dec-15 3.1250 8,686,160
Second interim for year
2015/16 Jul-16 3.1250 8,686,160
First quarterly dividend
for year 2016/17 Sep-16 1.5775 4,058,499(1)
Second quarterly dividend
for year 2016/17 Dec-16 1.5775 4,031,158(1)
Third quarterly dividend
for year 2016/17 Mar-17 1.5775 5,443,550(1)
Total cash dividends paid
to date 16.2325 41,850,464
Fourth quarterly dividend
for year 2016/17 Jun-17 1.5775 7,199,524(4)
Total for
Cash Income year 16/17
Cash Income for year to
31 March 2017 32,149,450(5)
Net operating costs for
year to 31 March 2017 (5,052,231)
Net Cash Income 27,097,219
Gross dividend Net dividend
cover cover
Cash dividend paid during
year 22,219,366(2) 1.4x 1.2x
Cash dividend in respect
of Financial Year 2016/17 20,732,731(3) 1.5x 1.3x
1 The scrip dividend option came into effect on 25 August 2016.
During the year, a scrip dividend payment was elected by some
shareholders. A total of 4,030,168, additional shares were issued
resulting in lower total cash dividend pay-out. If the elections
were not made, the total amount to be paid out would have been
GBP5,250,584, GBP5,413,940 and GBP7,174,775 for the first, second
and third quarterly dividends respectively.
2 This amount represents the post scrip dividend paid during the
year (this relates to a 15-month period - the semi-annual dividend
for year 15/16 and the first 3 quarterly dividends for year 16/17).
If the shares from the scrip dividend were included the total
amount paid during the year would have been GBP26,468,657. The
Gross dividend cover would have been 1.2x and the net dividend
cover would have been 1.0x.
3 This amount represents the post scrip dividend for the 4
quarterly dividends for the year 16/17 (including the dividend
payable on 30 June 2017). If the shares from the scrip dividend
were included, the total amount paid would have been GBP24,918,446.
The Gross dividend cover would have been 1.3x and the net dividend
cover would have been 1.1x.
4 Before election of Scrip dividend is considered.
5 Cash income differs from the Income in the Statement of
Comprehensive Income by GBP3,157,728. This is because the Statement
of Comprehensive Income is on an accruals basis.
Having successfully completed the long-term refinancing of the
majority of the short-term debt position, the Investment Manager
maintains the 1.2x estimate for future cash dividend cover.
In line with the Board's decision to move to quarterly
dividends, as announced in April 2016, the forward-looking dividend
calendar is set out in the table below:
Amount per
Date of Expected Ordinary
Dividend for year 2017/18 Payment Share (p)
September
First interim 2017 1.6050
December
Second interim 2017 1.6050
Third interim March 2018 1.6050
Fourth interim June 2018 1.6050
Total 6.4200
Operating Costs and Profits for the Year
The operating costs of the Company amounted to GBP5.0m, in line
with expectations. The Company's OCR was 1.2% (2016: 1.2%), in line
with the budget. The budgeted OCR for the next year ending 31 March
2018 is 1.1%, reflecting the advantage of a larger capital base for
the whole of next year.
Ongoing charges 2017 2016
Management fees 3,406,093 2,615,662
Legal and Professional fees 361,153 216,839
Administration fees 258,551 201,152
Directors' fees 130,250 123,000
Audit fees 125,000 100,000
Regulatory fees 94,175 72,652
Insurance 27,125 31,194
Sundry expenses 8,131 6,595
4,410,478 3,367,094
OCR 1.2% 1.2%
Profit before tax for the year ended 31 March 2017 was GBP49.8m
(2016: GBP2.0m) with earnings per share of 13.81p (2016: 0.78p),
were positively impacted by the increase in fair value of
investments.
Cashflow Generation Model
The Company's investment portfolio generates revenues through
the sales of electricity and the subsidies provided under different
subsidy regimes (ROC and FiT). Both revenue streams are underpinned
by 2 main factors:
1) the actual energy output (measured as amount of KWh of energy
generated) which is mainly driven by the solar irradiation,
technical performance and availability of the plant; and
2) the actual price at which the energy generated is sold by the
Company as well as the amount of subsidies received for the same
generation.
The performance of a plant in terms of revenues therefore is a
product of both the operational performance and the commercial
terms of the power purchase agreements in place. Before taking into
account tax and financing considerations, the cashflow generation
of solar PV plants is also influenced by operating expenses, which
are usually governed by long-term contracts and characterised by
low volatility over the long term.
The table on the next page summarises the economic performance
of the operating portfolio during the year, as illustrated by the
revenues and costs expressed as average per MW across the
portfolio.
Year Ending Actual Budget Delta Comments
31 March per MW per MW vs.
2017 (1) (1) Budget
Actual
irradiation
Solar (kWh/m(2) for the
Irradiation [A] ) 1,169 1,172 (0.3)% year
Positive
delta represents
Conversion Asset Management
Factor Alpha for
(2) [B] (%) 84.2% 81.3% + 3.6% the year
Actual
generation
measured
[C] at the
Metered = [A meter for
Generation x B] (kWh) 984 953 +3.3% the year
Power Subsidies Power Subsidies
Price Price
Implied
average
power price
and subsidies
across
entire
portfolio
(including
ROC recycle
Realized and embedded
Prices [D] (GBP/MWh) 44.3 62.8 41.4 66.3 (0.5)% benefits)
Revenues
(Brown [E]
Power = [C (GBP
& Subsidies) x D] '000) 43.6 61.8 39.4 63.2
Actual
revenues
at portfolio
level for
the year
(unaudited
Total (GBP figures
Revenues [E] '000) 105.4 102.6 + 2.8% per MW)
Actual
costs at
portfolio
level for
the year
(unaudited
Operating (GBP figures
Expenses [F] '000) (29.4) (28.0) + 5.0% per MW)
Actual
EBITDA
for the
[G] year (unaudited
EBITDA = [E (GBP figures
(3) - F] '000) 76.0 74.6 + 2.0% per MW)
EBITDA
Margin [G]
(3) / [E] (%) 72.1% 72.7%
(1) Based on the average installed capacity over the financial year
(2) Illustrative factor capturing the solar plant Performance
Ratio as well as the availability (which reflects all system
shut-downs for maintenance or one-off events such as DNO
outages)
(3) EBITDA is in reference to EBITDA at the SPV levels.
During the year, the investment portfolio performance was over
budget both in terms of generation and revenues despite slightly
lower than expected solar irradiation. This reflects the positive
impact of the active asset management strategy of the Company
(summarised by an asset management alpha of +3.6%) and the
competitive terms and flexibility obtained on the PPA in place. On
the other hand, lower ROC recycle and embedded benefits have
impacted the actual revenues from subsidies compared to budget. The
overall performance of the portfolio generated a higher gross
margin than budgeted despite slightly greater operating costs
(GBP585k across the entire portfolio), mainly due to small
unexpected costs in the first year post acquisition.
Valuation of the Investment Portfolio
The Investment Manager is responsible for carrying out the fair
market valuation of the Company's underlying investment portfolio,
as described in note 6. The resulting fair market value of the
Company's investment portfolio is presented to the Company's Board
of Directors for their review and approval. The valuation is
carried out quarterly or more often if capital increases or other
relevant events arise. The valuation principles used are based on a
discounted cash flow methodology, and take into account IPEV
guidelines.
The Investment Manager reviews multiple sources and inputs in
determining the fair market value of the underlying investments,
including analysing all announced solar transactions in the UK
during the year as well as undertaking a discounted cash flow
analysis of each investment made by the Company. The Investment
Manager exercises its judgement based on its expertise in the UK
solar PV market and in assessing the expected future cash flows
from each investment. In the discounted cash flow analysis, the
fair value for each operating asset is derived from the present
value of the investment's expected future cash flows, using
reasonable assumptions and forecasts for revenues and operating
costs, and an appropriate discount rate.
For solar PV plants not yet operational or where the completion
of the acquisition is not imminent at the time of valuation, the
acquisition cost is used as an appropriate estimate of fair
value.
The Board reviews the operating and financial assumptions,
including the discount rates, used in the valuation of the
Company's underlying portfolio and approves them based on the
recommendation of the Investment Manager. The valuation process
comprises the analysis of multiple factors, all relevant to
ascertain the fair value of the portfolio, including:
-- Discount rates implied in the price at which comparable
transactions have been announced in the UK solar sector (including
those where the Investment Manager submitted a bid for the same
projects that was not deemed competitive by the vendors)
-- Discount rates publicly disclosed by the Company's peers in the UK solar sector
-- Discount rates applicable for other comparable infrastructure
assets classes or regulated energy sectors
-- CAPM (Capital Asset Pricing Model) analysis and risk premia over relevant risk free rates
During the year, especially in the last 6 months, the UK solar
market has experienced an increase in pricing competition for
operating assets driven by factors that include:
-- entrance of new UK-based and international investors
(possibly facilitated by the devaluation of sterling vs. other
currencies);
-- reduction in risk-free rates by 0.25% to 0.50%;
-- closure of previous subsidies regime for solar PV plants in
UK and absence of any incentive framework for new future
installations, which instigated a scarcity effect on ROCs
assets.
These changing dynamics were evidenced by the experience of the
Investment Manager in bidding for solar assets in the UK.
As a result, the Company lowered its discount rate for unlevered
operating solar assets by 0.25% (from 7.5% to 7.25%) and will
continue to monitor this rate.
For those operating solar assets with fully-amortising long-term
project level debt (the Apollo portfolio, the Radius portfolio and
the Three Kings portfolio) the Company is continuing to adopt a
levered discount rate to capture the greater level of risk
associated with the cash flows available to equity investors after
debt service. The appropriate level of risk premium due to project
level debt was evaluated taking into account various factors for
each specific asset including level of financial gearing, maturity
profile and cost of debt. This range was unchanged from the
previous year (0.7 - 1.0%) and as a result the discount rates
applied to these levered portfolios range up to 8.25%.
The resulting weighted average discount rate for the Company's
portfolio is 7.9%.
The Company does not adopt WACC as a discount rate for its
investments, as it believes that the reduction in WACC deriving
from the introduction of long-term debt financing does not reflect
the greater level of risk to equity investors associated with
levered assets or levered portfolios. However, for the purposes of
transparency, the Company's pre-tax WACC as of 31 March 2017 was
5.9%. Compared to the previous year's WACC of 5.8% this value
reflects, on one side, the lower than expected cost of debt secured
under the GBP150m long-term refinancing and, on the other side, a
reduction in the overall gearing from 44% to 36%, as further
described below.
The value uplift generated by the assets valued for the first
time on a DCF basis is supported by an analysis performed by the
Investment Manager demonstrating how the Company's portfolio
(including all acquisitions since IPO) has been acquired through
transactions closed at prices lower than the market average by
approximately 2%. This analysis reviewed all publicly disclosed
information related to acquisition of UK solar assets since 2014
and included adjustments for project specific ROC banding and site
irradiation based on the Investment Manager's estimates and best
knowledge and publicly available PVGIS database. The market average
prices are then compared to each of the Company's completed
acquisitions and the summary result is then calculated as a
weighted average based on the installed MW capacity.
The DCF methodology implemented in the Portfolio Valuation
assumes a valuation time-horizon capped to the current terms of the
lease on the properties where each individual solar PV asset is
located. These leases have been typically entered into for a
25-year period from commissioning of the relevant PV plants
(specific terms may vary). However, the useful operating life of
the Company's portfolio of solar PV plants is expected to be longer
than 25 years. This is due to many factors, including: a) solar PV
plants with technology components similar to the ones deployed in
the Company's portfolio have demonstrated to be capable of
operating for over 40 years, with levels of technical degradation
lower than that assumed or guaranteed by the manufacturers; b)
local planning authorities have already granted initial planning
consents that do not expire and/or have granted permissions to
extend initial consented periods; and c) the Company owns rights to
supply electricity into the grid through connection agreements that
do not expire. The Company has begun extending the useful life of
its assets, mainly by extending the terms of the property leases
for some projects with the intention of extending leases for others
in due course.
As of 31 March 2017, the remaining weighted average lease
duration of the Company's portfolio was 24.6 years. In the
portfolio, the 33MW Glebe Farm is valued on the basis of an
extended remaining lease term of 33 years and the 5 assets in the
84MW Radius portfolio on an average remaining lease term of 27.4
years. The rest of the portfolio is valued on an average remaining
lease term of 22.8 years. For illustration purposes, should the
entire portfolio of assets be valued on a 35 year basis from
connection (assuming current lease terms) the Company's NAV would
increase by c.5.4%. The table on pages 20 to 21 provides the
remaining lease duration for each of the Company's assets as of 31
March 2017. The DCF valuation assumes a zero terminal value at the
end of the lease term for each asset, therefore excluding any
potential residual value and takes into account any decommissioning
provisions as deemed appropriate.
As to the other main operating assumptions adopted in the DCF
valuation of the portfolio, the Company conservatively values each
solar PV plant on the basis of the minimum Performance Ratio
guaranteed by the vendor or on the basis of the Performance Ratio
estimated by the appointed technical adviser during due diligence.
These estimates are generally lower than the actual performance
ratios that the Company has been experiencing during subsequent
operations. The Investment Manager deems it appropriate to adopt
the actual Performance Ratio after 2 years of operating history,
when typically, the plants have satisfied the Final Acceptance
tests. Only 4 out of the 41 solar PV plants in the investment
portfolio had passed the Final Acceptance tests and their actual
Performance Ratio was crystallized into the relevant financial
model, therefore generating a material uplift in their valuation.
As to the other 37 solar PV plants, these are expected to reach
their 2-year operating life milestone and begin the relevant tests
according to the calendar below. The Investment Manager expects to
update the relevant Performance Ratio inputs based on the actual
performance observed at that time.
Financial quarter ending June 2017: 213 MW
Financial quarter ending September
2017: 120 MW
Financial quarter ending December
2017: 16 MW
Financial quarter ending June 2018: 5 MW
Financial quarter ending September
2018: 10 MW
Financial year 2019: 53 MW
For illustration purposes, had the entire portfolio of solar PV
assets been valued based on actual Performance Ratios observed from
date of commissioning until 31 March 2017, the Company's NAV would
have increased by c.GBP3.6m representing c.0.8p per share.
The Company's NAV is calculated on a quarterly basis based on
the valuation of the investment portfolio determined by the
Investment Manager and the overlay of other net assets provided by
the Administrator. It is then reviewed, questioned and approved by
the Board of Directors. All variables relating to the performance
of the underlying assets are reviewed and incorporated in the
process of identifying relevant drivers for the discounted cash
flow valuation.
The Company experienced NAV growth during the year ended 31
March 2017 mainly driven by the issuance of new capital in the
summer and in November 2016 for c.GBP179.9m and the revaluation of
its investment portfolio during the year. As a result, NAV grew
over the year from GBP273.8m to GBP478.6m as at 31 March 2017.
The evolution of NAV per share during the year was affected by a
number of positive and negative factors. During the year NAV
increased from 98.5p to 104.9p. As the Company reports its
financial results under IFRS 10 (see note 2(c)) the change during
the year in fair value of its assets drives the profit and loss of
the Company. The change in NAV per share in the year was mainly
driven by the following factors:
-- The upward revisions in the forecasts for long-term power
prices adopted by the Company, 3.6% higher compared to the
assumptions employed at 31 March 2016 (taking into account the most
recent forecasts released by the Company's market consultants in
the period between end of the year and the date of preparation of
this annual report);
-- The upward revisions in the forecasts for both short-term and
long-term inflation provided by the UK Government;
-- The value uplift generated by the Company completing
acquisitions of assets whose internal rate of return was higher
than the discount rate applied when valuing them on a discounted
cash flow basis;
-- The value uplift generated by the Company negotiating a
long-term debt refinancing with accretive features such as a 5 year
principal repayment grace period, staged draw down and lower than
expected cost of debt;
-- The value uplift generated by the change in unlevered
discount rates reflecting an increase in market value of UK solar
assets;
-- The operating results achieved by the Company's solar PV plants; and
-- The cash dividends paid during the year and the Company's operating costs.
NAV Bridge (Movement) (GBPm)
Opening NAV (March 2016) 273.8
Further Capital Raising 179.9
Capital Raising Costs (2.8)
Cash Dividends Paid to Investors (22.2)
Income from Investments 35.3
Change in Fair Value of Investments 19.6
Net Fund Costs (5.0)
Closing NAV (March 2017) 478.6
An important driver for the movement in NAV was the revaluation
of the Investment Portfolio which accounted for GBP19.6m. This
represented the movement in the difference between the acquisition
cost and closing fair value of the portfolio at the end of the
current and prior years. The revaluation is summarised in the net
changes in financial assets at fair value in the Statement of
Comprehensive Income.
The Company's investment portfolio is valued at GBP415.9m,
comprising 33 investments valued through discounted cash flow
methodology and 8 investments valued at investment cost. Among the
33 investments, the Apollo portfolio is considered as one portfolio
investment consisting of 21 solar PV plants and the Radius
portfolio is considered as one portfolio investment consisting of 5
solar PV plants. At the date of distribution of this Annual Report,
the Company has further committed to acquiring a further 12 assets
at an additional investment value of GBP58.0m.
The valuation of the investment portfolio or asset is net of the
project level debt: GBP45.4m project financing advanced by
Bayerische Landesbank to the 53MW Three Kings portfolio (comprising
Fenland, Green End and Tower Hill), acquired by the Company in
January 2016; GBP55m project financing arranged by MIDIS in
conjunction with the acquisition of the 84MW Radius portfolio
signed by the Company in March 2016; and GBP150m project financing
arranged by MIDIS, NAB and CBA in the context of refinancing
short-term facilities used in the process of building the Apollo
portfolio of c.241MW.
The 8 investments valued at investment cost (see footnote 1
below) comprise the investments in solar PV plants for which the
relevant milestones and technical tests had not yet been finalised
at the year end and as such their completion was not deemed
imminent. At the year end, all of these 8 solar PV plants were
operational and the Investment Manager was in the process of
completing their acquisitions.
Investment
Directors' Movements Directors'
Valuation during Valuation
31 March the year 31 March
Investment 2016 (GBP) (GBP) 2017 (GBP)
Llwyndu 9,010,754 9,108,629
Cock Hill Farm 22,214,893 22,382,863
Thurlestone Leicester 2,713,983 2,628,732
Green Farm 5,775,461 6,106,367
Fenland(3) 8,437,289 8,934,013
Green End(3) 10,091,867 11,149,599
Tower Hill(3) 3,507,200 3,899,345
Radius portfolio(3) 51,448,533 54,888,013
Apollo portfolio(3)(4) 269,133,275 173,272,726
Kentishes(1) 4,475,915 4,475,915
Mill Farm(1) 4,240,177 4,240,177
Bowden(1) 5,588,792 5,588,792
Stalbridge(1) 5,425,101 5,425,101
Long Ash Lane(1) 5,864,844 5,864,844
Aller Court(1) 5,536,534 5,536,534
Wasing(1) 5,276,464 5,276,464
Flixborough(1) 5,089,998 5,089,998
Total Investment Portfolio 382,333,255 41,497,825 333,868,112
Residual Net Assets of Holding
companies 7,711,407 4,481,716
Short-term debt facilities (74,180,000) (21,680,000)
Receivable from Apollo refinancing 99,193,549
Total Investment in Holding
Company(2) 315,466,679 41,497,825 415,863,377
(1) These investments were not yet completed as at 31 March
2017.
(2) A summary of the total investment in the Holding Company is
provided in note 6 (Investments) of the Financial Statements.
(3) These investments have financial leverage at project
level.
(4) These investments did not have financial leverage as at 31
March 2016.
Sensitivity Analysis
Sensitivities on the Company's NAV and detailed disclosure on
the asset valuation methodologies are provided below and in note 15
(Financial instruments) of the Financial Statements.
Sensitivity on energy generation is usually a P10/P90
probability analysis on solar irradiation over 10 years, which is a
technical standard employed across the broader renewable energy
asset class and is particularly relevant for Wind assets given the
significant volatility of Wind energy sources year on year. The
Investment Manager, based on its experience, considers that for
solar PV assets more appropriate and meaningful information is
provided by the sensitivity analysis of the aggregated effect of
solar irradiation and technical performance (in a reasonable range
of -/+ 5% over the life of the DCF valuation horizon). For
reference purposes, the sensitivity based on P10/P90 would have
resulted in c. -/+11% impact on Portfolio valuation.
In addition to the above sensitivities on NAV, the Investment
Manager has performed further sensitivities on actual cash
generation. This analysis takes into account the impact of selected
changes in valuation assumptions over the twelve months to March
2018. In this analysis, should energy prices fall by 10% from
current forecasts, NESF would experience a reduction of only 0.6%
in its net operating cashflows, such impact being mitigated by the
fixed price PPAs in place over the period. Also, should the
portfolio achieve an over performance of 5% throughout the twelve
months to March 2018 (whether due to higher solar irradiation or
asset management), total operating cashflows would increase by
2.7%. Conversely, these sensitivities on cash generation would have
similar but opposite results in their respective inverted
scenario.
Since the Company's IPO in April 2014, the long-term power price
forecast used by the Company was revised several times with a
cumulative reduction of c.29%. For the purpose of illustration, had
the power price forecasts remained in line with those at the time
of the IPO, the Company's NAV would be 127.4p per share.
The sensitivity highlights the percentage change in the
portfolio resulting from a change in the underlying variables. It
also shows the subsequent impact on the NAV per share.
The Company has completed multiple capital raisings since
inception: its IPO of 85.6m New Ordinary Shares in April 2014, a
second issue of 91.0m New Ordinary Shares in November 2014, a
placing of 4.0m New Ordinary Shares in December 2014, a 59.8m New
Ordinary Shares in February 2015, and a further 37.6m New Ordinary
Shares in September 2015. The Company had a tap issue of 64.1m New
Ordinary Shares over summer 2016, and a further issue of 110.3m New
Ordinary Shares in November 2016. All issues following the IPO have
been completed pursuant to the Placing Programme announced on 10
November 2014 and a Tap issuance programme announced on 15 July
2016. Furthermore, an additional 4.0m Ordinary Shares have been
issued during the year as a result of shareholders electing a scrip
dividend.
The Company's issued share capital comprised 456,388,199
Ordinary Shares as at 31 March 2017. This figure may be used by
Shareholders and other investors as the denominator for the
calculations by which they will determine if they are required to
notify their interest in, or a change to their interest in, the
Company under the FCA's Disclosure and Transparency Rules.
Equity Raised
Date (GBPm) Equity Invested Time to Deployment
c.95% by September
April 2014 85.6 2014 c.4 months
November/December c.95% by January
2014 99.6 2015 c.6 weeks
c.100% by April
February 2015 61.4 2015 c.6 weeks
c.100% by November
September 2015 38.8 2015 c.6 weeks
July/August/September Used to repay
2016 64.7 debt facility Immediate
c. 100% by June
November 2016 115.3 2017 On-going
Debt Raised
Date (GBPm) Lender Amount Deployed
July 2015 22.7 NIBC c.100%
January 2016 45.4 Bayern Landesbank c.100%
March 2016 55.0 MIDIS c.100%
February 2017 150.0 Macquarie/NAB/CBA On-going
During the year the share price increased from 97.75p to
110.50p.
As a result of share price developments, and taking into account
dividends paid, NESF total shareholder return was 21.1% for the
year ended 31 March 2017 (and 26.7% since IPO). NAV total return
for the year was 14.4% (and 21.1% since IPO). The annualised values
since IPO 3 years ago are 9.1% and 7.2% respectively, in line with
the target range of 7 to 9 percent equity return for investors
(both NAV per share and initial issue price at IPO were equal to
100p).
Full Year Total Since Annualised
2016/17 IPO since IPO
Total Shareholder
Return 21.1% 26.7% 9.1%
NAV Total Return 14.4% 21.1% 7.2%
NESF shares are included in the FTSE All-Share Index as well as
the FTSE Small Cap Index. NESF shares outperformed the FTSE
All-Share Index by 1.8% since IPO.
Total Shareholder Return and NAV Total Return are used to review
the Company's performance against its objectives.
Financing and Cash Management
As of 31 March 2017, the total pro-forma debt position of the
Company on a look-through basis was GBP269.8m. This represents a
gearing of 36% in terms of total debt vs. Gross Asset Value (which
is equal to NAV plus total financial debt outstanding). The
corresponding average cost of debt is 3.6%.
This represents an increase compared to the total financial debt
position at the beginning of the year (GBP216.6m) resulting from
the following:
-- in July 2016 the Company extended the NIBC facility for a
further 3 years to 4 July 2019. NIBC previously financed the
construction of the Cock Hill and Llwyndu projects. This short-term
facility was designed to be expanded up to GBP50m to finance the
acquisition of additional solar assets. Upon expiry, it is intended
that this facility will be repaid through one or a combination of
the following: rollover of the same short-term facilities,
refinancing with a long-term debt facility and/or further equity
issuance.
-- in January 2017, the Company refinanced its RCF with
Macquarie and Santander with a new GBP150m long term debt facility
arranged by MIDIS, NAB and CBA, further described below.
The table below provides detailed information on the total debt
outstanding as of the date of distribution of this report:
Termination
(including
Facility Amount options
Provider/ Amount Outstanding to Applicable
Arranger Type Borrower Tranches (GBP) (GBP) extend) Rate
NESH
(Apollo Tranche
Fully-amortising portfolio A -
MIDIS/ long-term level Medium
CBA/NAB debt debt) term 48,387,098 48,387,098 31-Dec-26 2.91%(1)
Tranche
B -
Floating
Long
Term 24,193,548 24,193,548 30-Jun-35 3.68%(1)
Tranche
C - Index RPI
Linked index
Long Term 38,709,677 38,709,677 30-Jun-35 + 0.36%
Tranche
D - Fixed
Long Term 38,709,677 38,709,677 30-Jun-35 3.82%
Debt Service
Reserve
Facility 7,500,000 0 30-Jun-26 1.50%
Acquisition Fund/NESH 3m Libor
NIBC facility II level 21,680,000 21,680,000 04-Jul-19 + 2.20%(2)
Three
Kings
portfolio
level
debt
Fully-amortising (part
Bayern long-term of NESH
LB debt III) 45,398,000 43,815,387 30-Jun-33 3.88%(1)
NESH
IV
(Radius
Fully-amortising portfolio Inflation RPI
long-term level linked index
MIDIS debt debt) Tranche 27,500,000 26,829,259 30-Sep-34 + 1.44%
Fixed Tranche 27,500,000 27,500,000 30-Sep-34 4.11%
Total 269,824,646
(1) Applicable Rate represents the swap rate for 100% of the interest.
(2) Applicable Rate represents the swap rate for 75% of the interest.
GBP150m Long-term refinancing transaction
As disclosed in last years annual report, the Investment Adviser
was in the process of refinancing the GBP120m RCF and achieved the
successful closing of this refinancing in January 2017. A
competitive tender process was executed with the assistance of
Santander Global Corporate Banking as financial adviser to the
Company. Around 50 names including leading institutional debt
investors and lending banks with experience in solar PV financing
were invited to offer their best terms and 18 of these investors
were selected for one-to-one meetings with the Investment Adviser.
At the end of this process, a syndicate of lenders was selected
including a long-term debt investor and 2 lending banks (NAB and
CBA).
The new facility refinanced NESH owning the Apollo portfolio, a
solar portfolio comprising 21 plants (with an installed capacity of
241MWp) which include solar farms with the longest operating
history in the NESF portfolio.
Thanks to the excellent operating performance exhibited by the
portfolio and the quality of the legal and technical due diligence,
the Investment Adviser was able to negotiate attractive terms and
some unique features not usually offered in transactions of this
type:
-- The Facility provides long-term debt financing, fully
amortising within a final maturity in 2035 that matches the
regulated life of the portfolio, and comprises a mix of fixed rate
and inflation-linked debt tranches. This debt structure eliminates
any refinancing risk and interest rate risk and provides an
additional level of inflation hedge, on top of the inflation-linked
financing already in place in the Company's capital structure (as
part of the Radius portfolio financing).
-- The Facility combines a GBP48m debt tranche that fully
amortises in the first 10 years and a GBP102m tranche that
amortises between years 10 and 19. This hybrid structure allowed
the Company to benefit from the relatively lower cost of debt that
lending banks can offer on a short and medium duration compared to
institutional lenders. The all-in weighted average cost of 3.32%
demonstrates the effectiveness of this hybrid structure. When
adjusting for the movements in long-term base rates, which
increased during the year from their lowest point in summer 2016,
this facility has the lowest cost of debt of any other debt
financing disclosed on the market during the year.
-- In addition, the Investment Adviser was able to negotiate a
number of value-adding features including:
a) Bespoke 5-year grace period that allows no principal repayment over the first 5 years;
b) Staged draw-down to reduce cash-drag and minimise interest expenses in the first year;
c) Competitive upfront fees
d) Retained flexibility over power sales strategy (as the
Company is not bound to any penalising long-term fixed price PPA
arrangements, usually required by lenders in transactions of this
type
The Investment Manager has not charged any additional fees to
the Company in conjunction with the structuring, execution and
monitoring of any of these financial debt facilities.
The debt financing strategy of the Company is supported by
strong indications of support from equity investors for both
further capital increases to increase the Company's size and the
employment of financial leverage up to the 50% maximum level to
optimise equity returns. Additional comfort on the employment of
structural debt comes from the evidence of robust and increasing
appetite from institutional debt capital providers for long-term
dated securities backed by solar PV assets, as demonstrated by the
GBP150m long-term refinancing transaction.
As at 31 March 2017 the Company's total assets included cash
totalling GBP59.8m held at Barclays Bank PLC.
Outlook
The UK solar PV market continued to experience exceptional
growth during the year, reaching a total installed capacity of
11.7GW as at the end of March 2017, an increase of 18% over the
last twelve months. The approaching end of the ROC regime for large
scale solar from 1 April 2017 caused a strong acceleration in the
rate of new installations constructed in the second part of the
year with a view to be commissioned before 31 March 2017.
A significant amount of the new installations have been financed
by short term investors and it is estimated that between 1.5GW and
2.5GW of solar PV assets will be disposed of on the secondary
market over the next 12 months, up to a maximum of 4.2GW. Despite
competition for these assets increasing, during the year the
Investment Adviser actively developed a pipeline of attractive
acquisition opportunities, mainly focused on fragmented portfolios
of 5MW assets built under the 1.2ROCs regime. The Company will be
able to benefit from this significant pipeline of opportunities
identified by the Developer which, at the date of distribution of
this annual report, total c.269MW of short-term acquisition
targets.
The financial year end of NESF also coincides with the end of an
era for the UK solar PV market, whose intense investment activity
was supported by the existence of a stable incentive regime in the
form of ROCs. The solar PV industry has developed significantly
over the last 3 years, mainly in terms of cost reduction but also
in operating efficiency. Since the Company's IPO in April 2014, the
Investment Adviser observed a reduction in the all-in cost of solar
systems by more than 50% (in terms of GBP/MW) and this is expected
to decline even further. As a result, solar PV is about to be cost
competitive with traditional energy sources in the UK even in the
absence of subsidies.
This significant and continuous cost reduction is expected to
eventually open new market opportunities in the UK that may
include: new installations generating revenues through private
wires or long term Power Purchase Agreements; development of
residential and commercial rooftop portfolios; extension of current
portfolio sites on existing or adjacent land (to optimize existing
grid access); integration of energy storage and other technologies
enhancing productivity on existing and new assets.
At this stage in the development of the UK solar industry it is
too early to predict which of these avenues for growth (or any new
avenue that may arise) will prevail. In any case, NESF will
continue to benefit from the NEC Group's long-standing experience
as an investor and leading asset manager in the solar sector to
focus on reducing solar investment and operating costs to meet the
incentive-free market in the future.
In addition to these growth opportunities, in the UK market, the
global solar market is expected to grow from the current 330GW to
c.600GW installed capacity by 2020 based on publicly announced
targets. This significant growth represents an opportunity to
invest in solar PV plants in developed markets where risk adjusted
returns are in line or accretive to the Company's current
portfolio. NESF is therefore seeking to expand its investment
policy to allow up to 15% of GAV to be invested in solar assets in
OECD countries other than the UK.
Description of the Principal Risks and Uncertainties
The Company has in place risk management procedures and internal
controls to monitor and mitigate the main risks faced as well as a
process to review the effectiveness of those controls. The
Investment Manager assists the Company in regularly identifying,
assessing and mitigating those risk factors likely to impact the
financial or strategic position of the Company. The Company's Risk
Matrix is regularly reviewed on at least a semi-annual basis, and
includes:
-- External and Market Risks
-- Investment Strategy
-- Investment Process and Management of Assets
-- Monitoring Process
-- Valuation Process
-- Financial and Accounting Process
-- Governance, Tax and Regulatory Compliance
Based on the Board's assessment, the principal risks faced by
the Company are:
-- Adverse changes to regulatory framework
Uncertainty for the future regulatory framework for solar PV in
the UK and the risk that further planned acquisitions do not take
place, affecting the Company's growth potential, or that regulatory
changes may affect the profitability and valuation of the current
portfolio. The Company actively monitors regulatory changes within
the industry.
-- Increased competition
Risk that the heightened competition for solar assets will make
it more difficult for the Company to continue acquiring assets in
the secondary market at attractive values. This increased
competition may be fuelled by investors with aggressive financial
structures seeking lower returns than the Company for the same
solar PV assets. The Company is involved in competitive tenders for
solar assets and therefore becomes aware of competitor's
returns.
-- Changes in energy prices
Exposure to the wholesale energy market impacts the prices
received for energy generated and revenues forecasted by the
operating assets of the Company. This also exposes the Company to a
risk of further reduction in forward price curves. The Company
endeavours to agree fixed power contracts where appropriate.
-- Uncertainty of Brexit
The UK government held a referendum on 23 June 2016 for the UK
to vote either to remain in or leave the European Union where the
majority of those voting elected to leave the European Union. As a
result of the referendum vote, the UK triggered Article 50 of the
Treaty on European Union on 29 March 2017 and commenced Brexit
negotiations with the European Union. The Investment Manager
believes Brexit is likely to have a very limited effect on the
Company's financial and operating prospects. The UK's 2008 Climate
Change Act enshrines the Government's commitment to reduce the
country's greenhouse gas emissions by 80 per cent compared to 1990
levels, and we do not think government will introduce primary
legislation to reverse this commitment as a result of Brexit. The
most relevant impact of Brexit since the referendum vote on 23 June
2016 was a reduction in UK interest rates and a slight devaluation
of the sterling against USD and EUR which in turn resulted in a
moderate increase in UK power prices due to the higher cost of
natural gas (a commodity mainly traded in USD and EUR denominated
contracts). Further implications of Brexit on the Company are not
identifiable at present. This risk is beyond the control of the
Company, but the Company closely monitors Brexit developments and
their impact on the solar industry.
Post Year-End Update
Since 31 March 2017, the following relevant events occurred:
-- On 13 April 2017, the Company drew down a further GBP51m and
on 26 June 2017 it drew down the last GBP48m of the GBP150m
long-term facility refinancing the Apollo portfolio.
-- On 21 April 2017, the Company announced the acquisition of 6
plants totaling 28MW with an investment value of GBP30.5m. All 6
plants were successfully connected to the grid in advance of the 31
March 2017 deadline for 1.2 ROC assets and, therefore, are expected
to receive appropriate ROC accreditation in advance of NESF
completing their respective acquisitions.
-- On 19 May 2017, the Company announced an interim dividend of
1.5575 pence per Ordinary Share for the quarter ending 31 March
2017, to be paid on 30 June 2017 to shareholders on the register as
at close of business on 26 May 2017. On 30 June 2017 the Company
will issue 44,646 shares to those shareholder who elected for a
scrip dividend.
-- On 30 May 2017, the Company announced that a related company,
WiseEnergy (Great Britain) Ltd, was appointed to provide accounting
and back office services to the subsidiary companies of NESF. The
agreement came into effect on 1 June 2017.
-- On 12 June 2017, the Company announced the acquisition of 3
plants totaling 15MW. Barnby Moor, Bilsthorpe and Wickfield are all
1.2 ROC assets.
-- On 12 June 2017, the Company announced the acquisition of
project rights to build 4 solar sites for a total of 59.8MW.
-- On 12 June 2017, the Company also announced the completion of
the acquisition of the 1.7MW Birch CIC solar plant.
-- On 23 June 2017, the Company issued 115m new shares further
to the Company's 350m share issuance programme.
NextEnergy Capital IM Limited
27 June 2017
Corporate Governance
Introduction
As a regulated Guernsey incorporated company with a Premium
Listing on the Official List and admitted to trading on the Main
Market for Listed Securities of the London Stock Exchange, the
Company is required to comply with the principles of the UK
Code.
The Board recognises the importance of a strong corporate
governance culture that meets the requirements of the UK Listing
Authority as well as other relevant bodies such as the GFSC and the
AIC.
As an AIC member, the Board has also considered the principles
and recommendations of the AIC Code by reference to the AIC Guide.
The AIC Code addresses all the principles set out in the UK Code,
as well as setting out additional principles and recommendations on
issues of specific relevance to the Company. The AIC Code published
in February 2013, and updated in July 2016, addresses all of the
principles set out in the UK Code, and has been endorsed by the
Financial Reporting Council as ensuring investment company boards
fully meet their obligations to the UK Code and LR 9.8.6 of the
Listing Rules. Having adopted the AIC Code with effect from
Admission (25 April 2014), the Board has therefore assessed itself,
the Committees and performance of the Directors against the
parameters and principles outlined within the AIC Code for the year
ended 31 March 2017.
The GFSC Code came into force in Guernsey on 1 January 2012. The
Company is deemed to satisfy the GFSC Code provided that it
continues to conduct its governance in accordance with the
requirements of the AIC Code, which incorporates the UK Code.
The Board is of the view that throughout the year ended 31 March
2017, the Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Code, except as set out
below:
-- The role of the chief executive;
-- Executive directors' remuneration;
-- The need for an internal audit function; and
-- The appointment of a Management Engagement Committee.
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers that given the Company's current
size and the structure of the Board, these provisions are not
currently relevant or appropriate to the position of the
Company.
Chairman
Mr Lyon was appointed to the position of Chairman of the Board
on 22 January 2014. Mr Lyon is responsible for leading the Board in
all areas, including determination of strategy, organising the
Board's business and ensuring the effectiveness of the Board and
individual Directors in all aspects of their role. He also
endeavours to produce an open culture of debate within the Board
which facilitates the ability of the Board to make objective
decisions.
Prior to the Chairman's appointment, a job specification was
prepared which included an assessment of the time commitment
anticipated for the role. Discussions were undertaken to ensure the
Chairman was sufficiently aware of the time needed for his role,
and agreed to upon signature of his letter of appointment. Other
significant business commitments of the Chairman were disclosed to
the Company prior to appointment to the Board, and were publicly
disclosed in the Company's Prospectus dated 18 March 2014 relating
to the Company's listing, in the Company's Prospectus dated 10
November 2014 and further within the Supplementary Prospectus dated
19 August 2015, both relating to the Company's first Placing
Programme, and again in the Company's Prospectus relating to the
Company's second Placing Programme dated 15 November 2016. There
have not been any subsequent changes to the Chairman's business
commitments, as stated in the most recent Prospectus that require
to be declared. A summary of Mr Lyon's commitments can be
identified in his biography on page 70.
The effectiveness and independence of the Chairman is evaluated
on an annual basis as part of the Board's performance evaluation;
the Senior Independent Director is tasked with collating feedback
and discussing with the Chairman on behalf of the rest of the
Board. The Chairman is not subject to any relationships which may
create a conflict between his interests and those of the
shareholders and does not serve on any other investment company
board managed by the Investment Manager.
As per the Company's Articles all directors, including the
Chairman, must disclose any interest in a transaction that the
Board and Committees approve.
Board Independence and disclosure
The Board and Chairman confirm that they were selected prior to
the Company's launch and were able to assume all responsibilities
at an early stage, independent of the Investment Manager and
Investment Adviser.
The Board is composed entirely of non-executive Directors, who
meet regularly to determine the Company's strategic direction,
review its financial performance and to oversee the performance of
the Investment Manager or service providers to scrutinise the
achievement of agreed goals and objectives, and monitor
performance. Through the Audit Committee they are able to ascertain
the integrity of financial information and confirm that all
financial controls and risk management systems are robust.
There is no management engagement committee for the Company as
it is deemed that the size, composition and structure of the
Company would mean the process would be inefficient and
counter-productive. Therefore, the Board as a whole also fulfils
the functions of a management engagement committee and reviews and
analyses the actions, performance and judgments of the Investment
Manager and also the terms of the Investment Management Agreement.
Further to this the Board analyses and evaluates the performance of
other service providers on a regular basis. The Board will continue
to consider the need for a management engagement committee as the
needs and structure of the Company develop.
As part of the annual performance evaluation process, the
independence of each of the Directors was considered. Following the
annual performance evaluation, it was deemed that the Directors had
been proven to challenge the Investment Manager throughout the year
under review, as minuted and recorded, therefore for the purposes
of assessing compliance with the AIC Code, the Board as a whole
considers that each Director is independent of the Investment
Manager and free from any business or other relationship that could
materially interfere with the exercise of his independent judgment.
If required, the Board is able to access independent professional
advice. The Investment Manager is also requested to declare any
potential conflicts surrounding votes, share dealing and soft
commissions on an annual basis to the Board to help with the
assessment of investments.
Open communication between the Investment Manager and the Board
is facilitated by regular Board meetings, to which the Investment
Manager is invited to attend and update the Board on the current
status of the Company's investments, along with ad hoc meetings as
required.
Coming to mutual agreement on all decisions, it was agreed the
Board had acted in the best interests of the Company to the extent
that, if deemed appropriate a Director abstain or have his
objection noted and minuted.
Similar to the process outlined above for the appointment of the
Chairman, a job specification was prepared for each Directorship
which included an assessment of the time commitment anticipated for
the role to ensure each Director was aware of the time commitment
needed for the role. The Directors' other significant business
commitments were disclosed to the Company prior to appointment to
the Board, and were publicly disclosed in the Company's Prospectus
dated 18 March 2014 relating to the Company's listing, in the
Company's Prospectus dated 10 November 2014 and further within the
Supplementary Prospectus dated 19 August 2015 both relating to the
Company's first Placing Programme and again in the Company's
Prospectus dated 15 November 2016 relating to the Company's second
Placing Programme. On 3 June 2016, the Company announced that Mr
Vic Holmes had been appointed to the board of Highbridge
Multi-Strategy Fund Limited, a company incorporated in Guernsey and
listed on the Main Market of the London Stock Exchange. No further
changes have required to be declared during the year. Each
Director's commitments can be identified in their biographies
detailed on pages 70 to 72. Details of the skills and experience
provided by each director can also be found in their biographies,
alongside identification of the role each Director currently holds
in the Company.
The terms and conditions of appointment for non-executive
Directors are outlined in their letters of appointment, and are
available for inspection by any person at the Company's registered
office during normal business hours and at the AGM for fifteen
minutes prior to and during the meeting.
During the course of the year, Mr Vic Holmes was appointed to
the position of Senior Independent Director.
There is no executive director function in the Company; all
day-to-day functions are delegated to external service
providers.
Development
The Board believes that the Company's Directors should develop
their skills and knowledge through participation at relevant
courses. The Chairman is responsible for reviewing and discussing
the training and development of each Director according to
identified needs. Upon appointment, all Directors participate in
discussions with the Chairman and other Directors to understand the
responsibilities of the Directors, in addition to the Company's
business and procedures. The Company also provides regular
opportunities for the Directors to obtain a thorough understanding
of the Company's business by regularly meeting the Investment
Manager, members of the senior management team from the Investment
Adviser and other service providers, both in person and by the
phone.
Balance of the Board and diversity policy
It is perceived that the Board is well-balanced, with a wide
array of skills, experience and knowledge that ensures it functions
correctly and that no single director may dominate the Board's
decisions. Having 3 Directors appointed ensures that during any
transition period, there are at least 2 Directors to provide
stability.
At this time, the Board has chosen not to adopt a formal policy
for diversity. However, the Board recognises the importance of
diversity, including gender, for the effective functioning of the
Board and is committed to supporting diversity in the boardroom. It
is the Board's on-going aspiration to have a well- diversified
representation. The Board also values diversity of business skills
and experience because Directors with diverse skills sets,
capabilities and experience gained from different geographical
backgrounds enhance the Board by bringing a wide range of
perspectives to the Company. The Board believes that the current
mix of skills, experience, knowledge and age of the Directors is
appropriate to the requirements of the Company.
The Board has established an Audit Committee composed of all
members of the Board. The Chairman of the Board is included as a
Committee member to enable full understanding of the issues facing
the Company, but would not be appointed as its Chairman.
Annual performance evaluation
The Board's balance is reviewed on a regular basis as part of a
performance evaluation review. Using a pre-determined template
based on the AIC Code's provisions as a basis for review, the Board
undertook an evaluation of its performance and in addition, an
evaluation focusing on individual commitment, performance and
contribution of each Director was conducted. The Chairman then met
with each Director to fully understand their views of the Company's
strengths and to identify potential weaknesses. If appropriate, new
members would be proposed to resolve the perceived issues, or a
resignation sought. Following discussions and review of the
Chairman's evaluation by the other Directors, the Senior
Independent Director reviewed the Chairman's performance. Training
and development needs are identified as part of this process,
thereby ensuring that all Directors are able to discharge their
duties effectively.
Given the Company's size and the structure of the Board, no
external facilitator or independent third party was used in the
performance evaluation.
Re-election and Board tenure
During the course of the year, the Company established a
combined Remuneration and Nominations Committee whose role includes
undertaking a thorough process of reviewing the skill set of the
individual Directors, and proposes new, or renewal of current,
appointments to the Board. Prior to the establishment of the
Remuneration and Nominations Committee, this function was
undertaken by the Board.
Each director was required to be re-elected by shareholders at
the rst Annual General Meeting of the Company and thereafter will
be submitted for re-election not less than once in every 3-year
period. Patrick Firth is therefore submitting himself for
re-election at the AGM on 24 August 2017.
The other Members of the Board confirm that Patrick Firth has
proven his ability to fulfil all legal responsibilities and to
provide effective independent judgement on issues of strategy,
performance, resources and conduct. The Board therefore has no
hesitation in recommending to the shareholders that Patrick Firth
be re-elected.
It is anticipated that, should any Director have served on the
Board for 9 or more years, their independence would not
automatically be considered to be compromised through length of
service, but it would be closely scrutinised and the Director would
be subject to annual election. Going forward, any director that is
appointed to the Board will be required to submit themselves for
re-election at the rst Annual General Meeting following their
appointment and thereafter once every 3 years.
Appointment process
The appointment process for the Chairman and Directors at the
time of incorporation of the Company is described above.
As detailed above a Remuneration and Nominations Committee has
been established during the course of the year. As no new Director
has been appointed since the Company's launch and the Remuneration
and Nominations Committee believes there is no gap that currently
needs to be lled, no appointment process has been formalised. It is
anticipated, however, that the process will be led by the
Remuneration and Nominations Committee and will involve identifying
gaps and needs in the Board's composition and balance, including
diversity, then reviewing the skill set of potential candidates
before making appropriate recommendations to the Board. For renewal
of current appointments, all Directors except the individual in
question are entitled to vote at the meeting. Similarly, no new
nominations have been made for the role of Chairman of the Board
since prior to launch.
Board and Board Committees
Matters reserved for the Board include a review of the Company's
overall strategy and business plans; approval of the Company's
interim and annual report; review and approval of any alteration to
the Company's accounting policies or practices and valuation of
investments; approval of any alteration to the Company's capital
structure; approval of dividend policy; appointments to the Board
and constitution of Board Committees; observation of relevant
legislation and regulatory requirements; and performance review of
key service providers. The Board also retains ultimate
responsibility for Committee decisions; every Committee is required
to refer to the Board, who will make the nal decision.
Terms of reference containing a formal schedule of matters
reserved for the Board of Directors and its duly authorised
Committee has been approved and can be reviewed at the Company's
registered of ce.
The Board met 31 times during the year ended 31 March 2017; the
meeting attendance record is displayed further on in the Corporate
Governance Statement. The Company Secretary acts as the Secretary
to the Board.
As noted above, the Board ful ls the responsibilities typically
undertaken by a Management Engagement Committee and reviews the
actions and judgments of the Investment Manager and also the terms
of the Investment Management Agreement.
The Board seeks to undertake an assessment of the Investment
Manager's scope and responsibilities as outlined in the service
agreement and prospectus on a formal basis every year. Discussions
on Investment Manager performance are also conducted regularly
throughout the year by the Board. Reviews of engagements with other
service providers to ensure all parties are operating
satisfactorily are also undertaken by the Board so as to ensure the
safe and accurate management and administration of the Company's
affairs and business and that they are competitive and reasonable
for shareholders.
Audit Committee
The Board has established an Audit Committee composed of all the
independent members of the Board. The Chairman of the Board is
included as a Committee member to enable a full understanding of
the issues facing the Company, but cannot be Audit Committee
Chairman. The Audit Committee, its membership and its terms of
reference are kept under regular review by the Board, and it is
perceived all members have suf cient nancial skills and experience.
Patrick Firth is Audit Committee Chairman.
The Audit Committee met 4 times during the year ended 31 March
2017; the meeting attendance record is displayed below. The Company
Secretary acts as the Secretary to the Audit Committee.
Owing to the size and structure of the Company, there is no
internal audit function. The Audit Committee has reviewed the need
for an internal audit function, and perceived that the internal
nancial and operating control systems in place within the Company
and its service providers, as evidenced by the internal control
reports provided by the Administrator, give suf cient assurance
that a sound system of internal control is maintained that
safeguards shareholders' investment and Company assets.
The Audit Committee is intended to assist the Board in
discharging its responsibilities for the integrity of the Company's
nancial statements, as well as aiding the assessment of the
Company's internal control effectiveness and objectivity of the
external auditors.
Further information on the Audit Committee's responsibilities is
given in the Audit Committee Report on pages 80 to 83.
Formal terms of reference for the Audit Committee are available
at the registered of ce, and are reviewed on a regular basis.
Remuneration and Nominations Committee
The Board established, during the course of the year, a joint
Remuneration and Nominations Committee composed of all the
independent members of the Board. The Chairman of the Board is
included as a Committee member to enable a full understanding of
the issues facing the Company, but cannot be Remuneration and
Nominations Committee Chairman. The Remuneration and Nominations
Committee, its membership and its terms of reference are kept under
regular review by the Board. Vic Holmes is Remuneration and
Nominations Committee Chairman.
The Remuneration and Nominations Committee met once during the
year ended 31 March 2017; the meeting attendance record is
displayed below. The Company Secretary acts as the Secretary to the
Remuneration and Nominations Committee.
Further information on the Remuneration and Nominations
Committee's responsibilities is given in the Directors Remuneration
Report on pages 78 to 79.
Formal terms of reference for the Remuneration and Nominations
Committee are available at the registered of ce, and are reviewed
on a regular basis.
Board and Committee meeting attendance
Individual attendance at Board and Committee meetings is set out
below:
Remuneration
and
Ad Hoc Audit Nominations
Board Board Committee Committee
Kevin Lyon 4 5 4 1
Patrick Firth 4 10 4 1
Vic Holmes 4 10 4 1
Total meetings for
the year 4 11 4 1
All Directors have attended all scheduled quarterly Board and
Audit Committee meetings. During the year, a further 11 ad hoc
Board meetings were convened in Guernsey to deal with
administrative and process matters, and to conclude a number of
matters previously discussed at scheduled meetings. In such
instances it is not always necessary or practical for all Directors
to be in attendance at all ad hoc meetings. Directors who are
unable to attend ad hoc meetings convey their opinion to their
fellow Directors where necessary in advance of such meetings.
Company Secretary
Reports and papers, containing relevant, concise and clear
information, are provided to the Board and Committees in a timely
manner to enable review and consideration prior to both scheduled
and ad-hoc specific meetings. This ensures that Directors are
capable of contributing to, and validating, the development of
Company strategy and management. The regular reports also provide
information that enables scrutiny of the Company's Investment
Manager and other service providers' performance. When required,
the Board has sought further clarification of matters with the
Investment Manager and other service providers, both by means of
further reports and in-depth discussions, in order to make more
informed decisions for the Company.
Under the direction of the Chairman, the Company Secretary
facilitates the flow of information between the Board, Committees,
Investment Manager and other service providers through the
development of comprehensive, detailed meeting packs, agendas and
other media. These are circulated to the Board and other attendees
in sufficient time to review the data.
Full access to the advice and services of the Company Secretary
is available to the Board; in turn, the Company Secretary is
responsible for advising on all governance matters through the
Chairman. The Articles and schedule of matters reserved for the
Board indicate the appointment and resignation of the Company
Secretary is an item reserved for the full Board. A review of the
performance of the Company Secretary is undertaken by the Board on
a regular basis.
Financial and Business Information
An explanation of the Directors' roles and responsibilities in
preparing the Annual Report and Audited Financial Statements for
the year ended 31 March 2017 is provided in the Statement of
Directors' responsibilities on page 73.
Further information enabling shareholders to assess the
Company's performance, business model and strategy can be sourced
in the Chairman's Statement on pages 3 to 6, the Strategic Report
on pages 8 to 11 and the Report of the Directors on pages 74 to
77.
Viability Statement
In accordance with provision C.2.2 of the 2014 revision of the
Code, the Directors have assessed the prospects of the Company over
a period of five years, which was selected for the following
reasons:
-- The Group's strategic review covers a five year period, and
-- If in the third or any subsequent financial year of the
Company the Ordinary Shares have traded, on average over that year,
at a discount in excess of ten per cent. to the Net Asset Value per
Share, the Board shall propose a special resolution at the
Company's next annual general meeting that the Company ceases to
continue in its present form.
The five year strategic review considers the Group's cash flows,
dividend cover, and other financial ratios over the period. These
metrics are subject to sensitivity analysis which involves fixing a
number of the main assumptions underlying the forecast. Where
appropriate, this analysis is carried out to evaluate the potential
impact of the Group's principal risks actually occurring. The five
year review also makes certain assumptions about the impact of
unfavourable weather conditions and unfavourable electricity
markets and considers whether additional financing facilities would
be required.
Based on the results of this analysis, and subject to passing
any continuation vote, the Directors have a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the five year period of their
assessment up to and including 31 March 2022.
Principal Risk Management and Risk Control
Details of the Company's principal risks can be found in the
Financial Review on pages 58 to 59.
Risk Management and Risk Control
The Board is required annually to review the effectiveness of
the Company's key internal controls such as financial, operational
and compliance controls and risk management. The controls are
designed to ensure that the risk of failure to achieve business
objectives is minimised, and are intended to provide reasonable
assurance against material misstatement or loss. Through regular
meetings and meetings of the Audit Committee, the Board seeks to
maintain full and effective control over all strategic, financial,
regulatory and operational issues. The Board maintains an
organisational and Committee structure with clearly defined lines
of responsibility and delegation of authorities.
As part of the compilation of the risk register for the Company,
appropriate consideration has been given to the relevant control
processes and that risk is considered, assessed and managed as an
integral part of the business. The Company's system of internal
control includes inter alia the overall control exercise,
procedures for the identification and evaluation of business risk,
the control procedures themselves and the review of these internal
controls by the Audit Committee on behalf of the Board. Each of
these elements that make up the Company's system of internal
financial and operating control is explained in further detail as
follows:
(i) Control environment
The Company is ultimately dependent upon the quality and
integrity of the staff and management of its Investment Manager,
its Investment Adviser and its Administration and Company
Secretarial service providers. In each case, qualified and able
individuals have been selected at all levels. The staff of both the
Investment Manager and Administrator, are aware of the internal
controls relevant to their activities and are also collectively
accountable for the operation of those controls. Appropriate
segregation and delegation of duties is in place.
The Audit Committee undertakes a review of the Company's
internal financial and operating controls on a regular basis. The
auditor of the Company, PricewaterhouseCoopers CI LLP, consider
internal control relevant to the Company's preparation and fair
presentation of the financial statements in order to design their
audit procedures, but not for the purpose of expressing an audit
opinion on the effectiveness of the Company's internal
controls.
The Board is made aware of the business controls of the
Investment Advisor and Investment Manager during periodic Board
Updates enabling oversight of the key business processes. The
Investment Advisor also provides an update of the control
environment for the UK HoldCo's and SPVs to ensure the Board have
oversight of business controls for the entire Group.
In its role as a third-party fund administration services
provider, the Ipes Group, of which Ipes (Guernsey) Limited is a
part, produces an annual AAF 01/06 Assurance Report on the internal
control procedures in place within the Ipes Group, and this is
subject to review by the Audit Committee and the Board.
(ii) Identification and evaluation of business risks
Another key business risk is the performance of the Company's
investments. This is managed by the Investment Manager, which
undertakes regular analysis and reporting of business risks in
relation to the investment portfolio, and then proposes appropriate
courses of action to the Board for their review.
(iii) Key procedures
In addition to the above, the Audit Committee's key procedures
include a comprehensive system for reporting financial results to
the Board regularly, as well as quarterly reviews of loans
(including reports on the underlying investment performance).
Although no system of internal control can provide absolute
assurance against material misstatement or loss, the Company's
system is designed to assist the Directors in obtaining reasonable
assurance that problems are identified on a timely basis and dealt
with appropriately. It is the view of the Board that the controls
in relation to the Company's operating, accounting, compliance and
IT risks performed robustly throughout the year. In addition, all
have been in full compliance with the Company's policies and
external regulations, including:
-- Investment policy, as outlined in the IPO documentation;
-- Personal Account Dealing, as outlined in the Model Code;
-- Whistleblowing Policy;
-- Anti-Bribery Policy;
-- Applicable FCA Regulations;
-- Listing Rules, and Disclosure and Transparency Rules;
-- Treatment and handling of confidential information;
-- Conflicts of interest;
-- Compliance policies; and
-- Anti-Money Laundering Regulations.
Corporate Governance Statement
There were no protected disclosures made pursuant to the
Company's whistleblowing policy, or that of service providers in
relation to the Company, during the year ended 31 March 2017.
In summary, the Board considers that the Company's existing
internal financial and operating controls, coupled with the
analysis of risks inherent in the business models of the Company
and its subsidiaries continue to provide appropriate tools for the
Company to monitor, evaluate and mitigate its risks.
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD, which was implemented across the EU on 22 July 2013
with the transition period ending on 22 July 2014, aims to
harmonise the regulation of Alternative Investment Fund Managers
("AIFMs") and imposes obligations on managers who manage or
distribute Alternative Investment Funds ("AIFs") in the EU or who
market shares in such funds to EU investors.
After seeking professional regulatory and legal advice, the
Company was established in Guernsey as a Non-EU AIF, appointing
NextEnergy Capital IM Limited to act as the Non-EU AIFM.
In accordance with AIFMD disclosure obligations, note 6 provides
a summary of realised gains and losses.
The Investment Manager does not receive an additional fee, to
that stated in note 18, as a result of acting as the AIFM. The
Investment Manager received an aggregate fee of GBP3,406,093 for
the year ended 31 March 2017.
The marketing of shares in AIFs that are established outside the
EU (such as the Company) to investors in that EU member state is
prohibited unless certain conditions are met. Certain of these
conditions are outside the Company's control as they are dependent
on the regulators of the relevant third country (in this case
Guernsey) and the relevant EU member state entering into regulatory
co-operation agreements with one another.
Currently, the NPPR provides a mechanism to market Non-EU AIFs
that are not allowed to be marketed under the AIFMD domestic
marketing regimes. The Board is utilising NPPR in order to market
the Company, specifically in the UK, the Republic of Ireland and
the Netherlands. The Board is working with the Company's advisers
to ensure the necessary conditions are met, and all required
notices and disclosures are made under NPPR. Eligible AIFMs will be
able to continue to use NPPR until at least 2018, and until at
least 2016 NPPR will be the sole regime available to market in the
EU. After 22 July 2015, a non-EU marketing passport may be
introduced, but this depends on a number of conditions being
satisfied (as set out in the AIFMD and its Regulations).
Any regulatory changes arising from implementation of AIFMD (or
otherwise) that limit the Company's ability to market future issues
of its shares may materially adversely affect the Company's ability
to carry out its investment policy successfully and to achieve its
investment objective, which in turn may adversely affect the
Company's business, financial condition, results of operations, NAV
and/or the market price of the Ordinary Shares.
The Board, in conjunction with the Company's advisers, will
continue to monitor the development of AIFMD and its impact.
The Board has considered the disclosure obligations under
Articles 22 and 23 and can confirm that the Investment Manager
company complies with the various organisational, operational and
transparency obligations.
Foreign Account Tax Compliance Act ("FATCA") and the OECD Common
Reporting Standards ("CRS")
FATCA became effective on 1 January 2013 and has been
implemented internationally. The legislation is aimed at
determining the ownership of US assets in foreign accounts and
improving US Tax compliance with respect to those assets.
More than 90 jurisdictions, including all 34 member countries of
the OECD and the G20 members, have committed to implement the CRS.
Building on the model created by FATCA, the CRS creates a global
standard for the annual automatic exchange of financial account
information between the relevant tax authorities.
The Board in conjunction with the Company's service providers
and advisers will ensure the Company's compliance with FATCA and
CRS's requirements to the extent relevant to the Company.
Dialogue with Shareholders
The Directors place a great deal of importance on communication
with shareholders. The Investment Manager and Brokers, aim to meet
with large shareholders at least annually, together with the
Investment Adviser, and calls are undertaken on a regular basis
with shareholders. The Board also receives regular reports from the
Brokers on shareholder issues. Publications such as the Annual
Report and Audited Financial Statements, and Quarterly Factsheets
are reviewed and approved by the Board prior to circulation, and
are widely distributed to other parties who have an interest in the
Company's performance, and are available on the Company's
website.
All Directors are available for discussions with shareholders,
as and when required.
AGM
The Notice of AGM is sent out at least 20 working days in
advance of the meeting. All shareholders have the opportunity to
put questions to the Board or Investment Manager, either formally
at the Company's Annual General Meeting, informally following the
meeting, or in writing at any time during the year via the Company
Secretary. The Company Secretary is also available to answer
general shareholder queries at any time throughout the year.
By order of the Board
Kevin Lyon
Chairman of the Board of Directors
27 June 2017
Biographical Information of the Directors
Kevin Lyon
(Independent Non-Executive Director and Chairman)
Mr Lyon is a qualified Chartered Accountant, with over 30 years
of experience in private equity and senior director positions in a
number of different companies. He spent approximately 17 years with
the 3i Group, responsible for their core private equity business
across the UK, with a team of 10 Directors and 40 executives. Mr
Lyon is currently chairman of Drilling Systems Ltd, a designer and
manufacturer of simulators for the oil and gas industry, of Inoapps
Ltd, a vendor of Oracle software, of ROVOP an independent provider
of subsea remotely operated vehicle services, and of ACS Clothing
Limited, the leading men's hirewear supplier in the UK. He was
former chairman of Smart Metering Systems plc, Valiant Petroleum
plc, RBG, Wyndeham Press Group, Craneware plc, Incline GTS and
Ambrian plc and was a non-executive director on Booker plc, David
Lloyd Leisure, and Phase 8. He won the Institute of Directors
Scotland, Non-Executive Director of the Year Award in March 2013.
Mr Lyon graduated from Edinburgh University in 1982 and has
attended management courses at INSEAD, IESE and Ashridge.
Patrick Firth
(Independent Non-Executive Director and Audit Committee
Chairman)
Mr Firth qualified as a Chartered Accountant with KPMG Guernsey
in 1991 and is also a member of the Chartered Institute for
Securities and Investment. Mr Firth is a director of a number of
management companies, general partners and investment companies,
including Riverstone Energy Limited, JZ Capital Partners Limited,
ICG-Longbow Senior Secured UK Property Debt Investments Limited, DW
Catalyst Fund Ltd. and GLI Finance Limited. He has worked in the
fund industry in Guernsey since joining Rothschild Asset Management
C.I. Limited in 1992 before moving to become managing director at
Butterfield Fund Services (Guernsey) Limited (subsequently
Butterfield Fulcrum Group (Guernsey) Limited), a company providing
third party fund administration services, where he worked from
April 2002 until June 2009. Mr Firth is a former Chairman of the
Guernsey International Business Association and of the Guernsey
Investment Fund Association. He is a resident of Guernsey.
Vic Holmes
(Independent Non-Executive Director, Senior Independent Director
and Remuneration and Nominations Committee Chairman)
Mr Holmes is a qualified Chartered Certified Accountant. He has
been involved in financial services for over 30 years. In 1986, Mr
Holmes joined the board of Guernsey International Fund Management
Limited, Guernsey's largest fund administration company. In 1990,
he was appointed managing director of the newly established
Irish-based Baring Asset Management subsidiary, providing
international fund administration services from a Dublin base. He
continued in that position until 2003, when he was appointed head
of fund administration services for the Baring Asset Management
group of companies, providing services out of London, Dublin,
Guernsey, Isle of Man and Jersey. Subsequent to the acquisition of
the Baring Asset Management Financial Services Group by Northern
Trust in 2005, he was appointed country head of Northern Trust's
Irish businesses and, in 2007, he returned to Guernsey to assume
the position of jurisdictional head of Northern Trust's Channel
Island businesses. Since 1986, Mr. Holmes has served on a wide
range of fund-related boards, based mainly in Guernsey and Ireland,
but also in the UK and the Cayman Islands. Mr Holmes' current
directorships include Permira Holdings Limited, Generali Worldwide
Insurance Company Limited, Picton Property Income Limited (London
listed), Highbridge Multi-Strategy Fund Limited (London listed),
DBG Management GP (Guernsey) Limited and a range of Ashmore funds.
Mr Holmes was the first chairman of what is now known as the Irish
Fund Industry Association which he was instrumental in establishing
in 1991, and served as chairman of the executive committee of the
Guernsey Investment Fund Association from April 2013 to April 2015.
He is a resident of Guernsey.
Statement of Directors' Responsibilities
The Directors are responsible for preparing financial statements
for each financial period which give a true and fair view, in
accordance with applicable laws and regulations, of the state of
affairs of the Company and of the profit and loss of the Company
for that period.
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare financial statements for each financial period. The
financial statements have been prepared in accordance with IFRS. In
preparing the financial statements, the Directors are required
to:
-- Select suitable accounting policies and apply them consistently;
-- Make judgements and estimates that are reasonable and prudent;
-- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- Prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The maintenance and integrity of the Company's website is the
responsibility of the Directors. Legislation in Guernsey governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008 as amended. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Each of the Directors confirms that, to the best of their
knowledge:
-- They have complied with the above requirements in preparing the financial statements;
-- There is no relevant audit information of which the Company's auditors are unaware;
-- All Directors have taken the necessary steps that they ought
to have taken to make themselves aware of any relevant audit
information and to establish that the auditors are aware of said
information;
-- The financial statements, prepared in accordance with IFRS
and applicable laws, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
-- The Chairman's Statement, Report of the Directors and
Corporate Governance Statement include a fair review of the
development and the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
The 2016 UK Corporate Governance Code, as adopted through the
AIC Code by the Company, also requires Directors to ensure that the
Annual Report and Audited Financial Statements are fair, balanced
and understandable. In order to reach a conclusion on this matter,
the Board has requested that the Audit Committee advise on whether
it considers that the Annual Report and Audited Financial
Statements fulfils these requirements. The process by which the
Committee has reached these conclusions is set out in the Audit
Committee Report on pages 80 to 83. Furthermore, the Board believes
that the disclosures set out on pages 8 to 59 of the annual report
provide the information necessary for shareholders to assess the
Company's performance, business model and strategy.
Having taken into account all the matters considered by the
Board and brought to the attention of the Board for the year ended
31 March 2017, as outlined in the Corporate Governance Statement,
Strategic Report and the Audit Committee Report, the Board has
concluded that the Annual Report and Audited Financial Statements
for the year ended 31 March 2017, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business
model and strategy.
For NextEnergy Solar Fund Limited
Kevin Lyon
Chairman of the Board of Directors
27 June 2017
Report of the Directors
The principal activities and investment objectives of the
Company are to provide investors with a sustainable and attractive
dividend that increases in line with RPI over the long term by
investing exclusively in a diversified portfolio of solar PV assets
that are located in the UK. The Company's principal activities and
investment objectives are detailed more fully in the Strategic
Report on pages 8 to 11.
The structure of the Group, as detailed fully on pages 8 to 10
of the Strategic Report, facilitates the holding and management of
the Company's assets to enable the Company to pursue its principal
activities and objectives.
Dividends
For details regarding the Dividend Policy applied by the
Company, please refer to page 5.
During the year, the Company has declared 4 dividends totalling
GBP26,525,459 relating to the year ended 31 March 2017. For each
quarterly dividend, a scrip alternative was offered to cash, with
the number of shares issued pursuant to the scrip detailed in the
table in the Capital section below. The dividends declared during
the year were as follows:
-- 1.5775 pence per share for the quarter ended 30 June 2016,
declared on 15 August 2016, to shareholders on the register on 26
August 2016 and paid on 30 September 2016;
-- 1.5775 pence per share for the quarter ended 30 September
2016, declared on 10 November 2016, to shareholders on the register
on 18 November 2016 and paid on 30 December 2016;
-- 1.5775 pence per share for the quarter ended 31 December
2016, declared on 13 February 2017, to shareholders on the register
on 24 February 2017 and paid on 31 March 2017; and
-- 1.5775 pence per share for the quarter ended 31 March 2017,
declared on 19 May 2017, to shareholders on the register on 26 May
2017 and scheduled to be paid on the date of this Report, being 27
June 2017.
Capital
As part of the Company's IPO, completed on 25 April 2014,
85,600,000 ordinary shares of the Company, with an issue price of
100 pence per share, were admitted to the premium segment of the UK
Listing Authority's Official List and to trading on the Main Market
of the London Stock Exchange. Since the IPO the Ordinary Shares in
issue has increased to 456,388,199 as a result of further share
issues made pursuant to the first Placing Programme, tap issues,
the current Placing Programme and scrip dividends. The Placings and
Offers for Subscription made under the placing programme are as
follows:
Cumulative
Number
New Ordinary of
Shares Shares
Date Description Issued in Issue
Initial Public
25 April 2014 Offering 85,600,000 85,650,000
Issue of Shares
19 November - 2014 - Placing 85,316,434 170,916,434
Issue of Shares
- Offer 5,683,566 176,600,000
Issue of Shares
23 December 2014 - Placing 4,000,000 180,600,000
Issue of Shares
27 February 2015 - Placing 55,356,358 235,956,358
Issue of Shares
- Offer 4,393,642 240,350,000
Issue of Shares
30 September 2015 - Placing 37,607,105 277,957,105
Issue of Shares
6 November 2015 - Placing 30,850,000 308,807,105
Transaction in
Own Shares -
buy back to
6 November 2015 Treasury 30,850,000 277,957,105
Issue of Shares
-
Tap Issuance
27 July 2016 Programme 41,991,242 319,948,347
Issue of Shares
-
Tap Issuance
Programme 1,822,656 321,771,003
Issue of Shares
-
Tap Issuance
4 August 2016 Programme 4,254,855 326,025,858
Issue of Shares
-
Tap Issuance
Programme 740,690 326,766,548
Issue of Shares
-
Tap Issuance
Programme 300,000 327,066,548
Issue of Shares
-
Tap Issuance
9 August 2016 Programme 5,775,557 332,842,105
Issue of Shares
-
Tap Issuance
9 September 2016 Programme 9,215,926 342,058,031
Issue of Shares
30 September 2016 - Scrip Dividend 1,139,374 343,197,405
Issue of Shares
25 November 2016 - Placing 110,206,229 453,403,634
Issue of Shares
- Offer 93,771 453,497,405
Issue of Shares
30 December 2016 - Scrip Dividend 1,321,959 454,819,364
Issue of Shares
31 March 2017 - Scrip Dividend 1,568,835 456,388,199
Issue of Shares
23 June 2017 - Placing 115,000,000 571,388,199
Reviewed Debt Facilities
Details on the Company's debt facilities can be seen in the
Financial Review on pages 44 to 59.
Business Review
As at the date of distribution of this Annual Report and Audited
Financial Statements the Company had announced the acquisition of
48 solar PV plants for a total of c.483MW and a total investment
value of c.GBP554m, representing 119,2% of the equity proceeds
raised since its IPO in April 2014 and will utilise its debt
facilities to finance any amounts not covered by its available
equity funding and to fund further investment opportunities.
Full details of the Company's performance during the year ended
31 March 2017, its position at that date and the Company's future
developments are detailed in the Chairman's Statement, the
Strategic Report and the Investment Manager's Report on pages 3 to
42.
Substantial Interests
As at 31 May 2017, the Company is aware of the following
material shareholdings:
% shareholding
Ordinary as at 31
Name shares purchased May 2017
Prudential plc group of companies 77,663,615 17.12
Artemis Investment Management
LLP on behalf of discretionary
funds under management 71,303,081 15.72
Old Mutual plc 60,004,057 13.23
Investec Wealth & Investment
Limited 45,601,840 10.06
Legal & General Group plc 26,782,623 5.90
Baillie Gifford & Co 22,932,062 5.02
Directors and Directors' Interests in Shares
The Directors who have served throughout the year ended 31 March
2017 were Kevin Lyon, Patrick Firth and Vic Holmes.
Biographical details of each of the Directors are shown on pages
70 to 72.
The Directors' interests in shares are shown below:
Ordinary shares
Ordinary shares as
at 31 March at 31 March
Name 2017 2016
Kevin Lyon 160,000 60,000
Patrick Firth 71,315 20,000
Vic Holmes 110,000 10,000
Corporate Governance
The Corporate Governance Statement on pages 61 to 69 sets out in
detail the code of corporate governance against which the Company
reports. It also sets out the Company' compliance with the relevant
principals and any reasons for deviations from the code. Finally,
it includes details regarding the Audit Committee, its composition
and terms of reference.
Going Concern
The Company's business activities and factors likely to affect
its performance, position and prospects are set out in the
Strategic Report on pages 8 to 11. Further to this, the Strategic
Report provides further information on the financial position of
the Company, its cash flows, liquidity and borrowing
facilities.
The Board is satisfied that the Company has sufficient resources
available to be able to manage the Company's business effectively
and pursue the Company's principal activities and investment
objectives.
The Directors have a reasonable expectation that the Company has
sufficient resources available to continue as a going concern for
12 months from the date of approval of the financial statements. As
such, the Directors deem it appropriate to adopt the going concern
basis of accounting in preparing these financial statements.
Investment Manager and Service Providers
The Investment Manager during the year was NextEnergy Capital IM
Limited. The Investment Manager has appointed NextEnergy Capital
Limited to provide investment advice pursuant to an Investment
Advisory Agreement.
The Company's brokers during the year were Cantor Fitzgerald
Europe, Macquarie Capital (Europe) Limited, Shore Capital and
Corporate Limited and Fidante Capital.
The Company's and Investment Manager's Administrator and Company
Secretary during the year was Ipes (Guernsey) Limited (the
"Administrator").
Share Repurchase/Treasury Shares
Under section 315 of the Companies (Guernsey) Law, 2008 (as
amended from time to time) the Company is entitled to hold shares
acquired by market purchase as treasury shares. Up to 10% of the
issued share capital may be held in treasury and either sold in the
market or cancelled.
On 6 November 2015, 30,850,000 shares had been repurchased and
held in Treasury such shares being subsequently sold from Treasury
during the Tap Issuance Programme as summarized in the Capital
section above. Authority to purchase Ordinary Shares to be held in
Treasury/Cancellation was sought and obtained at the second annual
general meeting of the Company held on 24 August 2016 and will
expire at the conclusion of the third annual general meeting of the
Company, at which point it is envisaged that the Directors will
propose to extend the authority.
Annual General Meeting
The Company's Annual General Meeting is convened for 10.00 a.m.
on 24 August at the offices of Ipes (Guernsey) Limited, 1 Royal
Plaza, Royal Avenue, St Peter Port, Guernsey, GY1 2HL.
Accountability and Audit
The respective responsibilities of the Directors and the
Auditors in connection with the financial statements are set out on
page 73.
Independent Auditor
Our Independent Auditor, PricewaterhouseCoopers CI LLP, has
indicated their willingness to remain in office. The Directors will
place a resolution before the Annual General Meeting to re-appoint
them as Independent Auditor for the ensuing year, and to authorise
the Directors to determine their remuneration.
Disapplication of Pre-emption Rights
Resolution 8 will be proposed as a special resolution at the AGM
to provide the Directors with an annual authority to disapply
pre-emption rights in respect of up to 114,277,640 shares,
equivalent to 20% of the current issued share capital (excluding
shares held in treasury at the date of this Annual Report), when
issuing shares and/or selling shares from treasury for cash. This
authority will expire at the conclusion of the AGM in 2018. Any
future issues, or sales of shares from treasury, will only be
undertaken at a premium to the prevailing NAV per share.
Purchase of the Company's Securities
As part of the discount control mechanisms, the Board may
undertake share buy-backs (subject to the limitations to be set out
in Resolution 9 in the Notice of the Annual General Meeting of the
Company and all other applicable laws and regulations) Resolution 9
will be proposed as a special resolution at the AGM to provide the
Company with an authority to purchase, through the market, up to
14.99% of the issued share capital. Shares repurchased by the
Company may be held within treasury and resold or cancelled. Annual
shareholder approval will be sought to renew this authority. This
authority will expire at the conclusion of the AGM in 2018.
Whether the Company buys back any shares, and the timing and the
price paid on any such purchase, will be at the discretion of the
Directors. The Directors will consider repurchasing shares in the
market if they believe it to be in shareholders' interests, in
particular as a means of correcting any imbalance between supply of
and demand for the shares. Any purchase of shares will be in
accordance with the Articles and the Listing Rules in force at the
time.
Recommendation
Your Board considers each of the AGM resolutions to be in the
best interests of the Company and its members as a whole.
Accordingly, your Board recommends that shareholders should vote in
favour of each of the resolutions to be proposed at the Annual
General Meeting, as they intend to do in respect of their own
beneficial shareholdings amounting to 341,315 shares.
By order of the Board
Kevin Lyon
Chairman of the Board of Directors
27 June 2017
Directors' Remuneration Report
Remuneration Policy and Components
The Board established a combined Remuneration and Nominations
Committee at a meeting of the Board of Directors held on 23
September 2016 and comprises all Directors. Vic Holmes is Chairman
of the Remuneration and Nominations Committee. The Chairman of the
Board is a member of the Remuneration and Nominations Committee.
Prior to the establishment of the Remuneration and Nominations
Committee, the Board undertook the Committee's functions.
The Remuneration and Nominations Committee, and before its
establishment the Board, endeavours to ensure the remuneration
policy reflects and supports the Company's strategic aims and
objectives throughout the year under review.
Remuneration is set by the Board with details of remuneration of
the Board as per Directors' Letters of Appointment. During the
course of the year, the Remuneration and Nominations Committee
appointed Deloitte to provide market data relevant for an
assessment of the Director fees for the Company. As a consequence
of this comparison, the growing complexity of regulation and the
increased workload on individual Directors, the Board followed the
Remuneration and Nominations Committee's recommendation to increase
the level of Directors' remuneration. With effect from 1 October
2016, each Director receives a base annual fee of GBP35,000, with a
GBP5,000 increment to the basic fee level for the Chairman of the
Audit Committee, a GBP2,500 increment to the basic fee level for
the Senior Independent Director. The Chairman of the Board receives
an annual fee of GBP60,000. This is the first increase in
Directors' fees since its establishment with the total Directors'
remuneration still less than the direct peer group companies
considered by Deloitte as part of their review. No element of the
Directors' remuneration is performance related. A resolution to
receive and adopt the Directors' Remuneration Report will be
proposed at the Annual General Meeting.
The aggregate remuneration and benefits in kind of the Directors
in respect of the Company's year ended 31 March 2017 which will be
payable out of the assets of the Company equalled GBP160,250. It is
the Company's policy to determine the level of Directors' fees,
having regard for the level of fees payable to non-executive
Directors in the industry generally, the role that individual
Directors fulfil in respect of responsibilities related to the
Board and Audit Committee and the time dedicated by each Director
to the Company's affairs. Base fees are set out below.
Per annum Per annum
GBP (from GBP (pre
1 October 30 September
Base Fees 2016) 2016)
Kevin Lyon - Chairman 60,000 60,000
Patrick Firth -
Audit Committee Chairman 40,000 33,000
Vic Holmes -
Senior Independent Director 37,500 30,000
Total Directors' Fees 137,500 123,000
In accordance with the articles of incorporation the Board may
determine that additional remuneration may be paid, from time to
time, to any one or more Directors in the event such Director or
Directors are requested by the Board to perform extra or special
services on behalf of the Company. In accordance with this
provision and in recognition of the additional work the Directors
have done in connection with the Placing Programme, it was agreed
that each Director is entitled to receive an additional fee of
GBP10,000 on completion of the Initial Placing, and to cover the
additional time commitment required from each Director for the
forthcoming year in relation to the Placing Programme.
As outlined in the Articles of incorporation, the Directors
shall also be paid all reasonable travelling, hotel and other
expenses properly incurred by them in attending and returning from
meetings of the Directors or any committee of the Directors or
general meetings of the Company or in connection with the business
of the Company. The total amount of Directors' expenses paid for
the year ended 31 March 2017 is GBP3,370 (31 March 2016:
GBP1,024).
No amount has been set aside or accrued by the Company to
provide pension, retirement or other similar benefits for the
Directors.
No Director has any entitlement to pensions, paid bonuses or
performance fees, has been granted share options or been invited to
participate in long-term incentive plans. No loans have been taken
on behalf of a Director by the Company.
None of the Directors has a service contract with the Company.
Each of the Directors has entered into a letter of appointment with
the Company dated 22 January 2014, and was subject to election at
the first Annual General Meeting, or as determined in line with the
Company's Articles, and re-election at subsequent Annual General
Meetings in accordance with the Company's Articles and all due
regulations and provisions. The Directors do not have any interests
in contractual arrangements with the Company or its investments
during the year under review, or subsequently. Each appointment can
be terminated in accordance with the Company's Articles and without
compensation. As outlined in the letters of appointment, each
appointment can be terminated by:
(i) Resignation by the director by giving written notice (6
months for the Chairman and 3 months for the remaining Directors)
to the Board;
(ii) A resolution of the Shareholders;
(iii) Disqualification from acting as Director under the Law or
Company's Articles, without notice;
(iv) Acting otherwise in accordance with the Company's
Articles
Directors' and Officers' liability insurance cover is maintained
by the Company but is not considered a benefit in kind nor
constitutes a part of the Directors' remuneration. The Company's
Articles indemnify each Director, Secretary, agent and officer of
the Company, former or present, out of assets of the Company in
relation to charges, losses, liabilities, damages and expenses
incurred during the course of their duties, in so far as the law
allows and provided that such indemnity is not available in
circumstances of fraud, wilful misconduct or negligence.
Directors' Fees
The Directors received the following fees during the year under
review, totalling GBP160,250 (2016: GBP123,000):
Director
fee
for the Additional Total fee
year remuneration for the
ended paid for year ended
31 March extra/special Total fee 31 March
Director 2017 services for year 2016
GBP GBP GBP GBP
Kevin Lyon 60,000 10,000 70,000 60,000
Patrick Firth 36,500(1) 10,000 46,500 33,000
Vic Holmes 33,750(2) 10,000 43,750 30,000
Aggregate fees 130,250 30,000 160,250 123,000
Vic Holmes
Remuneration and Nominations Committee Chairman
27 June 2017
(1) GBP33,000 per annum for the 6 months ended 30 September
2016, GBP40,000 per annum for the 6 months ended 31 March 2017
(2) GBP30,000 per annum for the 6 months ended 30 September
2016, GBP37,500 per annum for the 6 months ended 31 March 2017
Audit Committee Report
The Board is supported by the Audit Committee, which was
established at a meeting of the Board of Directors held on 30 June
2014 and comprises of all of the Directors. Patrick Firth is
Chairman of the Audit Committee. The Chairman of the Board is a
member of the Audit Committee, to enable his greater understanding
of the issues facing the Company. The Board has considered the
composition of the Audit Committee and is satisfied it has
sufficient recent and relevant skills and experience. All 3
Directors are qualified accountants.
Role and Responsibilities
The primary role and responsibilities of the Audit Committee are
clearly defined in the Audit Committee's terms of reference,
available at the registered office and the Company's website,
including:
-- Monitoring the integrity of the financial statements of the
Company and any formal announcements relating to the Company's
financial performance, and reviewing significant financial
reporting judgements contained within said statements and
announcements;
-- Reviewing the Company's internal financial controls, and the
Company's internal control and risk management systems;
-- Monitoring and reviewing the independence, objectivity and
effectiveness of the external Auditor, taking into consideration
relevant regulatory and professional requirements;
-- Making recommendations to the Board in relation to the
appointment, re-appointment and removal of the external auditor and
approving their remuneration and terms of engagement, which in turn
can be placed before the shareholders for their approval at the
Annual General Meeting;
-- Developing and implementing the Company's policy on the
provision of non-audit services by the external Auditor, as
appropriate;
-- Reviewing the arrangements in place to enable employees of
the Investment Manager or any other adviser to, in confidence,
raise concerns about possible improprieties in matters of financial
reporting or other matters insofar as they may affect the
Company;
-- Providing advice to the Board on whether the annual financial
statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company's performance, business model and strategy;
-- Take into account the new provision of going concern basis of
accounting that Directors should state whether they considered it
appropriate to adopt the going concern basis of accounting in
preparing the annual and half-yearly financial statements, and to
identify any material uncertainties to the Company's ability to
continue to adopt this approach over a period of at least twelve
months from the date of approval of the financial statements;
-- Take into account the recommendation of providing a longer
term viability statement in respect of a broader assessment of the
Company's long-term solvency and liquidity. Such statement to
explain in the annual report how Directors have assessed the
prospects of the Company, over what period and why they consider
that period to be appropriate and whether they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of
assessment; and
-- Reporting to the Board on how the Committee discharged all
relevant responsibilities at each Board meeting.
The Committee met 4 times during the year under review;
individual attendance of Directors is outlined on page 65. The main
matters discussed at those meetings were:
-- Detailed review of the Annual Report and Accounts and
recommendation for approval by the Board;
-- Establish the audit requirements for the Company;
-- Terms of Reference for the Committee to present to the Board for consideration;
-- Detailed review of the Half Year Report and Accounts and
recommendation for approval by the Board;
-- Review and approval of the interim review plan of the external Auditor;
-- Discussion of reports from the external Auditor following their interim reviews;
-- Review and approval of the annual audit plan of the external Auditor; and
-- Review of the Company's key risks and internal controls.
The Committee has assessed the effectiveness and independence of
the external Auditor following the conclusion of the 31 March 2017
audit process. The Committee has also reviewed and considered the
whistleblowing policy in place for the Investment Adviser and other
service providers, and is satisfied the relevant staff can raise
concerns in confidence about possible improprieties in matters of
financial reporting or other matters insofar as they may affect the
Company.
Significant Issues in Relation to the Financial Statements
Following discussions with the Investment Manager, Investment
Adviser and the external Auditor, the Committee determined that the
significant issues connected with the preparation of the financial
statements of the Company related to:
-- Existence of investments - existence of the assets provides a
higher inherent risk given the nature of purchasing a solar farm.
There is an initial commitment to purchase while the solar farm is
under construction; however final payment is only made when the
asset is fully operational.
-- Investment Valuation - valuation of the assets provides a
higher inherent risk as the valuations are based upon models which
require complex and subjective judgements or estimates for inputs
into the model.
Existence of Investments
In conjunction with the auditor, the Committee updated its
understanding and evaluated the internal controls in place for
assessing ownership and existence at the reporting date including
any significant judgements made.
The Committee has access to and reviews the key transaction
documents as well reviewing the agreements for the commitment to
purchase new solar farms by the UK HoldCos, with particular focus
on initial recognition of the farms as assets of the UK HoldCos.
This includes discussion between the Investment Manager and the
Investment Adviser.
For operational assets, the Committee has reviewed transactions
and balances which support the assertions of existence and
ownership at the SPV level and also of the ownership of each SPV to
the UK HoldCos and in turn the UK HoldCos to the Company.
Investment Valuation
The Audit Committee considers, in detail, those assumptions that
are subject to judgement and that have a material impact on the
valuation of the assets. During this process the Audit Committee
challenges the assumptions employed by the Investment Adviser and
Investment Manager monitors the changes in these assumptions over
time. The key assumptions include but are not limited to:
-- Inflation rates and other macroeconomic factors;
-- Discount rates and other valuation methodologies;
-- Operating performance and costs assumptions; and
-- Power price assumptions
The Investment Manager discusses and agrees valuation
assumptions with the Committee and provides suitable rationale for
changes to the same.
Internal Controls and Risk Management
The Board is ultimately responsible for the Company's systems of
internal control and for reviewing its effectiveness. Under the
Committee's Terms of Reference, responsibility has been delegated
to the Committee for monitoring the Company's internal financial
controls, and the Company's internal control and risk management
systems. The Committee maintains a risk matrix which is reviewed
and, where necessary, amended and updated at each meeting and
reports on any changes to the Board at the next available
opportunity for the Board's consideration.
The Internal Controls and Risk Management process is detailed
more fully in the Corporate Governance Statement on pages 61 to
69.
Internal Audit
The Audit Committee considers at least once a year whether or
not there is a need for an internal audit function. Currently it
does not consider there to be a need for an internal audit
function, given that there are no employees in the Company and all
outsourced functions are with parties who have their own internal
controls and procedures.
Review of External Audit Process Effectiveness
The Audit Committee communicated regularly with the Investment
Manager, Investment Adviser and Administrator to obtain a good
understanding of the progress and efficiency of the audit process.
Similarly, feedback in relation to the efficacy of the Investment
Manager, Investment Adviser and other service providers in
performing their relevant roles was sought from relevant involved
parties, including the audit partner and team. The external Auditor
is invited to attend the Audit Committee meetings at which the
semi-annual and annual accounts are considered, and meetings are
also held with the Auditors to meet and discuss any matters with
the Audit Committee members without the presence of the Investment
Adviser, Investment Manager or the Administrator.
The Committee conducted a review of PwC CI, as external Auditors
following the conclusion of the previous year end audit process and
in doing so considered:
-- The quality of service, the Auditors' specialist expertise,
the level of audit fee, identification and resolution of any areas
of accounting judgement, and quality and timeliness of papers
analysing these judgements;
-- Review of the audit plan presented by the Auditor, and when
tabled, the final audit findings report;
-- Meeting with the auditors regularly to discuss the various papers and reports in detail;
-- Furthermore, interviews of appropriate staff at the
Investment Manager, Investment Adviser and Administrator to receive
feedback on the effectiveness of the audit process from their
perspective; and
-- Compilation of a checklist with which to provide a means
objectively to assess the Auditors' performance.
During the year PwC CI's year end audit was selected for a
quality review by the Financial Reporting Council. The Board
discussed the findings of the review with PwC CI and was satisfied
with the outcome.
The Audit Committee is satisfied with PwC CI's effectiveness and
independence as Auditor having considered the degree of diligence
and professional scepticism demonstrated by them. Having carried
out the review described above and having satisfied itself that the
Auditor remains independent and effective, the Audit Committee has
recommended to the Board that PwC CI be reappointed as Auditor for
the year ending 31 March 2018.
Auditors' Tenure and Objectivity
The Company intends to develop an audit tender policy which the
Board will consider after five years from the appointment date of
the current auditor. A review of policy will therefore occur in the
second half of 2019, subject to regular reviews by the Board and
shareholder approval.
The Company's current Auditor, PwC CI, have acted in this
capacity since the Company's inaugural meeting on 22 January 2014.
As detailed above the Committee will review the Auditors'
performance following the conclusion of the year end audit process
and will continue to do so on a regular basis to ensure the Company
receives an optimal service. Subject to annual appointment by
shareholder approval at the Annual General Meeting, the appointment
of the auditor is formally reviewed by the Audit Committee on an
annual basis. The Auditor is required to rotate the audit partner
every five years, and the current partner has been in place for
only this year end.
PwC CI will regularly update the Audit Committee on the rotation
of audit partners, staff, level of fees, details of any
relationships between the Auditor, the Company and its investment
portfolio, and also provides overall confirmation of its
independence and objectivity. There are no contractual obligations
that restrict the Company's choice of Auditor.
During the year ended 31 March 2017, PwC UK has provided
non-audit services to the Company in relation to its current
placing programme. The level of fees paid in respect of this
service was GBP210,000. The Committee considered the services being
provided by PwC UK and acknowledge that the level of non-audit fees
exceeds those of the audit. However, the Committee is of the
opinion that it was beneficial to the Company that PwC UK carried
out the work in relation to the placing programme due to their
understanding of the Company and the dynamics of its business. The
audit and non-audit work carried out by PwC UK was also
substantially completed by separate offices, creating a degree of
separation.
Notwithstanding the non-audit services provided, the Audit
Committee is satisfied that PwC CI is independent of the Company,
the Investment Manager and other service providers and recommends
the continuing appointment of the Auditor by the Board.
Conclusions in Respect of the Financial Statements
The production and the audit of the Company's Annual Report and
Audited Financial Statements is a comprehensive process requiring
input from a number of different contributors. In order to reach a
conclusion on whether the Company's Annual Report and Audited
Financial Statements are fair, balanced and understandable, as
required under the UK Corporate Governance Code dated September
2014, the Board has requested that the Audit Committee advise on
whether it considers that the Annual Report and Audited Financial
Statements fulfils these requirements as detailed in the
Committee's terms of reference. In outlining its advice, the Audit
Committee has considered the following:
-- The comprehensive documentation that is in place outlining
the controls in place for the production of the annual report,
including the verification processes in place to confirm the
factual content;
-- The detailed reviews undertaken at various stages of the
production process by the Investment Manager, Investment Adviser,
Administrator, Auditor and the Audit Committee that are intended to
ensure consistency and overall balance;
-- Controls enforced by the Investment Manager, Investment
Adviser, Administrator and other third party service providers to
ensure complete and accurate financial records and security of the
Company's assets; and
-- The existence and content of a satisfactory control report
produced by the Ipes Group that has been reviewed and reported upon
by a reputable audit firm to verify the effectiveness of the
internal controls of the Administrator, such as the Audit and
Assurance Faculty (AAF) Report.
As a result of the work performed, the Audit Committee has
concluded and reported to the Board that the Annual Report and
Audited Financial Statements for the year ended 31 March 2017,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company's
performance, business model and strategy. The Board's conclusions
in this respect are set out in the Statement of the Directors
Responsibilities on page 73.
Patrick Firth
Audit Committee Chairman
27 June 2017
Independent Auditor's Report to the Members of NextEnergy Solar
Fund Limited
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and fair
view of the financial position of NextEnergy Solar Fund Limited as
at 31 March 2017, and of its financial performance and its cash
flows for the year then ended in accordance with International
Financial Reporting Standards and have been properly prepared in
accordance with the requirements of the Companies (Guernsey) Law,
2008.
What we have audited
The Company's financial statements comprise:
-- the statement of financial position as at 31 March 2017;
-- the statement of comprehensive income for the year then ended;
-- the statement of changes in equity for the year then ended;
-- the statement of cash flows for the year then ended; and
-- the notes to the financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our
report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the
International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants ("IESBA Code"). We have
fulfilled our other ethical responsibilities in accordance with the
IESBA Code.
Our audit approach
Overview
Materiality
-- Overall materiality was GBP11.9 million which represents 2.5% of net assets.
Audit scope
-- The principal activity of the Company comprise investing in a
diversified portfolio of solar photovoltaic assets located in the
UK through a structure of intermediate holding companies.
-- As the Company is required to measure its subsidiaries at
fair value rather than consolidate on a line-by-line basis, the
Company has been treated as having only one component. There has
been no change in this approach for the current period.
-- We conducted our audit work in Guernsey and we tailored the
scope of our audit taking into account the type of investments held
by the Company, the accounting processes and controls and the
industry the Company is exposed to through its investments.
-- We conducted our audit of the financial statements from
information provided by Ipes (Guernsey) Limited to whom the Board
of Directors has delegated the provision of administrative
functions. We conducted our audit work in Guernsey.
Key audit matters
-- Valuation of investments
Audit scope
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where the directors made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which the Company operates.
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance as
to whether the financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They
are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Company materiality for the financial statements as a whole as set
out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Overall Company materiality GBP11.9m
How we determined 2.5% of net assets
it
Rationale for the We believe that net assets is the
materiality benchmark most appropriate benchmark because
this is the key metric of interest
to investors. It is also a generally
accepted measure used for companies
in this industry.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP595,000, as well
as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in
the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Key audit matter How our audit addressed
the Key audit matter
Valuation of investments We planned our audit
The Company's investments so as to critically assess
held at fair value comprise management's assumptions
investments in intermediate and the investment valuation
holding companies which model in which they are
in turn hold equity and applied.
subordinated debt interests Our audit procedures
in solar park projects included:
for which there is no We understood the design
liquid market and which and implementation of
are valued on a discounted internal controls covering
cash flow basis. the valuation model used
The Company's portfolio at 31 March 2017;
grew during the year, We read the independent
adding GBP80.8m of further advice received by the
investments, principally Company in respect of
funded through the issue energy yields, power
of equity by the Company. prices and discount rates;
The year-end valuation We used our own PricewaterhouseCoopers
of GBP415.9m at 31 March internal valuation specialists
2017 necessitates significant to benchmark the discount
management judgement rate and other key assumptions
in respect of the forecast against comparable market
cash flows and discount participants and other
rates applied. macroeconomic data;
The judgements in respect We read the share purchase
of forecast cash flows agreements for any newly
include assumptions around acquired assets in order
future energy yields, to confirm the acquisition
discount rates, power cost and the nature and
prices, inflation, tax amount of any deferred
rates, exchange rates consideration;
and operating costs. We tested the mathematical
The Audit Committee have accuracy of the valuation
set out their consideration model to ensure the incorporation
of this risk on page of the assumptions into
81 and it is disclosed the valuation model was
as a critical accounting performed correctly and
judgement in note 4 of the correct application
the financial statements. of the selected discount
A breakdown of the assumptions rates;
applied to the valuation We corroborated the cash
of investments are described flow projections where
in note 15 possible, focusing on
changes since the previous
reporting date or the
date of acquisition for
current period assets
acquired, substantiating
any contracted revenues
and costs and comparison
against actual historical
results for the underlying
investments.
No issues nor misstatements were identified in our testing of
investments which required reporting to the Audit Committee.
Other information
The Directors are responsible for the other information. The
other information comprises the Highlights, Corporate Summary,
Chairman's Statement, Strategic Report, Corporate Social
Responsibility, Investment Manager's Report, Financial Review,
Corporate Governance, Biographical Information of the Directors,
Statement of Director's Responsibilities, Report of the Directors,
Director's Remuneration Report, the Audit Committee Report, Notice
of Annual General Meeting and Corporate Information (but does not
include the financial statements and our auditor's report
thereon).
Other than as specified in our report, our opinion on the
financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of the Directors for the financial
statements
The Directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards, the requirements of
Guernsey law and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters relating to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the Directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or
conditions may cause the Company to cease to continue as a going
concern.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on other legal and regulatory requirements
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit;
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this
responsibility.
We have nothing to report in respect of the following matters
which we have reviewed:
-- the directors' statement set out on page 73 in relation to
going concern. As noted in the directors' statement, the Directors
have concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going concern
basis presumes that the Company has adequate resources to remain in
operation, and that the directors intend it to do so, for at least
one year from the date the financial statements were signed. As
part of our audit we have concluded that the directors' use of the
going concern basis is appropriate. However, because not all future
events or conditions can be predicted, these statements are not a
guarantee as to the Company's ability to continue as a going
concern;
-- the directors' statement that they have carried out a robust
assessment of the principal risks facing the Company and the
directors' statement in relation to the longer-term viability of
the Company. Our review was substantially less in scope than an
audit and only consisted of making inquiries and considering the
directors' process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the statements
are consistent with the knowledge acquired by us in the course of
performing our audit; and
-- the part of the Corporate Governance Statement relating to
the Company's compliance with the ten further provisions of the UK
Corporate Governance Code specified for our review.
This report, including the opinion, has been prepared for and
only for the members as a body in accordance with Section 262 of
the Companies (Guernsey) Law, 2008 and for no other purpose. We do
not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
John Luff
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
27 June 2017
Financial Statements
Statement of Comprehensive Income
For the year ended 31 March 2017
1 April
2016 to
31 March 1 April
2017 2015 to
31 March
Notes (GBP) 2016 (GBP)
Income
Income 5 35,307,178 24,046,160
Net changes in fair value
of financial assets at
fair value through profit
or loss 6 19,560,833 (18,503,991)
Total net income 54,868,011 5,542,169
Expenditure
Management fees 19 3,406,093 2,615,662
Legal and professional
fees 946,888 490,324
Administration fees 258,551 201,152
Directors' fees 22 160,250 123,000
Audit fees 17 151,018 75,000
Regulatory fees 94,175 72,652
Insurance 27,125 31,194
Sundry expenses 8,131 6,595
Total expenses 5,052,231 3,615,579
Operating profit 49,815,780 1,926,590
Finance income 13,391 108,111
Profit and comprehensive
income for the year 49,829,171 2,034,701
Earnings per share 12 13.81p 0.78p
There were no potentially dilutive instruments in issue at 31
March 2017.
All activities are derived from ongoing operations.
There is no other comprehensive income or expense apart from
those disclosed above and consequently a Statement of Other
Comprehensive Income has not been prepared.
The accompanying notes are an integral part of these financial
statements.
Statement of Financial Position
As at 31 March 2017
2017 2016
Notes (GBP) (GBP)
Non-current assets
Investments 6,15 415,863,377 315,466,679
Total non-current assets 415,863,377 315,466,679
Current assets
Cash and cash equivalents 59,831,343 5,937,663
Trade and other receivables 7 11,165,786 13,000
Total current assets 70,997,129 5,950,663
Total assets 486,860,506 321,417,342
Current liabilities
Trade and other payables 8 8,277,677 137,825
Investment payable 9 - 47,468,639
Total current liabilities 8,277,677 47,606,464
Net assets 478,582,829 273,810,878
Equity
Share Capital and Premium 11 464,340,864 314,956,625
Treasury shares 11 - (32,084,000)
Reserves 14,241,965 (9,061,747)
Total equity attributable to shareholders 478,582,829 273,810,878
Net assets per share - (pence) 14 104.9p 98.5p
The accompanying Notes are an integral part of these financial
statements.
The financial statements were approved and authorised for issue
by the Board of Directors on 27 June 2017 and signed on its behalf
by:
Patrick Firth Vic Holmes
Director Director
Statement of Changes in Equity
For the year ended 31 March 2017
Share
Capital Treasury Retained Total
and Premium shares earnings Equity
(GBP) (GBP) (GBP) (GBP)
For the year 1 April
2016 to 31 March 2017
Shareholders' equity
at 1 April 2016 314,956,625 (32,084,000) (9,061,747) 273,810,878
Profit and comprehensive
income for the year - - 49,829,171 49,829,171
Shares issued 149,384,239 32,084,000 - 181,468,239
Dividends paid - - (26,525,459) (26,525,459)
Shareholders' equity
at 31 March 2017 464,340,864 - 14,241,965 478,582,829
For the year 1 April
2015 to 31 March 2016
Shareholders' equity
at 1 April 2015 244,459,639 - 3,898,899 248,358,538
Profit and comprehensive
income for the year - - 2,034,701 2,034,701
Shares issued 70,496,986 (32,084,000) - 38,412,986
Dividends paid - - (14,995,347) (14,995,347)
Shareholders' equity
at 31 March 2016 314,956,625 (32,084,000) (9,061,747) 273,810,878
The accompanying notes are an integral part of these financial
statements.
Statement of Cash Flows
For the year ended 31 March 2017
1 April 2016 to 31 March 2017 1 April 2015 to 1 March 2016
Cash flows from operating activities Notes (GBP) (GBP)
Profit and comprehensive income for the year 49,829,171 2,034,701
Adjustments for:
Purchase of investments (80,835,865) (128,341,159)
Movement in investment payable (47,468,639) -
Change in fair value on investments 6 (19,560,833) 18,503,991
Finance income (13,391) (108,111)
Operating cash flows before movements in working
capital (98,049,557) (107,910,578)
Changes in working capital
Movement in trade receivables (11,152,786) 56,482
Movement in trade payables 8,139,852 48,883
Net cash used in operating activities (101,062,491) (107,805,213)
Cash flows from investing activities
Finance income 13,391 108,111
Net cash generated from investing activities 13,391 108,111
Cash flows from financing activities
Proceeds from issue of shares 11 145,078,148 38,412,986
Proceeds from treasury shares 11 32,084,000 -
Dividends paid 13 (22,219,368) (14,995,347)
Net cash generated from financing activities 154,942,780 23,417,639
Net movement in cash and cash equivalents during
year 53,893,680 (84,279,463)
Cash and cash equivalents at the beginning of the
year 5,937,663 90,217,126
Cash and cash equivalents at the end of the year 59,831,343 5,937,663
The accompanying notes are an integral part of these financial
statements.
Notes to the Audited Financial Statements
For the year ended 31 March 2017
1. General Information
The Company was incorporated with limited liability in Guernsey
under the Companies (Guernsey) Law, 2008, as amended, on 20
December 2013 with registered number 57739, and is regulated by the
GFSC as a registered closed-ended investment company. The
registered office and principal place of business of the Company is
1, Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel
Islands, GY1 2HL.
On 16 April 2014, the Company announced the results of its
initial public offering, which raised net proceeds of GBP85.6
million. The Company's ordinary shares were admitted to the premium
segment of the UK Listing Authority's Official List and to trading
on the Main Market of the London Stock Exchange as part of its
initial public offering which completed on 25 April 2014.
Subsequent fund raisings also took place, increasing total equity
to GBP464.3m as at 31 March 2017 (31 March 2016: GBP282.9m).
Details can be found in note 11. Treasury Shares of GBP32.1m were
also raised on 6 November 2015 and sold on 22 July 2016.
The Company seeks to provide investors with a sustainable and
attractive dividend that increases in line with retail price index
over the long-term by investing in a diversified portfolio of solar
PV assets that are located in the UK. In addition, the Company
seeks to provide investors with an element of capital growth
through the reinvestment of net cash generated in excess of the
target dividend in accordance with the Company's investment
policy.
The Company currently makes its investments through holding
companies and Special Purpose Vehicles, which are wholly-owned by
the Company. The Company controls the investment policy of each of
the holding companies and its wholly-owned Special Purpose Vehicles
in order to ensure that each will act in a manner consistent with
the investment policy of the Company.
The Company has appointed NextEnergy Capital IM Limited as its
Investment Manager (the "Investment Manager") pursuant to the
Management Agreement dated 18 March 2014. The Investment Manager is
a Guernsey registered company, incorporated under the Companies
(Guernsey) Law, 2008, with registered number 57740 and is licensed
and regulated by the GFSC and is a member of the NEC Group. The
Investment Manager is licensed and regulated by the GFSC and will
act as the Alternative Investment Fund Manager of the Company.
The Investment Manager has appointed NextEnergy Capital Limited
as its Investment Adviser (the "Investment Adviser") pursuant to
the Investment Advisory Agreement dated 18 March 2014. The
Investment Adviser is a company incorporated in England with
registered number 05975223 and is authorised and regulated by the
FCA.
The financial statements are presented in pounds sterling
because that is the currency of the primary economic environment in
which the Company operates.
2. Significant accounting policies
a) Basis of preparation
The financial statements, which give a true and fair view, have
been prepared on a going concern basis in accordance with IFRS.
The financial statements have been prepared on the historical
cost basis, except for the revaluation of certain investments and
financial instruments. Historical cost is generally based on the
fair value of the consideration given in exchange for the assets.
The principal accounting policies adopted are set out below. These
policies have been consistently applied.
Fair value is the price that would be received on sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an
asset or liability, the Company takes into account the
characteristics of the asset or liability if market participants
would take those characteristics into account when pricing the
asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in these financial
statements is determined on such a basis.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety which are described as follows:
Level 1 inputs are quoted prices in active markets for identical
assets or liabilities that the Company can access at the
measurement date
Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly
Level 3 inputs are unobservable inputs for the asset or
liability.
b) Going concern
The Directors have reviewed the current and projected financial
position of the Company making reasonable assumptions about future
performance. The key areas reviewed were:
-- Timing of future investment transactions
-- Expenditure commitments
-- Forecast income and cashflows
The Company has cash and short-term deposits as well as
projected positive income streams and an available credit facility
(see note 22) and as a consequence the Directors have, at the time
of approving the financial statements, a reasonable expectation
that the Company has adequate resources to continue in operational
existence for the next 12 months. Accordingly they have adopted the
going concern basis of preparation in preparing the financial
statements.
c) Basis of non-consolidation
The Company has acquired SPVs through its investment in the
holding companies. The Company meets the definition of an
investment entity as described by IFRS 10. Under IFRS 10 investment
entities are required to hold subsidiaries at fair value through
the Statement of Comprehensive Income rather than consolidate them.
There are four Holding Companies, NextEnergy Solar Holding Limited,
NextEnergy Solar Holding II Limited, NextEnergy Solar Holding III
Limited and NextEnergy Solar Holding IV Limited, collectively the
'HoldCos'. The HoldCos are also direct investment entities and as
described under IFRS 10 value their investments at fair value.
Characteristics of an investment entity
Under the definition of an investment entity, as set out in the
standard, the entity should satisfy all three of the following
tests:
I. Obtains funds from one or more investors for the purpose of
providing those investors with investment management services;
and
II. Commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both (including having an exit strategy for
investments); and
III. Measure and evaluate the performance of substantially all
of its investments on a fair value basis.
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10 the Directors note that:
I. The Company has multiple investors and obtains funds from a
diverse group of shareholders who would otherwise not have access
individually to investing in solar energy infrastructure due to
high barriers to entry and capital requirements;
II. The Company's purpose is to invest funds for both investment
income and capital appreciation. The Company's investments have
indefinite lives however the underlying assets do not have an
unlimited life and therefore minimal residual value and therefore
will not be held indefinitely; and
III. The Company measures and evaluates the performance of all
of its investments on a fair value basis which is the most relevant
for investors in the Company. Management use fair value information
as a primary measurement to evaluate the performance of all of the
investments and in decision making.
The Directors are of the opinion that the Company has all the
typical characteristics of an investment entity and therefore meet
the definition set out in IFRS 10.
The Directors believe the treatment outlined above provides the
most relevant information to investors.
d) Taxation
Under the current system of taxation in Guernsey, the Company is
exempt from paying taxes on income, profit or capital gains.
Therefore, income from investments in UK solar PV plants is not
subject to any further tax in Guernsey, although these investments
are subject to tax in the UK.
e) Segmental reporting
The Chief Operating Decision Maker, which is the Board, is of
the opinion that the Company is engaged in a single segment of
business, being investment in solar power, in a single economic
environment, being the United Kingdom. The financial information
used by the Chief Operating Decision Maker to manage the Company
presents the business as a single segment.
f) Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when paid. In the case of final dividends, this is when approved at
the Annual General Meeting.
g) Income
Income includes investment income from financial assets at fair
value through profit or loss, and management fee income.
Investment income from financial assets at fair value through
profit or loss is recognised in the Statement of Comprehensive
Income within investment income when the Company's right to receive
payments is established.
Management fee income is recognised in the Statement of
Comprehensive Income within investment income on an accruals
basis.
Finance income comprises interest earned on cash held on
deposit. Finance income is recognised on an accruals basis.
h) Expenses
All expenses are accounted for on an accruals basis.
i) Cash and cash equivalents
Cash and cash equivalents includes deposits held at call with
banks and other short-term deposits with original maturities of
three months or less.
j) Trade and other payables
Trade and other payables are initially recognised at fair value,
and subsequently where necessary re-measured at amortised cost
using the effective interest method.
k) Financial instruments
Financial assets and liabilities are recognised in the Company's
Statement of Financial Position when the Company becomes a party to
the contractual provisions of the instrument. Financial assets are
derecognised when the contractual rights to the cash flows from the
instrument expire or the asset is transferred and the transfer
qualifies for derecognition in accordance with IAS 39 Financial
instruments: Recognition and measurement.
Investments
Investments are recognised when the Company has control of the
asset. Control is assessed considering the purpose and design of
the investments including any options to acquire the investments
where these options are substantive. The options are assessed for
factors including the exercise price and the incentives for
exercise. Investments are designated upon initial recognition to be
accounted for at fair value through profit or loss in accordance
with IFRS 13. After initial recognition, investments at fair value
through profit or loss are measured at fair value with changes
recognised in the Statement of Comprehensive Income.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Statement of Financial Position when there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously.
l) Share capital and share premium
Ordinary shares are classified as equity. Costs directly
attributable to the issue of new shares (that would have been
avoided if there had not been a new issue of new shares) are
written-off against the value of the ordinary share premium.
3. New and revised standards
The following accounting standards and interpretations which
have not been applied in these financial statements were in issue
but not yet effective:
IFRS 9 Financial Instruments (revised, early adoption
permitted)
IFRS 12 (amendments) Clarification of the scope of the
Standard
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
IAS 7 Additional disclosure of
changes in liabilities arising from financial activities
IAS 12 (amendments) Recognition of Deferred Tax Assets for
Unrealised Losses
The Directors do not expect that the adoption of the accounting
standards, amendments and interpretations listed above will have a
material impact on the financial statements of the Company in
future periods.
4. Critical accounting judgements and key sources of estimation
uncertainty
The Company makes estimates and assumptions that affect the
reported amounts of assets and liabilities. Estimates and
judgements are continually evaluated and based on historic
experience and other factors believed to be reasonable under the
circumstances.
a) Investments at fair value through profit or loss
The Company's investments are measured at fair value for
financial reporting purposes. The Board of Directors has appointed
the Investment Manager to produce investment valuations based upon
projected future cashflows. These valuations are reviewed and
approved by the Board. The investments are held through Special
Purpose Vehicles, a list of subsidiaries is included in note
10.
IFRS 13 establishes a single source of guidance for fair value
measurements and disclosures about fair value measurements. Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Board
bases the fair value of the investments on the information received
from the Investment Manager.
The investments at fair value through profit or loss, whose fair
values include the use of Level 3 inputs, are valued by discounting
future cash flows from investments to the Company at a discount
rate when the assets are operational. The discount rate applied in
the 31 March 2017 valuation was 7.25% (31 March 2016: 7.5%). The
discount rate is a significant level 3 input and a change in the
discount applied could have a material effect on the value of the
investments. Investments in solar PV plants that are not yet
operational are held at fair value, where the cost of the
investment is used as an appropriate approximation of fair value.
There are other critical accounting estimates (discussed in note
14), Level 3 financial instruments.
Level 3 investments amount to GBP415,863,377 (31 March 2016:
GBP315,466,679) and consist of 41 investments in solar PV plants
(held indirectly through the HoldCo's) (31 March 2016: 33 (held
indirectly through the HoldCo's)), all of which have been valued on
a look through basis based (except for those solar plants not yet
operational) on the discounted cash flows of the solar PV plants
and the residual value of net assets at the HoldCo level. Level 3
valuations are reviewed regularly by the Investment Manager who
reports to the Board of Directors on a periodic basis. The Board
considers the appropriateness of the valuation model and inputs, as
well as the valuation result.
b) Significant judgement: consolidation of entities
The Directors have concluded that the Group controls the SPVs
that hold the 8 assets held at cost even though it does not hold
100% ownership of these entities as at 31 March 2017. This is
because the Group has contracted to acquire these investments
before year end and has subsequently completed on these
acquisitions post year end. They are therefore included within
investments as at year end.
The Company, under the Investment Entity Exemption rule, holds
its investments at fair value.
The table below sets out information about significant
unobservable inputs used at 31 March 2017 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy.
Unlisted investments reconcile to the Closing Investment Portfolio
Value as per the Investments table in note 6.
Sensitivity
to change
Fair value in significant
at 31 March Valuation Unobservable unobservable
Description 2017 (GBP) technique input Input value inputs
Unlisted 292,370,287 Discounted Discount 7.25% (unlevered The estimate
investments cash flows rate assets) fair value
based on up to 8.0% would increase
underlying (levered if the
valuation assets discount
of residual rate was
assets lower and
at the vice versa.
four hold
cos.
Investments 41,497,825 Cost n/a n/a n/a
held at
cost
81,995,265 Adjusted n/a n/a n/a
net asset
value attributable
Residual to the
value of Company
net assets at fair
at HoldCo's value
Total 415,863,377
5. Income
Year ended Year ended
31 March 31 March
2017 2016
(GBP) (GBP)
Investment income (27,266,676) (24,046,160)
Management fee income (8,040,502) -
Total Income (35,307,178) (24,046,160)
6. Investments
The Company owns the Investment Portfolio through its
investments in NextEnergy Solar Holdings Limited, NextEnergy Solar
Holdings II Limited, NextEnergy Solar Holdings III Limited and
NextEnergy Solar Holdings IV Limited. This is comprised of the
Investment Portfolio and the Residual Net Assets of the Holding
Companies. The Total Investments at fair value are recorded under
Non-Current Assets in the Statement of Financial Position.
Year ended Year ended
31 March 31 March
2017 2016
(GBP) (GBP)
Brought forward cost of investments 323,400,117 147,590,319
Total investment acquired in the
year 80,835,865 175,809,798
Carried forward cost of investments 404,235,982 323,400,117
Brought forward unrealised (losses)/gains
on valuation (7,933,438) 10,570,553
Movement in unrealised gains/(losses)
on valuation 19,560,833 (18,503,991)
Carried forward unrealised gains/(losses)
on valuation 11,627,395 (7,933,438)
Total investments at fair value 415,863,377 315,466,679
The total change in the value of the investments in the Holding
Companies are recorded through profit and loss in the Statement of
Comprehensive Income.
7. Trade and other receivables
Year ended Year ended
31 March 31 March
2017 2016
(GBP) (GBP)
Management fee receivable 3,157,728 -
Other receivables 13,000 13,000
Due from subsidiaries 7,995,058 -
Total trade and other receivables 11,165,786 13,000
Amounts due from subsidiaries are interest free and payable on
demand.
8. Trade and other payables
Year ended Year ended
31 March 31 March
2017 2016
(GBP) (GBP)
Other payables 282,619 137,825
Due to subsidiaries 7,995,058 -
Total trade and other receivables 8,277,677 137,825
Amounts due to subsidiaries are interest free and payable on
demand.
9. Investment payable
Year ended Year ended
31 March 31 March
2017 2016
(GBP) (GBP)
Radius investment payable - (47,468,639)
Total investment payable - (47,468,639)
On 31 March 2016 the Company agreed the purchase of Project
Radius. The acquisition is part funded by a debt facility entered
between NextEnergy Solar Holding IV Limited and Macquarie Bank
Limited for GBP55.0m. On 14 April 2016 the above amount was settled
by a combination of loan and equity payments.
10. Subsidiaries
The Company holds investments through subsidiary companies which
have not been consolidated as a result of the adoption of IFRS 10:
Investment entities exemption to consolidation. Below is the legal
entity name for the Holding Companies and the remaining legal
entities owned indirectly through the investment in the holding
companies. The country of incorporation is also their principal
place of business.
Ownership Ownership
Country Direct at at 31
of or Indirect Principal 31 March March
Name Incorporation Holding Activity 2017 2016
Berwick Solar Park
Ltd UK Indirect SPV 100% 100%
BL Solar 2 Limited UK Indirect SPV 100% 100%
Bottom Plain Solar
Park UK Indirect SPV 100% 100%
Bowerhouse Solar
Limited UK Indirect SPV 100% 100%
Branston Solar Park
Ltd UK Indirect SPV 100% 100%
Ellough Solar 2
Ltd UK Indirect SPV 100% 0%
Emberton Solar Park
Ltd UK Indirect SPV 100% 100%
Empyreal Energy
Ltd UK Indirect SPV 100% 0%
ESF Llwyndu Ltd UK Indirect SPV 100% 100%
Fenland Renewables
Ltd UK Indirect SPV 100% 100%
Glebe Farm SPV Limited UK Indirect SPV 100% 100%
Glorious Energy
Limited UK Indirect SPV 100% 100%
Great Wilbraham
Solar Park Ltd UK Indirect SPV 100% 100%
Green End Renewables
Ltd UK Indirect SPV 100% 100%
Greenfields (A)
Limited UK Indirect SPV 100% 100%
Hanwha UK Solar
1 Ltd UK Indirect SPV 100% 100%
NESF - Ellough LTD UK Indirect SPV 100% 100%
NextEnergy Solar
Holding II Limited UK Direct HoldCo 100% 100%
NextEnergy Solar
Holding III Limited UK Direct HoldCo 100% 100%
NextEnergy Solar
Holding IV Limited UK Direct HoldCo 100% 100%
NextEnergy Solar
Holding Limited UK Direct HoldCo 100% 100%
NextPower Ellough
LLP UK Indirect SPV 100% 100%
NextPower Gover
Farm Ltd UK Indirect SPV 100% 100%
NextPower Higher
Hatherleigh Ltd UK Indirect SPV 100% 100%
NextPower Radius
Ltd UK Indirect SPV 100% 100%
NextPower Shacks
Barn Ltd UK Indirect SPV 100% 100%
North Farm Solar
Park Limited UK Indirect SPV 100% 100%
Push Energy (Birch)
Ltd UK Indirect SPV 100% 100%
Push Energy (Boxted
Airfield) Ltd UK Indirect SPV 100% 100%
Push Energy (Croydon)
Ltd UK Indirect SPV 100% 100%
Push Energy (Decoy)
Ltd UK Indirect SPV 100% 100%
Push Energy (Hall)
Ltd UK Indirect SPV 100% 0%
Push Energy (Langenhoe)
Ltd UK Indirect SPV 100% 100%
SSB Condover Ltd UK Indirect SPV 100% 100%
ST Solarinvest Devon
1 Limited UK Indirect SPV 100% 100%
Sunglow Power Limited UK Indirect SPV 100% 100%
Thurlestone-Leicester
Solar Ltd UK Indirect SPV 100% 100%
Tower Hill Farm
Renewables Ltd UK Indirect SPV 100% 100%
Trowbridge PV Ltd UK Indirect SPV 100% 100%
Wellingborough Solar
Limited UK Indirect SPV 100% 100%
Push Energy (Kentishes)
Limited UK Indirect SPV 0% 0%
Push Energy (Mill
Farm) Ltd UK Indirect SPV 0% 0%
Bowden Lane Solar
Limited UK Indirect SPV 0% 0%
Long Ash Lane Solar
Park Limited UK Indirect SPV 0% 0%
Stalbridge Solar
Park Limited UK Indirect SPV 0% 0%
Aller Court Solar
Park Limited UK Indirect SPV 0% 0%
INRG (Solar Parks)
17 Limited UK Indirect SPV 0% 0%
INRG (Solar Parks)
21 Limited UK Indirect SPV 0% 0%
11. Share capital and reserves
Gross
amount Issue Share
Number raised costs premium
Share Issuance Of shares (GBP) (GBP) (GBP)
Issued on 20 December
2013 1 1 - 1
Issued on 25 April 2014 85,600,000 85,600,000 - 85,600,000
Cancellation of founder's
share on 24 October 2014 (1) (1) - (1)
Issued on 19 November
2014 91,000,000 95,459,000 (1,399,246) 94,059,754
Issued on 19 December
2014 4,000,000 4,120,000 (43,565) 4,076,435
Issued on 27 February
2015 59,750,000 61,405,075 (681,625) 60,723,450
Issued on 30 September
2015 37,607,105 38,848,139 (435,153) 38,412,986
Issued on 6 November 2015 30,850,000 32,084,000 - 32,084,000
Total issued at 31 March
2016 308,807,105 317,516,214 (2,559,589) 314,956,625
Sale of treasury shares
(see below) (30,850,000) (32,084,000) - (32,084,000)
Issued on 27 July 2016 41,991,242 42,159,207 (649,635) 41,509,572
Issued on 27 July 2016 1,822,656 1,829,947 (28,202) 1,801,745
Issued on 4 August 2016 4,254,855 4,297,404 (64,461) 4,232,943
Issued on 4 August 2016 1,040,690 1,051,097 (15,766) 1,035,331
Issued on 9 August 2016 5,775,557 5,833,313 (87,500) 5,745,813
Issued on 9 September
2016 9,215,926 9,515,444 (142,732) 9,372,712
Scrip Dividend - 30 September
2016 1,139,374 1,192,085 - 1,192,085
Issued on 21 November
2016 110,300,000 115,253,272 (1,789,240) 113,464,032
Scrip Dividend - 30 December
2016 1,321,959 1,382,781 - 1,382,781
Scrip Dividend - 31 March
2017 1,568,835 1,731,225 - 1,731,225
Total issued at 31 March
2017 456,388,199 469,677,989 (5,337,125) 464,340,864
The Company currently has 1 class of ordinary share in issue.
All the holders of the ordinary shares, excluding Treasury Shares,
which totals 456,388,199, are entitled to receive dividends as
declared from time to time and are entitled to 1 vote per share at
meetings of the Company.
Treasury shares
On 6 November 2015 the Company issued 30,850,000 new ordinary
shares which the Company purchased at a price of 104.0p per share.
The shares purchased were placed in treasury. The Treasury shares
were not entitled to receive dividends and did not hold any voting
rights. On 22 July 2016 the Treasury shares were sold, as part of
the capital issuance programme, at a price of 100.4 pence per
share.
Retained reserves
Retained reserves comprise the retained earnings as detailed in
the Statement of Changes in Equity.
12. Earnings per share
Year Year
ended ended
31 March 31 March
2017 2016
Profit and comprehensive income for
the year (GBP) 49,829,171 2,034,701
Weighted average number of ordinary
shares 360,841,240 259,256,304
Earnings per ordinary share - pence 13.81p 0.78p
13. Dividends
Year Year
ended ended
31 March 31 March
2017 2016
(GBP) (GBP)
Amounts recognised as distributions
to equity holders:
Interim dividend for the period ended
31 March 2015 of 2.625p per share,
paid on 30 July 2015 - 6,309,188
Interim dividend for the period ended
30 September 2015 of 3.125p per share,
paid on 18 December 2015 - 8,686,159
Interim dividend for the period ended
31 March 2016 of 3.125p per share,
paid on 22 July 2016 8,686,160 -
Interim dividend for the period ended
30 June 2016 of 1.5775p per share,
paid on 30 September 2016 5,250,584 -
Interim dividend for the period ended
30 September 2016 of 1.5775p per
share,
paid on 30 December 2016 5,413,940 -
Interim dividend for the period ended
31 December 2016 of 1.5775p per share,
paid on 31 March 2017 7,174,775 -
Total 26,525,459 14,995,347
14. Net assets per ordinary share
As at As at
31 March 31 March
2017 2016
Shareholders' equity (GBP) 478,582,829 273,810,878
Number of ordinary shares (excluding
Treasury shares) 456,388,199 277,957,105
Net assets per ordinary share - pence 104.9p 98.5p
15. Financial risk management
Capital management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to
shareholders. In accordance with the Company's investment policy,
the Company's principal use of cash (including the proceeds of the
IPO) has been to fund investments as well as ongoing operational
expenses.
The Board, with the assistance of the Investment Manager,
monitors and reviews the broad structure of the Company's capital
on an ongoing basis. The capital structure of the Company consists
entirely of equity (comprising issued capital, reserves and
retained earnings).
The Company is not subject to any externally imposed capital
requirements.
Financial risk management objectives
The Board, with the assistance of the Investment Manager,
monitors and manages the financial risks relating to the operations
of the Company through internal risk reports which analyse
exposures by degree and magnitude of risk. These risks include
market risk (including price risk and currency risk), interest rate
risk, credit risk and liquidity risk.
Market risk
The value of the investments held by the Company is affected by
the discount rate applied to the expected future cash flows and as
such may vary with movements in interest rates, inflation, power
prices, market prices and competition for these assets.
Currency risk
The Company operates and invests solely in the UK and therefore
is not exposed to currency risk as all assets and liabilities are
in pounds sterling, the Company's functional and presentational
currency.
Interest rate risk
Of the GBP269.8m credit facilities outstanding, GBP131.7m has
fixed interested rates and the remaining GBP138.1m has floating
interest rates. Interest Rate Swaps were implemented over the term
of the loans to mitigate interest rate risks for GBP132.7m. The
counterparties to these swaps are all Investment grade financial
institutions. The remaining GBP5.4m had floating rates which are
not hedged. The Company's remaining exposure to interest rate risk
is not considered to be significant.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in a financial loss to the
Company.
The Company does not have any significant credit risk exposure
to any single counterparty in relation to trade and other
receivables. On-going credit evaluation is performed on the
financial condition of accounts receivable. As at 31 March 2017
there were no receivables considered impaired.
At investment level, the credit risk relating to significant
counterparties is reviewed on a regular basis and potential
adjustments to the discount rate are considered to recognise
changes to these risks where applicable.
The Company maintains its cash and cash equivalents across
various banks to diversify credit risk. These are subject to the
Company's credit monitoring policies including the monitoring of
the credit ratings issued by recognised credit rating agencies.
Credit Short Total
rating term fixed as st
Standard deposits 31 March
31 March 2017 & Poor's Cash (GBP) (GBP) 2017 (GBP)
Long -
A
Short
Barclays Bank PLC - A-2 59,831,343 - 59,831,343
Total 59,831,343 - 59,831,343
Credit Short Total
rating term fixed as st
Standard Cash deposits 31 March
31 March 2016 & Poor's (GBP) (GBP) 2016 (GBP)
Long -
A
Short
Barclays Bank PLC - A-2 4,621,568 - 4,621,568
Long -
A
Short
Lloyds Bank PLC - A-1 1,316,095 - 1,316,095
Total 5,937,663 - 5,937,663
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Board of
Directors has established an appropriate liquidity risk management
framework for the management of the Company's short-, medium- and
long-term funding and liquidity management requirements. The
Company manages liquidity risk by maintaining adequate reserves by
monitoring forecast and actual cash flows and by matching the
maturity profiles of assets and liabilities.
The table below shows the maturity of the Company's
non-derivative financial assets and liabilities. The amounts
disclosed are contractual, undiscounted cash flows and may differ
from the actual cash flows received or paid in the future as a
result of early repayments.
Between Between
Up to 3 and 1 and
3 months 12 months 5 years Total
31 March 2017 (GBP) (GBP) (GBP) (GBP)
Assets
Cash and cash equivalents 59,831,343 - - 59,831,343
Trade and other receivables 11,165,786 - - 11,165,786
Liabilities
Trade and other payables (8,277,677) - - (8,277,677)
Total 62,719,452 - - 62,719,452
Between Between
3 1
Up to and and
3 months 12 months 5 years Total
31 March 2016 (GBP) (GBP) (GBP) (GBP)
Assets
Cash and cash equivalents 5,937,663 - - 5,937,663
Trade and other receivables 13,000 - - 13,000
Liabilities
Investment payable (47,468,639) - - (47,468,639)
Trade and other payables (137,825) - - (137,825)
Total (41,655,801) - - (41,655,801)
Valuation methodology
The Directors have satisfied themselves as to the methodology
used, the discount rates and key assumptions applied, and the
valuation. All completed investments are at fair value through
profit or loss and are valued using a discounted cash flow
methodology. Investments which are not yet completed are held at
fair value, where the cost of the investment is used as an
appropriate approximation of fair value.
Discount rates
The discount rates used for valuing each renewable
infrastructure investment are based on both the industry discount
rate and on the specific circumstances of each project. The risk
premium takes into account risks and opportunities associated with
the investment earnings.
The discount rates used for valuing the investments in the
Portfolio are as follows:
31 March 31 March
2017 2016
Weighted Average discount rate 7.90% 7.70%
Discount rates 7.25% 7.50%
to 8.25% to 8.50%
A change to the weighted average discount rate by plus or minus
0.5% has the following effect on the valuation.
Total
+0.5% Portfolio -0.5%
Discount rate change value change
Fair value at 31 March 2017
(GBP) (11.7m) 333.9m 12.7m
Fair value - percentage movement (3.5%) 3.8%
Fair value at 31 March 2016
(GBP) (14.6m) 382.3m 15.7m
Fair value - percentage movement (3.8%) 4.1%
Power price
NEC Group continuously reviews multiple inputs from market
contributors and leading consultants and adjust the inputs to the
power price forecast when a conservative approach is deemed most
appropriate. Current estimates imply an average rate of growth of
electricity prices of approximately 1.6% in real terms and a long
term inflation rate of 2.75%.
A change in the forecast electricity price assumptions by plus
or minus 10% has the following effect on the valuation.
Total
Portfolio
Power price -10% change value +10% change
Fair value at 31 March 2017
(GBP) (24.0m) 333.9m 24.4m
Fair value - percentage movement (7.2%) 7.3%
Fair value at 31 March 2016
(GBP) (19.7m) 382.3m 19.6m
Fair value - percentage movement (5.2%) 5.1%
Energy generation
The Portfolio's aggregate energy generation yield depends on the
combination of solar irradiation and technical performance of the
solar PV plants. The table below shows the sensitivity of the
Portfolio valuation to a sustained increase or decrease of energy
generation by plus or minus 5% on the valuation.
Total
5% under Portfolio 5% over
Energy generation performance value performance
Fair value at 31 March 2017
(GBP) (22.7m) 333.9m 24.4m
Fair value - percentage movement (6.8%) 7.3%
Fair value at 31 March 2016
(GBP) (24.6m) 382.3m 24.3m
Fair value - percentage movement (6.4%) 6.4%
Inflation rates
The Portfolio valuation assumes long-term inflation of 2.75% per
annum for investments (based on UK RPI). A change in the inflation
rate by plus or minus 0.5% has the following effect on the
valuation.
Total
-0.5% Portfolio +0.5%
Inflation rate change value change
Fair value at 31 March 2017
(GBP) (19.4m) 333.9m 20.7m
Fair value - percentage movement (5.8%) 6.2%
Fair value at 31 March 2016
(GBP) (16.7m) 382.3m 17.6m
Fair value - percentage movement (4.4%) 4.6%
Operating costs
The table below shows the sensitivity of the Portfolio to
changes in operating costs by plus or minus 10% at project company
level.
Total
Portfolio
Operating costs +10% change value -10% change
Fair value at 31 March 2017
(GBP) (6.3m) 333.9m 6.3m
Fair value - percentage movement (1.9%) 1.9%
Fair value at 31 March 2016
(GBP) (6.3m) 382.3m 6.3m
Fair value - percentage movement (1.6%) 1.6%
Tax rates
The UK corporation tax assumption for the Portfolio valuation
was 18% to 2018, 19% to 2020, and 17% thereafter in accordance with
the UK Government announced reductions.
16. Financial assets and liabilities not measured at fair
value
Cash and cash equivalents are level 1 items on the fair value
hierarchy. Current assets and current liabilities are Level 2 items
on the fair value hierarchy. The carrying value of current assets
and current liabilities approximates fair value as these are
short-term items.
17. Audit fees
The analysis of the auditor's remuneration is as follows:
Year ended Year ended
31 March 31 March
2017 2016
(GBP) (GBP)
Fees payable to the auditor for
the audit of the Company's 31 March
2017 financial statements 119,500 -
Additional fee and disbursements
for prior year 31,518 -
Fees payable to the auditor for
the audit of the Company's 31 March
2016
financial statements - 75,000
Total audit fees 151,018 75,000
18. Management fee
The Investment Manager is entitled to receive an annual fee,
accruing daily and calculated on a sliding scale, as follows
below:
-- for the tranche of NAV up to and including GBP200m, 1% of the
Net Asset Value ('NAV') of the Company.
-- for the tranche of NAV above GBP200m and up to and including GBP300m, 0.9% of NAV.
-- for the tranche of NAV above GBP300m, 0.8% of NAV.
For the year ended 31 March 2017 the Company has incurred
GBP3,406,093 in management fees of which GBPnil was outstanding at
31 March 2017. For the year ending 31 March 2016 the Company
incurred GBP2,615,662 in management fees of which GBPnil was
outstanding at 31 March 2016.
19. Related parties
The Investment Manager, NextEnergy Capital IM Limited, is a
related party due to having common key management personnel with
the subsidiaries of the Company. All management fee transactions
with the Investment Manager are disclosed in note 18.
The Investment Adviser, NextEnergy Capital Limited, is a related
party due to sharing common key management personnel with the
subsidiaries of the Company. There are no advisory fee transactions
between the Company and the Investment Adviser.
The Operating Asset Manager, WiseEnergy (GB) Limited, is a
related party due to sharing common key management personnel with
the subsidiaries of the Company. Each of the operating subsidiaries
of the Company entered into an asset management agreement with
WiseEnergy (GB) Limited. The total value of recurring and one-off
services paid to the Operating Asset Manager by the subsidiaries
during the reporting year amounted to GBP1,795,295 (31 March 2016:
GBP1,449,044).
At the year end, GBP7,995,058 (31 March 2016: Nil) was owed to
and from the subsidiaries, in relation to their restructuring. See
note 23. GBP8,040,502 of management fees was received from the
subsidiaries during the year (31 March 2016: Nil), of which
GBP3,157,728 was outstanding at the year end (31 March 2016:
Nil).
NextPower Development Limited is a related party due to sharing
common key management personnel with the subsidiaries of the
Company. There are no advisory fee transactions between the
Company, its subsidiaries and NextPower Development Limited.
The Directors of the Company and their shareholding is stated in
the Report of the Directors.
20. Controlling party
In the opinion of the Directors, on the basis of shareholdings
advised to them, the Company has no immediate nor ultimate
controlling party.
21. Remuneration of the Directors
The remuneration of the Directors was GBP160,250 for the year
(for the year ended 31 March 2016: GBP123,000) which consisted
solely of short-term employment benefits.
22. Revolving credit and debt facilities
In January 2017, NextEnergy Solar Holding Limited, a subsidiary
of the Company, closed a syndicated loan with MIDIS, NAB and CBA
for GBP157.5m ("Project Apollo") to refinance its revolving credit
facility. As at 31 March 2017, GBP51.5m of the facility was drawn.
In April 2017, an additional GBP50.8m of the facility was drawn and
the remaining GBP47.7m will be available to draw until June 2017.
As part of the facility agreement, the lenders provide and
additional Debt Service Reserve Facility of GBP7.5m and hold a
charge over the assets of NextEnergy Solar Holding Limited. As at
31 March 2017, the outstanding amount was GBP51.5m.
In July 2015, NextEnergy Solar Holdings II Limited, a subsidiary
of the Company, agreed a loan with NIBC for GBP22.7m. In July 2016,
GBP1m was repaid and the remaining outstanding amount as at 31
March 2017 was GBP21.7m.
In January 2016, NextEnergy Solar Holdings III Limited, a
subsidiary of the Company, acquired a portfolio of three operating
plants totalling 53MWp for GBP61.7m which had a long term
fully-amortising project financing of GBP45.4m in place. As at 31
March 2017 the outstanding amount was GBP43.8m.
On 31 March 2016 NextEnergy Solar Holdings IV Limited, a
subsidiary of the Company agreed the purchase of Project Radius.
The acquisition is part funded by a debt facility entered between
NextEnergy Solar Holding IV Limited and Macquarie Bank Limited for
GBP55.0m. On 14 April 2016 the facility was fully drawn down to
complete the acquisition of the Radius portfolio. As part of the
debt facility agreement Macquarie Bank Limited holds a charge over
the assets of NextEnergy Solar Holding Limited. As at 31 March
2017, the outstanding amount was GBP54.3m.
23. Restructuring at Subsidiary
During the prior year ended 31 March 2016, a subsidiary paid
dividends to the Company even though it did not have sufficient
distributable reserves at the time of declaration. As a result,
during the year ended 31 March 2017, the subsidiary undertook a
restructuring to create distributable reserves. The effect of this
was to return the Company to the position it would have been in had
the relevant dividends paid from the subsidiary been made
properly.
24. Events after the reporting period
On 13 April 2017, the Company drew down a further GBP51m and on
26 June 2017 it drew down the last GBP48m of the GBP150m long-term
facility refinancing the Apollo portfolio.
On 21 April 2017, the Company announced the acquisition of six
plants totaling 28MW with an investment value of GBP30.5m. All six
plants were successfully connected to the grid in advance of the 31
March 2017 deadline for 1.2 ROC assets and, therefore, are expected
to receive appropriate ROC accreditation in advance of NESF
completing their respective acquisitions.
On 19 May 2017, the Company announced an interim dividend of
1.5575 pence per Ordinary Share for the quarter ending 31 March
2017, to be paid on 30 June 2017 to shareholders on the register as
at close of business on 26 May 2017. On 30 June 2017 the Company
will issue 44,646 shares to those shareholder who elected for a
scrip dividend.
On 30 May 2017, the Company announced that a related company,
WiseEnergy (Great Britain) Ltd, was appointed to provide accounting
and back office services to the subsidiary companies of NESF. The
agreement came into effect on 1 June 2017.
On 12 June 2017, the Company announced the acquisition of three
plants totaling 15MW. Barnby Moor, Bilsthorpe and Wickfield are all
1.2 ROC assets.
On 12 June 2017, the Company announced the acquisition of
project rights to build four solar sites for a total of 61.5MW.
On 12 June 2017, the Company announced the acquisition of
project rights to build four solar sites for a total of 59.8MW.
On 12 June 2017, the Company also announced the completion of
the acquisition of the 1.7MW Birch CIC solar plant.
On 23 June 2017, the Company issued 115m new shares further to
the Company's 350m share issuance programme.
Corporate Information
Directors: Kevin Lyon, Chairman
Patrick Firth
Vic Holmes
Registered Office: 1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Investment Manager: NextEnergy Capital IM Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Investment Adviser: NextEnergy Capital Limited
17 Hanover Square
London
UK
W1S 1BN
Secretary and Administrator: Ipes (Guernsey) Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Independent Auditors: PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Glossary of Defined Terms
AGM Annual General Meeting
AIC Association of Investment Companies
AIC Code AIC Code of Corporate Governance
AIC Corporate Governance Guide for
AIC Guide Guernsey Domiciled Investment
Companies
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
Alternative Investment Fund Management
AIFMD Directive
Apollo portfolio 21 plants held within NESH
The fee that the Investment Manager
Base Fee is entitled to under the Investment
Management Agreement
The Department for Business, Energy
BEIS & Industrial Strategy
The UK voting to leave the European
Brexit Union
Cash Dividend The ratio of the Company's Cash Income
Cover over dividend paid during the
financial year.
CBA Commonwealth Bank of Australia
Company/NESF NextEnergy Solar Fund Limited
CfD Contract for Difference
Common Reporting Standard for automatic
CRS exchange of tax information
CSR Corporate Social Responsibility
DCF Discounted Cash Flow
Developer NextPower Development Limited
DNO Distribution Network Operators
Earnings before Interest, Tax, Depreciation
EBITDA and Amortisation
EPC Engineering, Procurement and Construction
ESG Environmental, Social and Governance
FATCA Foreign Account Tax Compliance Act
FiT Feed-in Tariff
GAV Gross Asset Value
GFSC Guernsey Financial Services Commission
GFSC Code Guernsey Financial Services Commission
Finance Sector Code of Corporate
Governance
Gross Dividend The ratio of the Company's Gross Cash
Cover Income over dividend paid during the
financial year.
Group The Company, HoldCos and SPVs
GWh Gigawatt hour - a measure of electricity
generated per hour
HoldCos Intermediate holding companies - NESH,
NESH II, NESH III and NESH IV
IAS International Accounting Standards
IFRS International Financial Reporting Standards
Investment NextEnergy Capital Limited
Advisor
Investment NextEnergy Capital IM Limited
Manager
IPEV International Private Equity and Venture
Capital
IPO Initial Public Offering
IRR Internal Rate of Return
ISA International Standards on Auditing
KPI Key Performance Indicator
KWh Kilowatt hour - a measure of electricity
generated per hour
LOI Letter of Intent
MIDIS Macquarie Infrastructure Debt Investment
Solutions
MWh Megawatt hour - a measure of electricity
generated per hour
NAB National Australia Bank
NAV Net Asset Value
NAV per share Net Asset Value per Ordinary Share
NAV Total The actual rate of return from dividends
Return paid and capital gains on NAV per
share over a given period of time.
NESH NextEnergy Solar Holding Limited
NESH II NextEnergy Solar Holding II Limited
NESH III NextEnergy Solar Holding III Limited
NESH IV NextEnergy Solar Holding IV Limited
Net Dividend The ratio of the Company's Net Cash
Cover Income over dividend paid during the
financial year.
NPPR National Private Placement Regime
OCR Ongoing Charges Ratio
OECD Organisation for Economic Co-operation
and Development
Official The Premium Segment of the UK Listing
List Authority's Official List
Ordinary The issued ordinary share capital of
Shares the Company.
POI Law the Protection of Investors (Bailiwick
of Guernsey) Law, 1987
PPA Power Purchase Agreement
PV Photovoltaic
PVGIS Photovoltaic Geographical Information
Systems
PwC CI PricewaterhouseCoopers CI LLP
Radius portfolio 5 plants held within NESH IV
RCF Revolving Credit Facilities
RO Scheme Renewable Obligation Scheme
ROC Renewable Obligation Certificates
RPI Retail Price Index
SPA Share Purchase Agreement
SPVs Special Purpose Vehicles which hold
the Company's investment portfolio
of
underlying operating assets
Total Shareholder The actual rate of return from dividends
Return paid and capital gains on share price
movements over a given period of time.
Three Kings 5 plants held within NESH III
portfolio
UK Code UK Corporate Governance Code dated
September 2014
UKLA UK Listing Authority
WACC Weighted Average Cost of Capital
Designed by Idea 188.com | Produced by Perivan
NextEnergy Solar Fund Limited
Registered Address Email:
1 Royal Plaza,
Royal Avenue ir@nextenergysolarfund.com
St Peter Port Website:
Guernsey GY1
2HL nextenergysolarfund.com
T: +44 (0) 1481
713 843
This information is provided by RNS
The company news service from the London Stock Exchange
END
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