TIDMNESF
RNS Number : 1926R
NextEnergy Solar Fund Limited
13 June 2018
13 June 2018
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Final results for the year ended 31 March 2018
Continuing Progress and Performance
NextEnergy Solar Fund announces its results for the year ended
31 March 2018.
Highlights for year ended 31 March 2018
-- Net asset value per share of 105.1p (2017: 104.9p)
-- Net asset value of GBP605m (2017: GBP479m)
-- Gross asset value of GBP875m (2017: GBP748m)
-- Dividends of 6.42p per share payable (target dividend of
6.65p per share for the 2018/19 financial year)
-- Cash dividend cover of 1.2x (2017: 1.2x)
-- Gearing of 31% as at 31 March 2018 (2017: 36%)
-- 63 solar assets as at 31 March 2018 (2017: 41)
-- Total capacity installed of 569MW (2017: 454MW)
-- Total electricity generation of 451GWh (2017: 394GWh)
-- Asset Management Alpha of 1.8%
Kevin Lyon, Chairman of NESF, commented:
"The Board is pleased to present the Company's full-year
results. It has been a year of significant progress, in terms of
investment, operating and financial results recorded.
Our diligent investment approach has resulted in the acquisition
of a further 23 high-quality operating assets, including a very
attractive portfolio in Italy. We have again achieved a positive
Asset Management Alpha, with actual generation above budget,
despite a slightly lower irradiation across the entire portfolio.
Our dividend continued to be comfortably covered, even as power
prices declined over the year.
Following the year end, we announced our first acquisition of
operating assets with integrated energy storage, and expect to
develop this opportunity across the broader portfolio over
time.
Looking forward, the outlook for the Company remains strong. We
will continue our selective acquisition-led growth, continue to
focus on achieving Asset Management Alpha outperformance and pursue
further improvements in our cost base and financing structure."
Annual Report
A copy of the Annual report has been submitted to the National
Storage Mechanism and will shortly be available at
www.morningstar.co.uk/uk/NSM. The annual report will also be
available on the Company's website at www.nextenergysolarfund.com
where further information on the Company can also be found.
There will be an analyst presentation and conference call at
10.00am this morning for analysts. To register for the call, please
contact nextenergy@mhpc.com.
For further information:
NextEnergy Capital Limited 020 3746 0700
Michael Bonte-Friedheim
Aldo Beolchini
Cantor Fitzgerald Europe 020 7894 7667
Sue Inglis
Robert Peel
Fidante Capital 020 7832 0900
Tom Skinner
Justin Zawoda-Martin
Shore Capital 020 7408 4090
Anita Ghanekar
Macquarie Capital (Europe) Limited 020 3037 2000
Nick Stamp
MHP Communications 020 3128 8100
Oliver Hughes
Ipes (Guernsey) Limited 01481 755 137
Damien Fitzgerald
Notes to Editors:
NESF is a specialist investment company that invests primarily
in operating solar power plants in the UK. It is able to invest up
to 15% of its Gross Asset Value in operating solar power plants in
OECD countries outside the UK. The Company's 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 GBP591.9m since its initial
public offering on the main market of the London Stock Exchange in
April 2014. It also has credit facilities of GBP270m in place
(GBP149m from a syndicate including MIDIS, NAB and CBA; MIDIS:
GBP54m; ING: GBP34m; and UniCredit GBP33m).
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 and over the course of its activities has been providing
operating asset management, monitoring, technical due diligence and
other services to over 1,300 utility-scale solar power plants with
an installed capacity in excess of 1.9 GW.
Further information on NESF, NEC Group and WiseEnergy is
available at www.nextenergysolarfund.com, www.nextenergycapital.com
and www.wise-energy.eu.
Chairman's Statement
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 2018.
In the four years since our IPO, the Company has rapidly grown
to establish itself as the largest solar energy focused investment
company listed on any European stock exchange in terms of market
capitalisation.
As at 31 March 2018, the Company's portfolio comprised 63 assets
amounting to 569MW installed solar capacity and an invested capital
of GBP734m (2017: 41 assets, 454MW and GBP522m invested
capital).
The portfolio of assets produced strong on -going performance,
despite outages to some of our plants during the year, principally
due to Distribution Network Operators' ("DNO") planned and
unplanned maintenance activities. Nonetheless, electricity
generated by the portfolio was above budget.
It has been challenging to continue our growth trajectory and
expansion strategy in the UK this year, mainly as a result of a
significant increase in competition for solar assets and our
determination to remain disciplined in acquisition pricing. This
resulted in a slower pace of deployment of the cash available
during the year, but is now in the process of being invested in the
acquisitions announced post year end or currently in the final
stages of execution.
Elsewhere, we are very pleased with the acquisition of the Solis
Italian portfolio in December 2017. The eight solar assets
purchased have higher IRRs when compared to current UK
opportunities, even after applying a significant country risk
premium. They have also already generated a high cash yield which
has had a direct and positive impact on the Company's dividend
cover. Furthermore, they reduce the average exposure of the broader
NESF portfolio revenues to movements in wholesale energy prices. It
is important to also note that the majority of the expected cash
distribution stream from the Italian assets has been hedged back
into sterling to manage FX risk. This hedge programme has been put
in place for the next 15 years, so the higher IRR comes with
limited currency risks.
This past year and the year ahead are an important period in the
Company's development. As we explore a new era of subsidy-free
solar in the UK, the Company is positioning itself to take
advantage of the opportunities that are expected to arise in this
area. To prepare for this opportunity, during the year we acquired
the right to build a further two subsidy-free assets. This takes
the total number of asset development rights held by the Company to
six which collectively represent up to 172MW of capacity.
Finally, it is worth mentioning that the Investment Manager has
initiated an exercise to optimise the debt-financing of the Group.
During the year we repaid two existing debt facilities and are
entering into two new lower cost GBP60m RCFs for our pipeline
assets. A new long-term debt refinancing with similar
characteristics to the Apollo financing that we closed in January
2017 is expected to be put in place during the next year.
Furthermore, the Company is already working to further optimise the
project debt acquired within the Italian portfolio.
On a more general note, I am pleased to report that all the main
targets and goals set at the time of the IPO continue to be met by
the Company. Additional operating solar projects have continued to
be purchased to provide positive contribution to meeting the
Company's return and dividend targets. This past year was again
characterised by further reductions in the market's long-term power
price estimates, which are now some 36% below the estimates
available at the time of the IPO. But with current gearing of just
31%, the Company still has significant financing potential
available for value-adding investments.
Over the four years since IPO, NESF has achieved an annualised
Total Shareholder Return of 8.5% and an annualised NAV Total Return
of 6.3% (based on NAV and dividends per share paid), in line with
the target range of 7% - 9% equity return for investors. This is a
significant achievement considering the challenging market
conditions faced by the UK solar sector during these years.
Financial Results and Performance
Financial results
Profit before tax was GBP32.2m (2017: GBP49.8m) with earnings
per share of 5.88p (2017: 13.81p). Cash dividend cover was 1.2x
(2017: 1.2x).
Portfolio Performance
Energy generated by NESF's plants amounted to 451GWh (2017:
394GWh), 0.9% above budget; which represented the fourth year of
continuous outperformance.
During the year, solar irradiation across the portfolio was 0.9%
below our expectations (2017: 0.3% below expectations). Generation
outperformance was a result of the Company's Asset Management Alpha
of 1.8%, which highlights how the principal driver for our
continued outperformance continues to rest with the structure and
quality of the Company's asset management organisation.
This outperformance was achieved despite several plant outages
resulting from grid operators' activities unrelated to our plants.
Excluding these outages, the Asset Management Alpha would have been
2.7%.
The electricity generated by our portfolio is equivalent to a
saving of 158,600 tonnes of CO(2) emissions per annum and
sufficient to power some 124,000 UK homes for a year. This is
roughly equivalent to powering a city with 295,000 inhabitants
(e.g. Swansea) for an entire year. Solar PV is now contributing
materially to total electricity generation in the UK, and the
Company is proud to be playing a leading role in this important
contribution.
Net Asset Value
At the year end, the Company's NAV was GBP605.0m, equivalent to
105.1p per share (2017: NAV of GBP478.6m, 104.9p per share).
During the course of the year, the unlevered discount rate was
reduced by 0.50% to 6.75% which reflects the observed increased
value of operating solar PV assets. We do not believe that this
trend will reverse in the foreseeable future. The discount rate
employed for levered asset portfolios was 7.75%. The weighted
average discount rate moved from 7.9% to 7.3%.
Portfolio Growth
During the year, the operating portfolio grew from 41 to 63
assets, which amounted to an increase of 115MW in the portfolio's
installed capacity. This is significant growth, especially
considering the high quality of the assets, but does not reflect
the full extent of the pipeline and funding available to the
Company.
The Company's implementation of its acquisition strategy was
impacted by several factors during the year, including longer than
expected timetables to close transactions secured under
exclusivity, the higher price paid by our competitors for
portfolios sold by previous owners and the reduced number of ROC
assets available in the market. After the year end we have
announced a further two acquisitions and expect to deploy fully our
available capital in the 128MW of pipeline assets.
Beyond ROC assets, we believe the development of subsidy-free
solar plants provides attractive opportunities for the Company. We
have several options available in this space, including developing
the solar plant from ground-up. This would allow us to control the
entire value-chain and increase our return on investment whilst
mitigating risks.
Capital Raising and Debt Financing
On 23 June 2017, the Company issued 115 million new shares in an
offering that was heavily oversubscribed. With numerous
shareholders taking the scrip dividend option during the year, our
total shares in issue were 575.7 million at the year end. The
strong demand from existing and new shareholders underlines the
backing we enjoy among institutions that have supported our growth
since the IPO in April 2014, in which we issued 85.6 million
shares, and our track record in achieving stated objectives. The
new capital raised was primarily used to acquire additional
portfolio assets and repay two existing debt facilities totalling
GBP65.0m in preparation for a further portfolio refinancing. The
cash balance remaining at the year end will be used to purchase
portfolio assets from the Company's pipeline of opportunities under
exclusivity.
During the year, in addition to the repayment of the two debt
facilities, the Group entered into a RCF for GBP20m to facilitate
the acquisition of new portfolio assets. The acquisition of the
Italian portfolio also brought with it long-term fully amortising
project debt of GBP67.8m. At the year end, the Company had total
financial debt outstanding of GBP270.4m (2017: GBP269.8m) on a
pro-forma look through basis including project level debt. This
represents a gearing level of 31% (2017:36%), which is
significantly below the stated maximum debt-to-GAV level of 50% and
presents an opportunity to optimise the capital structure for the
benefit of our shareholders.
Dividend and Dividend Growth
The Company continues to achieve all its dividend and dividend
growth objectives. For the year 2017/18, the Company will have paid
out a total dividend of 6.42p per share (2016/17: 6.31p).
For the year 2018/19, the UK RPI applicable to the value of ROCs
is 3.6% (as published by the Office for National Statistics) we are
therefore targeting to grow the dividend to 6.65p per share.
Our target since IPO has been to grow dividends in line with UK
RPI. Our disciplined investment track record has so far allowed us
to meet this target with a cash dividend cover of at least 1.2x
over the last four years. We are pleased with the result,
especially as NESF has been materially growing its shareholder base
during this period. Based on our current portfolio, further
financing capacity and pipeline of opportunities, we expect to be
able to maintain our dividend policy linked with RPI inflation but
we will continue to monitor the situation as energy prices and
projections evolve in the future.
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 UK Corporate Governance Code and viability statement reporting)
on the Company's Corporate Governance can be found in the Corporate
Governance section on pages 48 to 55.
Outlook
In the UK, following the end of the ROC regime era on 1 April
2017, the activity in the solar industry declined very
significantly. Few new solar plants have been built relative to the
preceding three years and the industry is now positioning itself
for a new phase in which subsidy-free solar assets will be built in
the country.
The current portfolio of assets has been diligently acquired at
attractive prices and is performing above expectations. The
continued downward revisions in long-term power price estimates are
impacting the Company's dividend cover. Nevertheless, the
Investment Manager continues to analyse future growth opportunities
in the UK provided by subsidy-free developments and integration of
energy storage. The unit cost to install solar plants continues to
decrease each year and this has made subsidy-free developments a
real and viable option. Electricity generated from new solar
projects is becoming competitive with electricity generated from
certain carbon-emitting technologies such as coal and natural gas.
We expect this trend to continue to shift in favour of solar.
At the last AGM we received approval from investors to broaden
the investment policy to permit 15% of Gross Asset Value ("GAV") to
be invested in solar assets in OECD countries (other than the UK).
While the Company will always remain predominately UK centric, we
used this authority to deploy c.12% of GAV for the acquisition of
our first portfolio abroad. The successful addition of the Solis
portfolio demonstrates how NESFĂs objectives, in particular market
risk diversification, dividend cover enhancement and the
acquisition of financially attractive assets, can be supported by
selectively adding high-quality overseas solar assets. We continue
to be offered attractive investment targets outside the UK and
monitor such opportunities carefully.
Optimisation of the portfolio continues to be a key objective of
the Company in the short and medium term. This entails using
technology to increase the technical and operating performance of
the solar plants, implementing initiatives to save costs as well as
developing and implementing innovative financing structures and
thus enhancing overall returns by adding value to the NAV.
Globally, solar power was the fastest growing source of new
energy generation installed last year. During 2017 new solar
capacity overtook the net growth of coal capacity, previously the
largest new source of power generation. International commitments
to reduce carbon emissions generated by the electricity sector were
reaffirmed and are expected to accelerate. There are more than 100
global cities now mostly powered by renewable energy, a doubling
since 2015. There is increasing commitment and ambition to displace
the use of fossil fuels with the sole use of renewable energy;
cities such as Burlington, Vermont; Reykjavik, Iceland; and Basel,
Switzerland are now powered 100% by renewable energy. In the UK we
have seen the launch of UK100, a network of local government
leaders, targeting 100% clean energy by 2050. Driven by its
investment, declining operating costs, speed of deployment and
consistency in performance, the solar sector continues to be the
primary beneficiary of the global movement to renewable energy.
Within this backdrop, the outlook for the Company remains
strong, driven by selective acquisition-led growth, a continued
focus on achieving Asset Management Alpha outperformance and
further improvements in our cost base and financing structure.
Kevin Lyon
Chairman
12 June 2018
Forest Farm Solar Plant Through the Seasons
SPRING
Strategic Report
Key Performance Indicators ("KPIs")
The Company sets out below its KPIs which it utilises to track
its performance over time against its objectives.
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
Financial KPI 2018 2017 2016 2015
Shares in issue 575.7m 456.4m 278.0m 240.3m
Share price 111.0p 110.5p 97.75p 103.75p
Market capitalisation GBP639m GBP504m GBP272m GBP249m
NAV per share 105.1p 104.9p 98.5p 103.3p
Total NAV GBP605.0m GBP478.6m GBP273.8m GBP248.4m
Premium/(discount) to NAV 5.6% 5.3% (0.8%) 0.4%
Earnings per share 5.88p 13.81p 0.78p 9.13p
Dividend per share 6.42p 6.31p 6.25p 5.25p
Cash dividend cover 1.2x 1.2x 1.2x 1.8x
Debt outstanding GBP270m GBP270m GBP217m GBP0m
Gearing level (Debt/GAV) 31% 36% 44% 0%
Weighted Average Cost of Capital 5.8% 5.9% 5.8% 7.5%
Weighted Average Lease Life 23.3 years 24.6 years 25.7 years 26.2 years
Shareholder total return - cumulative since IPO 33.6% 26.7% 6.1% 5.9%
Shareholder total return - annualised since IPO 8.5% 9.1% 3.2% 6.3%
Shareholder total return for year 6.2% 21.1% 0.2% 5.9%
FTSE All Share total return for year 1.4% 20.9% (3.6% ) 5.5%
NAV total return 6.3% 14.4% 3.7% 3.3%
NAV total return - annualised since IPO 7.0% 4.9% 1.9% 4.0%
Invested Capital GBP734m GBP522m GBP481m GBP252m
Ongoing Charges Ratio 1.1% 1.2% 1.2% 1.5%
Weighted Average Discount Rate 7.3% 7.9% 7.7% 7.5%
Operational KPI
Number of assets 63 41 33 16
Total capacity 569 MW 454 MW 414 MW 217 MW
Electricity production (generation) 451GWh 394GWh 225GWh 23GWh
% increase (year-on-year) 14% 75% 870% -
Irradiation (delta vs. budget) (0.9%) (0.3%) +0.4% (0.4%)
Generation (delta vs. budget) +0.9% +3.3% +4.1% +4.8%
Asset Management Alpha +1.8% +3.6% +3.7% +5.2%
Solar Energy within Renewable Energy Context
More solar energy hits the surface of the Earth in a single hour
than the total energy used by mankind in an entire year. We have a
source of unlimited clean energy in the form of solar power - we
just need to capture it. Last year solar energy only provided 3.5%
of the energy used in the UK. Increasing this share will take time,
investments and innovation.
2017 saw the global renewables sector enjoy significant growth
as a result of increased uptake and support from national
governments and global climate change initiatives, such as the
United Nations Climate Change Conference. In addition, renewable
energy is benefiting from increasing cost efficiencies and is in
most cases supported by some form of Government and/or regulatory
support. In the UK, renewable energy capacity has increased to
40.5GW, demonstrating a 13.3% increase from the previous year,
notwithstanding the retraction of the ROC regime.
The Company believes that, within renewable energy, solar
represents the most attractive risk-adjusted investment
opportunity. Of the 40.5GW of renewable energy capacity installed
in the UK, solar represented 12.8GW.
Solar has become the technology of choice compared to other
technologies due to its reduced cost, the speed of construction and
grid connection, its contribution to mitigating climate change and
the low volatility nature of its operations. Solar is now a proven
and stable technology. Continuing technological developments in
solar PV and energy storage provide significant optionality and
upside potential within individual solar PV investments.
In its fourth year of operation, the Company has contributed to
the reduction of greenhouse gas emissions into the Earth's
atmosphere. The amount of CO(2) emissions avoided by the Company's
plants amounts to 158,600 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
Today, out of the total global share of the market, solar PV
constitutes 306GW of installed capacity and is estimated to grow to
between 489 - 716GW by 2020. Global cumulative installed capacity
(all energy) by 2040 is estimated to reach some 14,000GW of which
solar would constitute 32%. A total of $2.8 trillion of investment
in solar is expected between 2017 and 2040. The focus for this
increased capacity will be initially on wind and solar PV. However,
as the cost balance shifts in favour of solar PV, the Company
expects solar energy to become the dominant driver of new
capacity.
Other than investment value, the growing transition to cleaner
energy is driven by the primary considerations to tackle and
address climate change. The Paris COP21 Agreement was ratified by
146 countries and continues to be adhered to. 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. Both developed
and developing countries have set high renewable energy capacity
targets for 2020. For example, Italy is preparing targets to
increase solar installed capacity for 2030 to 55GW in place of
coal, from an existing capacity of 20GW in 2017. Of these dedicated
countries, the 2020 targets are now within reach and hence
governments are looking towards 2030. The relative rapidity of the
construction of renewable energy plants, in particular solar, and
the decreasing investment cost of solar shows that these targets
are becoming more and more realistically achievable.
The UK itself has seen its efforts reach fruition: 21 April 2017
was a "watershed" moment when Britain went a full day without
turning on its coal-fired power stations for the first time in more
than 130 years. On 26 May 2017, the UK achieved a solar power
record as 8.7GW of solar power was generated at 1pm, representing
24.3% of the entire power demand in the UK. The Company's
contribution to this was 5% (or 0.47GW), which represented 1.5% of
the entire power demand in the UK at 1pm. Continuing this trend, on
18 April 2018, the UK reached 55 continuous hours without coal.
Only a few days later on 24 April 2018, it was 72 hours, another
record.
Structure
The Company is a Guernsey registered closed-ended investment
scheme.
The Company has a premium listing and its shares are traded on
the London Stock Exchange under the ticker "NESF". The Group
comprises the Company and HoldCos which invest in SPVs which hold
the underlying solar PV assets.
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 seeks to achieve its investment objective by
investing exclusively in solar PV assets.
The Company invests in solar PV assets primarily in the UK. Up
to 15% of the Company's GAV (calculated at the time of investment)
may be invested in solar PV assets that are located outside the UK.
Investments outside the UK will be made only in OECD countries that
the Investment Manager and Investment Adviser believe have a stable
solar energy regulatory environment and provide investment
opportunities with similar, or better, investment characteristics
and returns relative to investments in the UK.
The Company intends to continue to acquire solar PV 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 Company targets solar PV
assets that are anticipated to generate stable cash flows over
their asset lifespan.
The Company typically seeks to acquire sole ownership of
individual solar PV assets 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 assets 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 asset will constitute (at the time of investment) more
than 30% of the Company's GAV. In addition, the four largest solar
PV plants will not constitute (at the time of investment) more than
75% of the Company's GAV.
The Company will continue, primarily, to acquire operating solar
PV assets, but may also invest in solar PV plants that are 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 Company's GAV in
aggregate.
The Company may also agree to forward-fund by way of secured
loans the construction costs of solar PV assets where it retains
the right (but not the obligation) to acquire the relevant plant
once operational. Such forward-funding will not fall within the 10%
development restriction above but will be restricted to no more
than 25% of the Company's 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 Group's income is expected to
result from the sale of the entirety of the electricity generated
by the solar PV assets within the terms of power purchase
agreements ("PPA") to be executed from time to time. These are
expected to include the monetisation of ROCs and other regulated
benefits and the sale of electricity generated by the plants to
energy consumers and energy suppliers (Brown Power). Within this
context, the Company expects to execute 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 Company's GAV in
aggregate. Such leverage will be deployed for the acquisition of
further solar PV assets 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 assets
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 interests
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 assets 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 ongoing operating expenses) in
further investments, thereby supporting its long-term net asset
value.
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.
Where investments are made in currencies other than sterling,
currency hedging may be carried out to seek to provide protection
to the level of sterling dividends and other distributions that the
Company aims to pay on its shares and in order to reduce the risk
of currency fluctuations and the volatility of returns that may
result from such currency exposure. This may involve the use of
forward foreign exchange contracts to hedge the income from assets
that are exposed to exchange rate risk against sterling and foreign
currency borrowings to finance foreign currency assets.
Hedging transactions (if carried out) will only be undertaken
for the purpose of efficient portfolio management to protect or
enhance returns from the Company's portfolio and will not be
carried out for speculative purposes.
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 the Regulatory
Information Service or a notice sent to Shareholders at their
registered addresses in accordance with the Articles.
The Company's Board and Committees
The Company's Board of Directors comprises four 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 Administrator. The Board 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 ("NEC Group"). He has over 21 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 a number of listed energy companies.
-- Aldo Beolchini is Managing Partner and CFO of the NEC Group.
He has over 16 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 CEO of WiseEnergy and was previously the UK
Managing Director of the NEC Group. He has over 26 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 member of the NEC 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, an
affiliate of the NEC Group. Under the framework agreement,
WiseEnergy 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 NEC Group in managing and
monitoring solar PV assets 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 NEC 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. Its asset management activities have included
the management and monitoring of more than 1,300 utility-scale
solar power plants for a total capacity of over 1.9GW 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 NEC Group amounts to c.GBP6.0 billion. It
has developed proprietary hardware and software products and
solutions to facilitate delivery of its services to its client
base. The NEC Group also
manages NextPower II LP, a EUR184m private equity fund dedicated
to solar PV investments in Italy.
NEC Group's currently consists of 107 dedicated staff focused on
the European solar sector. The team has significant experience in
European energy and infrastructure transactions. Furthermore, the
team has an extensive track record in solar across international
jurisdictions.
The Company, through its contractual arrangements with the NEC
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 NEC
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 assets 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 NESF
Investment Manager
-- 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.
-- Reports to the Company's Board comprehensively on all
technical, operational and financial issues.
-- The Board reviews activity of the Investment Manager to
ensure adherence to the Company's investment objective and
investment policy.
Investment Adviser
-- 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 counterparties.
-- 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
-- Sources and presents investment opportunities to the Company and its advisers.
-- Identifies projects at all stages (pre-construction, construction and operation).
-- The Company has right of first offer over all suitable
projects identified by the Developer.
-- Structures and negotiates, in conjunction with the Investment Adviser, project contracts.
-- Project manages pre-construction and construction phases.
Operating Asset Manager
-- 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 performance and identify potential improvements.
-- Manages SPV's 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
Viability Statement
In accordance with provision C.2.2 of the UK Corporate
Governance 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. This
review considers the Company'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.
If the ordinary shares trade, on average, at a discount in
excess of 10% over any financial year of the Company, the Board is
required to propose, at the next annual general meeting of the
Company, a special resolution that the Company ceases in its
current form. The five year strategic review considers the historic
ratings of the Company's ordinary shares and the Company's
peers.
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 2023.
Kevin Lyon
Chairman
12 June 2018
Environmental, Social and Governance
The Group maintains and adopts ESG principles as a potent source
of innovation and competitive advantage to its core business. It
commits 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. The Investment Adviser accounts
for ESG metrics that relate to the value chain of its activities.
By proactively taking an additional step to traditional investment
in the solar PV industry, it aims to create higher standards of
long-term value in the entire industry. Examples of ESG targets
include: focusing exclusively on generating electricity from 100%
clean energy, targeting a reduction of CO2 emission of over 2
million tons per year, taking full account of health and safety
impacts beyond the relevant local regulations and throughout all
phases of the solar PV asset life and conducting dealings with
local authorities in a transparent manner, adhering to the rule of
law and procedures of each jurisdiction in which it operates.
The Investment Adviser has appointed a dedicated senior ESG
manager and is committed to developing its ESG policy to achieve
and maintain best-practice status. The Investment Adviser's
Advisory Board includes high profile professionals with energy,
financial and environmental backgrounds and advises the management
team in implementing and upholding best governance practices.
NextEnergy Foundation
Community engagement forms a key part of the Investment
Adviser's ongoing asset management strategy. The NextEnergy
Foundation was founded in 2016 with the mission to provide power
and light from clean energy sources to underserved regions as well
as to benefit local communities in which it is present and beyond.
The Foundation is the Investment Adviser's personal participation
effort to support small or other commendable projects that would
otherwise not be in the remits of its operations. The Investment
Adviser has pledged 5% of its net annual profits to the Foundation.
The Investment Adviser recognises the importance of benefiting
society as a whole and this is reflected through its vision and
mission to deliver through research and learning activities. For
example, most recently it has taken part in funding thousands of
solar lights in refugee camps in Syria, provided solar plants to
schools in Malawi, and scholarships to students from Zimbabwe. In
the UK, the Investment Adviser participated in the funding of a
fuel poverty support scheme during winter 2017.
The website address is nextenergyfoundation.org
ESG Considerations
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 consequences 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 solar PV 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
communities surrounding 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 solar PV
assets it invests in.
As stated 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 shareholders and also as part of
society. The ultimate result is that society perceives the shared
value and benefits generated from the Company's activities,
supporting future business and shareholders to stimulate the
Company to continue implementing its strategy and invest 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.
Biodiversity
The Company, through its Investment Adviser and Operating Asset
Manager, has made a commitment to ensure it leads best practice in
biodiversity in the solar industry. As a member of the Solar Trade
Association, the Company already ensures that it complies with the
10 commitments for Land Management which can be viewed at
www.solar-trade.org.uk/sta-solar-farms-10-commitments.
Case Study 1: NESF Exemplar Sites
The Company has commissioned an independent biodiversity review
of its operational assets. The review has highlighted action plans
to take sites beyond planning and ecological minimum standards. The
Company has chosen four exemplar sites with unique habitats to set
a best practice standard which will be implemented more widely
across the majority of the portfolio in the future. These sites are
Berwick, Boxted, Emberton and Langenhoe solar farms.
Photo 1: Flower meadow at Emberton
The aim of the exemplar sites is to make a positive contribution
to ecosystems surrounding solar farms in comparison to prior uses,
such as farmland. Opportunities include:
-- Regulating by improving air quality, water quality,
pollination, reducing soil erosion, invasive weeds and increasing
carbon consumption; and
-- Culturally by making the solar farms an aesthetically pleasing place to visit.
Biodiversity management plans have been developed for the four
sites, with implementation activities being carried out in Autumn
2017, Spring 2018 and Autumn 2018, including wild flower meadows,
hibernacula, bug hotels and fruit trees. At Emberton, there has
been a large focus on implementing a flower meadow beneath the
solar panels and crop growing, as outlined in the plan below.
Figure 1: Map of Biodiversity management plan at Emberton
Case Study 2: Team Engagement
On the 27 September 2017, the NextEnergy Capital and WiseEnergy
teams held an engagement day at NESF's Langenhoe plant. The
objective of the day was to deepen the entire teamĂs understanding
of key technical components in a solar plant and best-practice ESF
asset management activities. While on site, the team also created
habitats for native animals and plant species.
Photo 2: NextEnergy employees at away day at Langenhoe
The team was divided into two groups, and both constructed
hibernacula and bug hotels at two different locations on the solar
farm as part of the biodiversity management plan. They were both
made from local materials such as, stone, brick, hay, acorns, twigs
and crates, that team members were able to gather from the farm and
woodland nearby.
Photo 3: Bug hotel at Langenhoe solar farm
The biodiversity management plan at Langenhoe included two
breeding bird surveys and one invertebrate survey and one botany
survey. Results were promising, showing a range of 36 breeding bird
species, four butterfly species, three bumblebee species and
numerous invertebrates. This will be monitored over the coming
years so that improvements in biodiversity can be quantified.
Community
Case Study 3: Theale Village Hall - Building a zero-carbon
Village
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. This
financial year NextEnergy Capital has donated a total of GBP64,973
in community payments to help 10 parish councils and foundations
support community projects.
At our Hawkers solar farm, we donated funds to the village hall
in Theale. The donation will go towards the installation of solar
panels and a battery on the village hall; the chosen battery is the
Tesla Powerwall 2 AC. The hall is extremely well used and a pivotal
meeting point within the community. The solar panels and battery
will make a big difference to meeting the village's zero carbon
targets. Lower maintenance costs will also mean more clubs and
activities can be put on for the local community.
"The donation to Green Wedmore will not only allow us to install
solar PV and a battery on our village hall thereby saving the hall
GBP100s on its energy bill each year but also will contribute to
the village target of being zero carbon by 2045. The savings for
the village hall will mean that money spent on energy will now be
able to be diverted to the Community"
- Sonya Bedford, member of parish council
"The visionary initiative of Green Wedmore to create Theale as a
zero-carbon village is terrific. We are pleased that our
contribution can add to that vision."
- Sulwen Vaughan, NESF SPV Director
Photo 4: Theale village hall and community
One of the Company's goals is to continue deploying its efforts
engaging with the community and will demonstrate this through
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 to meet its
biodiversity and environmental policy targets.
From a community perspective 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.
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 451GWh of
clean energy. This is the equivalent of:
-- 124,000 UK homes powered for one year, the equivalent needed to power the city of Swansea.
-- 158,600 tonnes of CO(2) emissions avoided per annum.
United Nations Principles for Responsible Investment
("UNPRI")
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). The NEC Group is committed to the UNPRI,
an independent, leading proponent of responsible investment.
By being a signatory to the UNPRI, the NEC 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.
Forest Farm Solar Plant Through the Seasons
SUMMER
Investment Manager's Report
About NextEnergy Capital
The Investment Manager and Investment Adviser are both members
of the NEC Group. The NEC Group is a specialist investment and
operating asset manager focused on the solar energy sector, with a
100-plus team across its offices in UK and Italy. Through its
operating asset management division, WiseEnergy, the NEC Group has
managed and monitored over 1,300 utility-scale solar plants and
approximately 720 solar rooftop installations (comprising an
installed capacity of approximately 1.9GW and an estimated EUR6.0
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 NEC Group
also manages NextPower II LP, a EUR184m private equity fund
dedicated to PV investments in Italy.
Portfolio Highlights
At the year end, all the Company's assets were operational and
connected to the grid and qualified for ROC or FiT subsidies.
During the year, the portfolio grew from 41 to 63 assets, which
saw an increase of 115MW to the portfolio capacity.
We remain diligent with regard to the quality of assets
considered, acquisition values and resulting financial returns, and
therefore have not approved as many targets for which we had
exclusivity than we would have expected to. This diligence also
means that, after exchange of contracts and announcement to the
market, if we are not completely satisfied with an asset we will
not complete the acquisition.
During the year, the Company focused on completing and
integrating the solar PV assets that had been acquired. The NEC
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 ("PAC", "IAC", "FAC"
respectively) 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 assets demonstrate the desired level of
quality and ability to obtain and exceed the expected technical
performances in the long run.
During the year, one of the most significant highlights for the
Company was the acquisition of a portfolio of assets located
overseas. This portfolio is described in detail on the following
pages.
Portfolio Performance
Even though we experienced some significant DNO outages at some
of our plants during the year, we managed to generate energy 1.8%
above budget. NESF's asset manager actively sought to postpone or
mitigate unexpected or planned outages due to works conducted on
the network grid by the various DNOs. To provide investors full
transparency on the portfolio's performance, all issues affecting
the availability and performance of the plants in the portfolio,
whether beyond or within our control, are taken into account when
calculating Asset Management Alpha. Had the DNO outages been
excluded (to compare with other listed funds' information), the
Asset Management Alpha would have been 2.7%.
In particular, the energy generation from Hall Farm, a 5MW
plant, was -19.2% compared to budget. This was due to 43 days of
DNO outage required for extraordinary maintenance activity on the
grid. Had this been excluded, generation delta would have been 1.2%
(for the year) and 2.3% (since acquisition). Hall Farm experienced
a further issue at the beginning of March following a theft which
caused the availability to drop to 47% for 25 days. If this period
was also excluded, generation delta would have been 6.1% despite a
negative 1.0% irradiation (Asset Management Alpha would have been
7.1%). An insurance claim is ongoing, which we believe will be
successful. The 7.1% Asset Management Alpha calculated with the two
exclusions explained above gives us confidence that Hall Farm will
recover the losses caused by the DNO outage in the years to
come.
The unusual weather pattern across much of Europe during the
month of March 2018 had a negative impact on the performance of the
portfolio. During this month irradiation was lower by 21.1% and
generation lower by 18.1% on the UK portfolio.
The table below provides details of the actual performance
compared to expectation for 55 of the portfolio solar PV assets,
that have been managed and monitored by the Operating Asset
Manager. The on-boarding of the Italian portfolio was completed in
January and there has not been a sufficient and relevant period of
time to report on their operating performances. As a result of the
Company's operating asset management strategy, the portfolio of 55
solar PV assets generated an outperformance of 0.9% above the
budgeted generation values.
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.
Similarly, unplanned outages or technical issues can negatively
impact it. NESF defines as "Asset Management Alpha" as 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.
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. The "nominal" outperformance of
the Company's portfolio during the year ended 31 March 2018 was
0.9%, whereas the Asset Management Alpha of 1.8% during the year
represents the "real" outperformance due to active asset
management.
Assets Irradiation Generation Assets Management
Period monitored (delta vs. budget) (delta vs. budget) Alpha
Full year 2014/15 6 (0.4%) +4.8% +5.2%
Full year 2015/16 23 +0.4% +4.1% +3.7%
Full year 2016/17 31 (0.3%) +3.3% +3.6%
Full year 2017/18 55 (0.9%) +0.9% +1.8%
Cumulative from IPO to 31 March 2018 55 +0.4% +2.7% +2.3%
The Italian Portfolio "Solis"
This section describes in detail the Company's overseas
portfolio and the rationale for its acquisition. In summary, Solis
generates a high cash yield and materially contributes to the
Company's dividend cover. Furthermore, it reduces the average
exposure of the broader NESF portfolio revenues to movements in
wholesale energy prices. The return on investment is also higher
than what is achievable on UK assets, even after applying a
significant country risk premium. Due to an efficient 15-year
hedge, this higher IRR comes as free from foreign currency risks as
possible.
In December 2017 the Company acquired the portfolio of eight
operating solar plants with an installed capacity of 34.5MWp
located in Italy for a total value of EUR131.9m (equivalent to
GBP116.2m, being 12% of the Company's GAV at the time of
investment). Five of the plants are in the Puglia region, and the
remaining three are in the Campania region of Italy. All eight
plants were connected to the grid between 2010 and 2011. Therefore,
pre-acquisition they had already built up a significant operating
history.
The plants are ground mounted with land leases expiring in 2036.
The PV modules were supplied by top tier manufacturers, Yingli
Solar and Chint, and the inverters provided by Bonfiglioli and
Power One.
The portfolio was acquired with long-term non-recourse project
finance debt financing already in place, of which EUR76.9m
(GBP68.1m) remains outstanding. The debt is fully amortising and
the interest rate risk is fully hedged via interest rate swaps.
Debt was originally provided by UniCredit and ING Bank, and
although financing terms are broadly at market level, the
Investment Adviser team in Italy is already looking at options to
refinance the portfolio at even more attractive rates. The Company,
through a HoldCo, has also put in place a EUR/GBP foreign currency
hedging structure covering nearly all expected cash flows generated
by the portfolio over the next 15 years to reduce currency
fluctuation exposure on returns. The FX hedging structure, closed
with Intesa, is particularly effective as the Company is not
obliged to provide any cash collateral as credit support to the
bank.
The Solis acquisition is attractive from various
perspectives:
-- High risk-adjusted return - due to the experience of the
Investment Adviser in Italy, the acquisition price resulted in a
favourable net IRR of 9.4%, on top of which upsides are being
implemented for a total IRR of 9.8%. This excludes a potentially
significant uplift from re-financing.
-- Low risk-profile - The Company benefits from the portfolio's
operating history and the high quality of its components. In
addition, it reduces NESF's exposure to wholesale energy markets,
as around 85% of its revenues are fixed for the next 15 years. The
Italian FiT was subject to a retroactive reduction in 2014, but a
number of mitigants reduce significantly the risk of this occurring
again during the life of the investment.
-- Positive contribution to dividend cover - The higher return
on investment is coupled by an attractive cashflow generation
profile, which is higher than ROC assets, and evenly spread over
the life of the investment, as the Italian FiT is fully fixed. For
the purposes of comparison, Solis has a dividend cover equivalent
metric of 1.4x, which supports the Company's overall dividend
target.
-- NAV accretion - Solis is valued on a DCF basis with a country
risk premium of 1.25%, which is substantial in light of the fact
that FX risk is effectively hedged and the lower volatility of
cashflows compared to UK assets. On this risk-adjusted basis, Solis
generated a NAV increase of GBP4.4m.
-- Diversify Market Risk - Italy is the fifth largest solar
market globally, and is supported by a FiT incentive mechanism. The
FiT is granted by a state-owned company which promotes and supports
renewable energy in Italy, where the sole shareholder is the
Ministry of Economy and Finance. Tariffs differ depending on the
capacity, type of plant and the time of commissioning. The FiTs for
Solis range between EUR195/MWh to EUR318/MWh. Once a PV plant is
accredited, the FiT is granted over a period of 20 years and is not
inflated.
-- Low revenue risk - Of the Solis revenues, 85% result from FiT
where a 20-year regulated fixed price per MWh has been generated.
The FiT specific to this portfolio expire in 2031. The remaining
15% is from the sale of the brown electricity fed into the grid at
market price or via PPAs to other market participants. With this
revenue mix there is low revenue risk. In addition, low operating
costs result in stable EBITDA margins in excess of 80%.
Investment Portfolio
There is a high level of diversification in the Company's
portfolio: the 63 solar PV assets are located across 29 different
UK counties and Italian regions; the largest plant represents 7% of
the total installed capacity; and the four largest plants represent
together 21% of the total installed capacity. Excluding rooftop
assets, the average size is 9.0MW and the Investment Manager will
seek to maintain this level of diversification which is considered
beneficial to shareholders as it mitigates concentration risks. In
addition, the portfolio is diversified across 18 non-connected
contractors, 15 different Tier 1 solar panel manufacturers and 11
Tier 1 inverter manufacturers. This spread of counterparties
mitigates counterparty risks.
The following pages represent details of the investment
portfolio:
Remaining
life
Plant of the % of
Announcement Regulatory Capacity Investment plant Equity
Power plant Location Date Regime(1) Status(8) (MWp) (GBPM) (years) Proceeds
Higher
1 Hatherleigh Somerset 01/05/2014 1.6 Completed 6.1 7.3(5) 20.0 1.2%
2 Shacks Barn Northamptonshire 09/05/2014 2.0 Completed 6.3 8.2(5) 19.3 1.4%
3 Gover Farm Cornwall 23/06/2014 1.4 Completed 9.4 11.1(5) 21.7 1.9%
4 Bilsham West Sussex 03/07/2014 1.4 Completed 15.2 18.9(5) 21.6 3.2%
5 Brickyard Warwickshire 14/07/2014 1.4 Completed 3.8 4.1(5) 21.6 0.7%
6 Ellough Suffolk 28/07/2014 1.6 Completed 14.9 20.0(5) 21.0 3.4%
7 Poulshot Wiltshire 09/09/2014 1.4 Completed 14.5 15.7(5) 20.9 2.7%
8 Condover Shropshire 29/10/2014 1.4 Completed 10.2 11.7(5) 21.6 2.0%
9 Llywndu Ceredigion 22/12/2014 1.4 Completed 8.0 9.4 21.7 1.6%
Cock Hill
10 Farm Wiltshire 22/12/2014 1.4 Completed 20.0 23.6 21.4 4.0%
Boxted
11 Airfield Essex 31/12/2014 1.4 Completed 18.8 20.6(5) 22.0 3.5%
12 Langenhoe Essex 12/03/2015 1.4 Completed 21.2 22.9(5) 22.0 3.9%
13 Park View Devon 19/03/2015 1.4 Completed 6.5 7.7(5) 22.0 1.3%
14 Croydon Cambridgeshire 27/03/2015 1.4 Completed 16.5 17.8(5) 21.7 3.0%
Hawkers
15 Farm Somerset 13/04/2015 1.4 Completed 11.9 14.5(5) 22.0 2.4%
16 Glebe Farm Bedfordshire 13/04/2015 1.4 Completed 33.7 40.5(5) 31.7 6.8%
17 Bowerhouse Somerset 18/06/2015 1.4 Completed 9.3 11.1(5) 22.0 1.9%
18 Wellingborough Northamptonshire 18/06/2015 1.6 Completed 8.5 10.8(5) 21.2 1.8%
19 Birch Farm Essex 21/10/2015 FiT Completed 5.0 5.3(5) 22.2 0.9%
Thurlestone
20 Leicester Leicestershire 21/10/2015 FiT Completed 1.8 2.3 15.1 0.4%
21 North Farm Dorset 21/10/2015 1.4 Completed 11.5 14.5(5) 21.7 2.4%
Ellough
22 Phase 2 Suffolk 03/11/2015 1.3 Completed 8.0 8.0(5) 22.8 1.4%
23 Hall Farm Leicestershire 03/11/2015 FiT Completed 5.0 5.0(5) 22.7 0.8%
24 Decoy Farm Lincolnshire 03/11/2015 FiT Completed 5.0 5.2(5) 22.6 0.9%
25 Green Farm Essex 26/11/2015 FiT Completed 5.0 5.8 23.0 1.0%
26 Fenland Cambridgeshire 11/01/2016 1.4 Completed 20.4 23.9(2)(3) 22.3 4.0%
27 Green End Cambridgeshire 11/01/2016 1.4 Completed 24.8 29.0(2)(3) 22.4 4.9%
28 Tower Hill Gloucestershire 11/01/2016 1.4 Completed 8.1 8.8(2)(3) 22.0 1.5%
29 Branston Lincolnshire 05/04/2016 1.4 Completed 18.9 26.9
Great
30 Wilbraham Cambridgeshire 05/04/2016 1.4 Completed 38.1 27.0
31 Berwick East Sussex 05/04/2016 1.4 Completed 8.2 97.9(2)(4) 23.5 16.5%
32 Bottom Plain Dorset 05/04/2016 1.4 Completed 10.1 27.5
33 Emberton Buckinghamshire 05/04/2016 1.4 Completed 9.0 27.1
34 Kentishes Essex 22/11/2016 1.2 Completed 5.0 4.5 23.7 0.8%
35 Mill Farm Hertfordshire 04/01/2017 1.2 Completed 5.0 4.2 23.7 0.7%
36 Bowden Somerset 04/01/2017 1.2 Completed 5.0 5.6 23.9 0.9%
37 Stalbridge Dorset 04/01/2017 1.2 Completed 5.0 5.4 24.0 0.9%
38 Aller Court Somerset 21/04/2017 1.2 Completed 5.0 5.5 24.0 0.9%
39 Rampisham Dorset 21/04/2017 1.2 Completed 5.0 5.8 24.5 1.0%
40 Wasing Berkshire 21/04/2017 1.2 Completed 5.0 5.3 23.7 0.9%
41 Flixborough South Humberside 21/04/2017 1.2 Completed 5.0 5.1 24.5 0.9%
42 Hill Farm Oxfordshire 21/04/2017 1.2 Completed 5.0 5.5 24.0 0.9%
43 Forest Farm Hampshire 21/04/2017 1.2 Completed 3.0 3.3 34.0 0.6%
44 Birch CIC Essex 12/06/2017 FiT Completed 1.7 1.7 22.2 0.3%
45 Barnby Nottinghamshire 12/06/2017 1.2 Completed 5.0 5.4 24.3 0.9%
46 Bilsthorpe Nottinghamshire 12/06/2017 1.2 Completed 5.0 5.4 24.7 0.9%
47 Wickfield Wiltshire 12/06/2017 1.2 Completed 4.8 5.7 25.1 1.0%
48 Bay Farm Suffolk 18/08/2017 1.6 Completed 8.1 10.5 21.9 1.8%
49 Honington Suffolk 18/08/2017 1.6 Completed 13.5 16.1 21.8 2.7%
Macchia
50 Rotonda Apulia 01/11/2017 FiT Completed 6.6 17.8
51 Iacovangelo Apulia 01/11/2017 FiT Completed 3.5 18.1
52 Armiento Apulia 01/11/2017 FiT Completed 1.9 18.1
53 Inicorbaf Apulia 01/11/2017 FiT Completed 3.0 116.2(2)(6) 17.9 19.6%
Gioia del
54 Colle Campania 01/11/2017 FiT Completed 6.5 18.6
55 Carinola Apulia 01/11/2017 FiT Completed 3.0 18.6
56 Marcianise Campania 01/11/2017 FiT Completed 5.0 18.5
57 Riardo Campania 01/11/2017 FiT Completed 5.0 18.5
Gilley's
58 Dam Cornwall 18/12/2017 1.3 Completed 5.0 6.4 28.5 1.1%
Pickhill
59 Bridge Clwyd 18/12/2017 1.2 Completed 3.6 3.7 23.9 0.6%
60 North Norfolk Norfolk 01/02/2018 1.6 Completed 11.0 14.6 26.6 2.5%
61 Axe View Devon 01/02/2018 1.2 Completed 5.0 5.6 29.0 1.0%
62 Low Bentham Lancashire 01/02/2018 1.2 Completed 5.0 5.4 27.9 0.9%
63 Henley Shropshire 01/02/2018 1.2 Completed 5.0 5.2 23.7 0.9%
Total 568.9 733.7 124.0%(7)
A Francis/Gourton Clwyd 16/06/2017 None To be built 10.0 ---
B Glebe Worcestershire 16/06/2017 None To be built 19.6 ---
C Radbrook Warwickshire 16/06/2017 None To be built 20.7 ---
D Moss Cheshire 16/06/2017 None To be built 9.5 ---
E Staughton Bedfordshire - None To be built 50.0 ---
F Llanwern Gwent - None To be built 62.5 ---
Total 172.3
(1) An explanation of ROC regime is available at www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro.
(2) Acquired with project level debt already in place.
(3) Part of the Three Kings portfolio.
(4) Part of the Radius portfolio. s
(5) Part of the Apollo portfolio.
(6) Part of the Solis portfolio.
(7) Greater than 100% due to debt financing.
(8) Completed - the asset is operational, and the acquisition completed.
Portfolio Assets Locations
United Kingdom:
Italy:
Investment Portfolio Diversification
By Location By Inverter Manufacturer
By Solar Module Manufacturer By EPC Contractor
Portfolio Assets
Year ended 31 March Since acquisition
2018
Operational Acquisition Irradiation Generation Irradiation Generation
Power plant date date Generation delta delta Generation delta delta
(MWh) (%) (%) (MWh) (%) (%)
Higher
1 Hatherleigh Apr-14 May-14 5,887 (2.9) 1.5 23,492 (1.4) 3.7
2 Shacks Barn May-14 May-14 5,648 (4.1) (1.4) 23,755 (0.0) 7.0
3 Gover Farm Jan-15 Jun-14 9,157 0.1 (0.1) 29,707 0.3 2.2
4 Bilsham Jan-15 Jul-14 16,334 3.2 5.1 51,004 1.6 4.8
5 Brickyard Jan-15 Jul-14 3,446 (3.0) 0.2 11,195 (0.4) 3.7
6 Ellough Jul-14 Jul-14 14,760 (3.7) 1.7 52,765 (2.3) 4.4
7 Poulshot Apr-15 Sep-14 13,833 (2.5) 2.6 36,088 (2.9) 2.2
8 Condover May-15 Oct-14 9,214 (3.8) (2.7) 25,889 (3.3) (1.0)
9 Llywndu Jul-15 Dec-14 7,324 (8.1) (3.0) 18,879 (7.2) (1.9)
Cock Hill
10 Farm Jul-15 Dec-14 19,557 2.1 1.6 49,881 (1.4) 1.4
Boxted
11 Airfield Apr-15 Dec-14 18,143 0.5 1.4 55,637 0.3 3.1
12 Langenhoe Apr-15 Mar-15 21,277 2.3 4.8 65,356 2.9 6.8
13 Park View Jul-15 Mar-15 6,512 (3.6) (0.6) 16,543 (5.5) (1.4)
14 Croydon Apr-15 Mar-15 15,470 0.4 3.2 47,089 1.8 4.2
15 Hawkers Farm Jun-15 Apr-15 11,974 (2.3) 1.3 31,133 (3.4) 0.6
16 Glebe Farm May-15 Apr-15 32,210 (1.0) 4.2 91,839 1.1 7.2
17 Bowerhouse Jul-15 Jun-15 9,321 1.5 2.8 23,320 (1.5) 0.5
18 Wellingborough Jun-15 Jun-15 7,922 (4.4) 0.5 21,777 (2.9) 2.7
19 Birch Farm Sep-15 Oct-15 4,841 (0.5) 2.2 11,465 0.2 3.4
20 Thurlestone
Leicester Oct-15 Oct-15 N/A N/A N/A N/A N/A N/A
21 North Farm Oct-15 Oct-15 11,863 (5.2) (3.7) 26,691 (7.6) (5.1)
Ellough Phase
22 2 Aug-16 Nov-15 8,178 2.6 8.1 12,218 4.7 10.1
23 Hall Farm Apr-16 Nov-15 3,553 (1.0) (19.2)(1) 5,086 (2.1) (13.3)
24 Decoy Farm Mar-16 Nov-15 4,770 (1.3) 4.1 6,390 (1.7) 4.1
25 Green Farm Dec-16 Nov-15 4,807 (1.8) (2.1) 5,694 (1.1) (1.2)
26 Fenland Jan-16 Jan-16 20,079 (0.9) 3.6 43,954 0.4 5.5
27 Green End Jan-16 Jan-16 23,652 (1.1) 0.6 51,743 (0.2) 2.3
28 Tower Hill Jan-16 Jan-16 7,963 1.4 4.5 17,042 (0.0) 4.0
29 Branston Mar-16 Apr-16 17,077 0.6 (2.6) 35,697 1.4 1.6
Great
30 Wilbraham Mar-16 Apr-16 35,667 (1.1) (0.9) 72,421 (0.3) 0.4
31 Berwick Mar-16 Apr-16 9,103 2.3 6.3 18,268 2.7 6.5
32 Bottom Plain Mar-16 Apr-16 10,208 (0.2) (0.1) 20,457 (1.3) (0.0)
33 Emberton Mar-16 Apr-16 8,367 (2.5) (2.0) 16,934 (1.1) (1.1)
34 Kentishes Jul-17 Nov-16 4,396 (0.9) 0.3 4,396 (0.9) 0.3
35 Mill Farm Jul-17 Jan-17 4,353 0.5 3.9 4,353 0.5 3.9
(1) Underperformance is due to DNO outages. Had this been
excluded, generation delta would have been +6.1% (YTD) and +5.6%
(since acquisition).
We believe that the generation lost will be recovered over the
life of the asset.
Portfolio Assets
Year ended 31 March Since acquisition
2018
Power plant Operational Acquisition Generation Generation Irradiation Generation
date date Generation Irradiation delta delta delta delta
(MWh) (%) (%) (MWh) (%) (%)
36 Bowden Sep-17 Jan-17 1,741 (8.9) (2.8) 1,741 (8.9) (2.8)
37 Stalbridge Sep-17 Jan-17 1,794 (8.0) 3.2 1,794 (8.0) 3.2
38 Aller Court Sep-17 Apr-17 1,739 (1.8) 2.1 1,739 (1.8) 2.1
39 Rampisham Sep-17 Apr-17 1,603 (9.6) (9.4) 1,603 (9.6) (9.4)
40 Wasing Aug-17 Apr-17 2,337 (4.2) 2.3 2,337 (4.2) 2.3
41 Flixborough Aug-17 Apr-17 2,114 (4.7) (0.4) 2,114 (4.7) (0.4)
42 Hill Farm Mar-17 Apr-17 1,329 (5.6) (6.9) 1,329 (5.6) (6.9)
43 Forest Farm Mar-17 Apr-17 831 (8.0) (1.5) 831 (8.0) (1.5)
44 Birch CIC May-17 Jun-17 1,466 (1.3) (0.2) 1,466 (1.3) (0.2)
45 Barnby Aug-17 Jun-17 1,920 (6.7) (2.9) (1,920) (6.7) (2.9)
46 Bilsthorpe Aug-17 Jun-17 1,975 (8.0) (2.2) 1,975 (8.0 (2.2)
47 Wickfield Mar-17 Jun-17 1,375 (5.3) (0.3) 1,375 (5.3) (0.3)
48 Bay Farm Sep-17 Aug-17 3,100 (2.5) (3.2) 3,100 (2.5) (3.2)
49 Honington Sep-17 Aug-17 4,707 (5.6) (12.4) 4,707 (5.6) (12.4)
Macchia
50 Rotonda Nov-17 Nov-17 2,113 N/A N/A 2,113 N/A
51 Iacovangelo Nov-17 Nov-17 1,173 N/A N/A 1,173 N/A N/A
52 Armiento Italy Nov-17 Nov-17 647 N/A N/A 647 N/A N/A
53 Inicorbaf Nov-17 Nov-17 1,049 N/A N/A 1,049 N/A N/A
Italy
Gioia del
54 Colle Nov-17 Nov-17 2,072 N/A N/A 2,072 N/A N/A
55 Carinola Nov-17 Nov-17 861 N/A N/A 861 N/A N/A
56 Marcianise Nov-17 Nov-17 1,485 N/A N/A 1,485 N/A N/A
57 Riardo Nov-17 Nov-17 1,394 N/A N/A 1,394 N/A
Gilley's
58 Dam Nov-17 Dec-17 952 (10.3) (4.0) 952 (10.3) (4.0)
Pickhill
59 Bridge Dec-17 Dec-17 593 (5.3) (0.3) 593 (5.3) (0.3)
North
60 Norfolk Dec-17 Feb-18 1,670 (6.3) (0.7) 1,670 (6.3) (0.7)
61 Axe View Dec-17 Feb-18 803 (3.2) 0.4 803 (3.2) 0.4
62 Low Bentham Dec-17 Feb-18 765 0.0 6.6 765 0.0 6.6
63 Henley Jan-18 Feb-18 657 (10.8) (7.4) 657 (10.8) (7.4)
Total 451,132 (0.9) 0.9 1,072,422 0.4 2.7
Current and Long-Term Power Prices
The Investment Manager continuously reviews multiple inputs for
power price forecasts and takes the average of two of the leading
energy market consultants' (the "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 Consultants in publishing periodic (quarterly) or ad hoc
updates following any significant market development.
During the year, the Company experienced a mitigated trend in
the UK wholesale power projections with a recent upward trend in
the short-term and a downward movement in long-term estimates. The
changes were observed as a result of the depreciation of sterling
against the dollar, short-term movements in gas prices following
recent forecasts on supply and long-term estimates on renewable
penetration and commodity prices (including gas).
Despite the decrease in long-term estimates, the Company managed
to capture the short-term increase proposed by the market.
Electricity day ahead prices rose from c.GBP42/MWh in March 2017 to
c.GBP57/MWh in March 2018(1) . The market consensus on long-term
power prices is still produced by the Consultants.
During the year, the Italian purchasing price of electricity
experienced an increase from EUR44/MWh in March 2017 to EUR57/MWh
in March 2018(2) . The Investment Manager continued to observe an
upward trend both in the day ahead and forward electricity markets
after year end.
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 vs. the baseload prices included in the
power price estimates. This solar capture discount is estimated by
the 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 0.6% in real terms over the
20-year period starting April 2018. This represents a decrease of
9.9% compared to those used at the end of the previous reporting
year (and 35.9% below the assumptions employed at IPO).
The Investment Manager uses an independent market consultant to
provide long-term estimates for the Italian power prices. The
current long-term forecast implies an average growth rate of 2.7%
in real terms over the 20-year period starting April 2018 with a
EUR67/MWh average price across the same period.
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 assets
acquired by the Company which, as at March 2019 are expected to
comprise c.66% of regulated revenues (ROCs and FiTs, mainly linked
to RPI) and c.34% of sale of electricity on the wholesale market
through PPAs.
Forecast UK Power Prices (Real 2018) Historic UK Power
Price(1)
(1) Source: N2EX - UK Baseload - day ahead
(2) Source: Gestore del Mercato Elettrico S.p.A.
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 agreements that are usually associated with a
significant discount on the selling price vs. market. The Company
then managed to extend this flexible structure to the existing
portfolio.
As at 31 March 2018, the Company had a mix of PPAs with fixed
prices for periods ranging from 3 months to 5 years. As a result of
these PPAs as well as the UK regulatory framework, the Company had
a total of c.76% of its revenues linked to fixed power prices, FiT
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
adviser in constantly monitoring developments in the UK power
market and fixing prices when most appropriate for the next 12
months on a rolling basis.
% of Revenue fixed as at 31 March 2018 Portfolio Revenue
breakdown
Financial Review
The Company performed very positively during the year. Operating
outperformance of budget and a more favourable wholesale energy and
ROC recycle market contributed to deliver better than expected
earnings at the portfolio level. Costs have continued to decrease
in percentage terms and financing activity contributed to create
significant value for the shareholders. The slower than expected
pace of acquisitions caused lower cashflow generation from new
assets during the year than estimated at the time of the most
recent equity issuance. The Company has announced two acquisitions
since the year end which have had an immediate impact on cashflow
generation.
The Company has met its targets for dividend distribution and is
aiming to increase its dividends in line with RPI for the 2018/19
financial year.
Financial Results
Profit before tax was GBP32.2m (2017: GBP49.8m), with earnings
per share of 5.88p (2017: 13.81p).
Dividends
For the year ended 31 March 2018, the fourth quarterly dividend
of 1.605p per ordinary share is to be paid to shareholders on 29
June 2018. As a result, the Company will achieve its target for
total dividends for financial year 2017/18 of 6.42p per ordinary
share.
As stated in the Chairman's Statement, the Company is targeting
to pay a dividend of 6.65p per ordinary share for financial year
2018/19, which represents a growth in line with RPI applicable to
the underlying portfolio revenues.
During the year, the Company generated cash income of GBP42.5m
and had net operating costs of GBP6.3m. The net cash dividend cover
for the year was 1.2x (2017: 1.2x).
Amount per
Month of ordinary share Total
Dividends paid payment (p) GBP'000
For the year 2014/15 5.250 10,946
For the year 2015/16 6.250 17,372
For the year 2016/17 6.310 20,681
First quarterly dividend
for year 2017/18 Sep-17 1.605 7,336(1)
Second quarterly dividend
for year 2017/18 Dec-17 1.605 6,922(1)
Third quarterly dividend
for year 2017/18 Mar-18 1.605 8,719(1)
Fourth quarterly dividend
for year 2017/18 Jun-18 1.605 9,240(2)
Total cash dividends paid
to date 22.625 71,976
Fourth quarterly dividend
for year 2017/18 Jun-18 1.605 9,240(2)
Total for
year 17/18
Cash income GBP'000
Cash income for year to 31
March 2018 42,533(3)
Net operating costs for year
to 31 March 2018 (6,044)
Net cash income 36,489
Gross dividend Net dividend
cover cover
Cash dividend paid during
year 30,125(4) 1.4x 1.2x
(1) During the year, a scrip dividend alternative was elected by
some shareholders. A total of 4,255,641 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 GBP7,200k, GBP9,171k, GBP9,197k and GBP9,232k for the first,
second, third and fourth quarterly dividends respectively.
(2) Before election of scrip dividend is considered.
(3) Cash income differs from the Income in the Statement of
Comprehensive Income. This is because the Statement of
Comprehensive Income is on an accruals basis.
(4) This amount represents the post scrip dividend paid during
the year (the last quarter of 2016/17 and the first 3 quarters of
2017/18). If the shares from the scrip dividend were included the
total amount paid during the year would have been GBP34,800k. The
Gross dividend cover would have been 1.2x and the net dividend
cover would have been 1.1x.
The forecast dividend calendar is set out in the table
below:
Forecast
Date of amount per
expected ordinary
Dividend for year 2018/19 payment share (p)
September
First interim 2018 1.6625
Second interim December 2018 1.6625
Third interim March 2019 1.6625
Fourth interim June 2019 1.6625
Total 6.6500
Operating Costs
The operating costs of the Company amounted to GBP6.3m. The
Company's OCR was 1.1% (2017: 1.2%), in line with budget. The
budgeted OCR for the year ending 31 March 2019 is 1.1%.
2018 2017
Ongoing charges (GBP'000) (GBP'000)
Management fees 5,070 3,406
Legal and professional fees 482 947
Administration fees 268 259
Directors' fees 146 160
Audit fees 177 151
Regulatory fees 144 94
Insurance 29 27
Sundry expenses 12 8
6,328 5,052
OCR 1.1% 1.2%
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 two main factors:
-- 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
-- the actual price at which the energy generated is sold by the
Company as well as the subsidies received for the same
generation.
The performance of a plant in terms of revenues is therefore a
product of both the operational performance and the commercial
terms of the PPAs in place. Before taking into account tax and
financing considerations, the cashflow generation of solar PV
assets 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 below 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 ended Actual per MW(1) Budget per MW(1) Delta Comments
31 March 2018 vs. Budget
Actual
(kWh/m(2) irradiation
Solar irradiation [A] ) 1,154 1,164 (0.9)% for the year
Positive delta
represents
Asset Management
Conversion Alpha for
factor(2) [B] (%) 80.6% 79.2% +1.8% the year
Actual generation
measured at
[C] = [A the meter
Metered generation x B] (kWh) 931 923 +0.9% for the year
Power Subsidies Power Price Subsidies
Price
Implied average
power price
and subsidies
across entire
portfolio
(including
ROC recycle
and embedded
Realised prices [D] (GBP/MWh) 50.3 69.3 47.7 66.1 +5.4% benefits)
Revenues (brown
power & [E] = [C
subsidies) x D] (GBP'000) 46.8 64.5 44.0 66.1
Actual revenues
at portfolio
level for
the year
(unaudited
figures per
Total revenues [E] (GBP'000) 111.3 105.0 +6.4% MW)
Actual costs
at portfolio
level for
the year
(unaudited
Operating figures per
expenses [F] (GBP'000) (30.7) (29.0) +6.2% MW)
Actual EBITDA
for the year
(unaudited
[G] = [E figures per
EBITDA(3) - F] (GBP'000) 80.9 76.1 +6.4% MW)
EBITDA margin(3) [G] / [E] (%) 72.5% 72.4%
1 Based on the average installed capacity over the financial
year. Given the different composition of the portfolio, this
information is not directly comparable with what was provided in
the previous annual report.
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 a reference to EBITDA at the SPV levels.
During the year, the investment portfolio performance exceeded
budget both in terms of generation and revenues despite 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 1.8%) and the competitive terms and
flexibility obtained on the PPA in place. A higher ROC buyout and
embedded benefits have positively impacted the actual revenues from
subsidies compared to budget. In addition, our flexible
PPA structure allowed us to capture power prices that were
higher than budgeted, mainly during the winter months. The overall
performance of the portfolio generated a gross margin in line with
budget despite slightly greater operating costs (GBP910k across the
entire portfolio), mainly due to one-off 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 of the Financial Statements. The resulting
fair market value of the Company's investment portfolio is
presented to the Company's Board 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 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 assets 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 solar PV 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 solar PV sector;
-- discount rates applicable for other comparable infrastructure
assets classes or regulated energy sectors; and
-- capital asset pricing model analysis and risk premia over relevant risk-free rates.
During the year, especially in the last six months, the solar PV
market has experienced a strong increase in pricing competition for
operating assets driven by factors that include:
-- entrance of new UK-based and international investors with low cost of capital; and
-- closure of the previous subsidies regime for solar PV assets
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 PV assets in the UK.
As a result, during the year the Company lowered its discount
rate for unlevered operating solar PV assets by 0.50% (from 7.25%
to 6.75%) 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, the
Three Kings portfolio and the Solis 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%).
For solar assets outside of the UK, an additional country risk
premium has been applied. For the Solis portfolio this premium is
1.25%, which is substantial considering the difference in risk free
rates on long-term securities ranging from 0.5% - 1.0% depending on
maturity. It is also worth noting that the underlying revenues from
the Solis portfolio have lower volatility due to market power
prices than average UK assets and that the currency hedge
effectively mitigates FX exposure. As a result, the levered
discount rate applied to the Solis portfolio is 9.0%, compared to a
levered IRR of 9.8%.
The resulting weighted average discount rate for the Company's
portfolio is 7.3%.
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 2018 was
5.8%. Compared to the previous year's WACC of 5.9% 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
decrease in the overall gearing from 36% to 31%, as further
described below.
The value uplift generated by the assets valued for the first
time on a DCF basis demonstrates how the new acquisitions are
adding value compared to the applicable discount rates.
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 assets is expected to be longer
than 25 years. This is due to many factors, including: a) solar PV
assets with technology components similar to the ones deployed in
the Company's portfolio have been demonstrated to be capable of
operating for over 40 years, with levels of technical degradation
lower than those 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 continues to seek to extend 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 at 31 March 2018, the remaining weighted average lease life
of the Company's portfolio was 23.3 years. In the portfolio, the
33MW Glebe Farm is valued on the basis of an extended remaining
lease term of 33 years and the five assets in the 84MW Radius
portfolio on an average remaining lease term of 26.4 years. The
rest of the portfolio is valued on an average remaining lease term
of 22.6 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.5.6%. The table on pages 22 to 23 provides the remaining lease
duration for each of the Company's assets as at 31 March 2018. The
DCF valuation assumes a zero terminal value at the end of the lease
term for each asset, and therefore excludes any residual value and
associated decommissioning costs. In reality, the Investment
Manager believes this net amount is likely to be positive.
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 two years of operating history,
when, typically the plants have satisfied the final acceptance
tests and received FAC certification.
As at 31 March 2018, nine out of the 55 UK solar PV assets in
the investment portfolio had FAC certification and their actual
Performance Ratio was used in the DCF valuation, generating an
uplift. This represents 124 MW of the portfolio. The remaining
plants are expected to reach their two-year operating life
milestone and begin relevant FAC tests according to the timeline
below.
Financial quarter ending June 2018: 188 MW
Financial quarter ending September 2018: 77 MW
Financial quarter ending December 2018: 30 MW
Financial quarter ending June 2019: 25 MW
Financial quarter ending September 2019: 47 MW
Financial quarter ending December 2019: 43 MW
All the Italian assets had passed FAC before acquisition and
therefore their actual Performance Ratios have been used in the
valuation model.
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 other assets and liabilities of the
Company 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 2018 driven by the issuance of new capital in July 2017 for
GBP126.5m and the revaluation of its investment portfolio during
the year. As a result, the Company's NAV grew over the year from
GBP478.6m to GBP605.0m as at 31 March 2018.
The evolution of the NAV per share during the year was affected
by positive and negative factors. During the year NAV increased
from 104.9p to 105.1p. As the Company reports its financial results
on a non-consolidated basis under IFRS 10 (see note 2(c)) the
change during the year in fair value of its assets is taken through
the profit and loss of the Company. The change in NAV per share
during the year was mainly driven by the following factors:
-- the downward revisions in the forecasts for long-term power
prices adopted by the Company, 9.9% lower compared to the
assumptions employed at 31 March 2017 (taking into account the most
recent forecasts released by the Consultants in the period between
end of the year and the date of preparation of this annual
report);
-- the value uplift generated by the Company completing
acquisitions of assets whose IRR was higher than the discount rate
applied when valuing them on a discounted cash flow basis,
particularly the Italian portfolio;
-- the value uplift generated by the change in discount rates
reflecting an increase in market value of UK solar assets;
-- the operating results achieved by the Company's solar PV assets; and
-- the cash dividends paid during the year and the Company's operating costs.
Portfolio Valuation Bridge - 31 March 2017 to 31 March 2018
NAV Bridge - 31 March 2017 to 31 March 2018
An important driver for the movement in NAV was the revaluation
of the investment portfolio which accounted for GBP7.9m. For new
acquisitions during the year, this represented the movement in the
difference between the acquisition cost and fair value of the
portfolio at the end year. The revaluation is summarised in the net
changes in financial assets at fair value in the Statement of
Comprehensive Income.
The investment portfolio represents an investment value of
GBP734m, comprising 63 solar PV assets valued using the DCF
methodology. Among the investments, the Apollo portfolio is
considered as one investment consisting of 21 solar PV assets, the
Radius portfolio is considered as one investment consisting of five
solar PV plants, and the Solis portfolio is considered as one
investment consisting of eight solar PV assets.
The valuation of the investment portfolio or asset is net of the
project level debt:
-- GBP54m project financing arranged by MIDIS in conjunction
with the acquisition of the 84MW Radius portfolio;
-- GBP149m project financing arranged by MIDIS, NAB and CBA in
the context of refinancing short-term facilities used in the
process of building the 241MW Apollo portfolio; and
-- GBP66m project level debt arranged by UniCredit and ING for the 35MW Solis portfolio.
Directors' Investment Directors'
Valuation Movements Valuation
31 March 2017 during the year 31 March 2018
Investment (GBP'000) (GBP'000) (GBP'000)
Llwyndu 9,109 - 9,260
Cock Hill Farm 22,383 - 22,518
Thurlestone Leicester 2,629 - 2,677
Fenland(3) 8,934 - 8,876
Green End(3) 11,150 - 11,051
Tower Hill(3) 3,899 - 3,872
Green Farm 6,106 - 6,088
Radius portfolio(2) 54,888 - 54,910
Apollo portfolio(2) 173,273 655(5) 168,093
Kentishes 4,476 - 5,819
Mill Farm 4,240 - 5,417
Bowden 5,589 - 6,240
Stalbridge 5,425 - 6,081
Aller Court 5,536 - 6,121
Wasing 5,276 - 5,892
Flixborough 5,090 - 5,626
Rampisham - 5,841 6,410
Birch CIC - 1,670 2,214
Forest Farm - 3,314 3,822
Hill Farm - 5,452 5,867
Barnby Moor - 5,377 5,835
Bilsthorpe Moor - 5,436 5,993
Wickfield - 5,625 6,089
Honnington - 15,957 15,147
Bay Farm - 10,490 8,756
Gilley's Dam - 6,350 7,129
Pickhill - 3,728 4,049
North Norfolk - 14,581 14,291
Axe view - 5,644 6,006
Low Bentham - 5,443 5,885
Henley - 5,241 5,465
Solis Portfolio - 49,013 48,497(4)
Little Staughton - 957 957
TGC - 439 439
Long Ash Lane 5,865 (5,865) -
Total Investment Portfolio 333,868 145,348 481,395
Residual net assets of HoldCos 4,482 1,167
Short-term debt facilities (21,680) -
Receivable from Apollo refinancing 99,193 -
Current asset - Pro-forma receivable(3) - 43,659
Total Investment in HoldCos(1) 415,863 526,221
(1) A summary of the investment in the HoldCos is provided in
note 6 of the Financial Statements.
(2) These investments have financial leverage at project
level.
(3) These investments had financial leverage as at 31 March 2017
and are presented on a pro forma levered basis to reflect the
conclusion of a pending refinancing transaction.
(4) Valuation excludes distribution of GBP4.9m made during the
quarter ended 31 March 2018.
(5) Bonus payment to vendor/EPC for its share of the out
performance of the asset.
Sensitivity Analysis
Sensitivities on the Company's NAV and detailed disclosure on
the asset valuation methodologies are provided below and in note 14
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. +/-10.4% 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 12 months to March 2019.
In this analysis, should energy prices fall by 10% from current
forecasts, NESF would experience a reduction of only 0.7% 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 outperformance of 5% throughout the twelve months to 31
March 2018 (whether due to higher solar irradiation or asset
management), total operating cashflows would increase by 6.5%.
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 has been revised several times with a
cumulative reduction of c.36%. 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 135.1p per share.
The sensitivity analysis 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.
Capital Deployment Timeline
The Company's issued share capital comprised 575,643,840
ordinary shares as at 31 March 2018, which includes scrip
dividends. The Company's capital raises are detailed below:
Date Shares issued Equity raised (GBPm) Equity invested Time to deployment
April 2014 85,600,000 85.6 100% by September 2014 5 months
November/December 2014 95,000,000 99.6 100% by January 2015 6 weeks
February 2015 59,750,000 61.4 100% by April 2015 6 weeks
September 2015 37,607,105 38.8 100% by November 2015 6 weeks
July/August/September 2016 64,100,926 64.7 Used to repay debt facility Immediate
November 2016 110,300,000 115.3 100% by August 2017 10 months
June 2017 115,000,000 126.5 On-going On-going
Date Debt raised (GBPm) Lender Amount deployed Status
July 2015 22.7 NIBC 100% Repaid
January 2016 45.4 Bayern Landesbank 100% Repaid
March 2016 55.0 MIDIS 100% Drawn
February 2017 150.0 Macquarie/NAB/CBA 100% Drawn
November 2017 68.1 UniCredit & ING 100% Drawn
February 2018 20.0 NIBC Not drawn Not drawn
Share Price Movement
During the year the share price increased from 110.5p to 111.0p.
The table below shows the returns:
Full Year Total Annualised
2017/18 Since IPO since IPO
Shareholder total return 6.2% 33.6% 8.5%
NAV per share total return 6.3% 27.7% 7.0%
The annualised returns since IPO are in line with the target
range of seven to nine percent equity return for investors (at IPO
both NAV per share and initial issue price was 100p).
NESF's shares are included in the FTSE All-Share Index as well
as the FTSE Small Cap Index. NESF's shares outperformed the FTSE
All-Share Index by 10.4% over the period from the IPO to 31 March
2018.
Shareholder total return and NAV total return are used to review
the Company's performance against its objectives.
Financing and Cash Management
As at 31 March 2018, the total pro-forma debt position of the
Company on a look-through basis was GBP270.4m (31 March 2017:
GBP269.8m). This represents gearing of 31% in terms of total debt
vs. GAV (which is equal to NAV plus total debt outstanding). The
average cost of debt is 3.8% (31 March 2017: 3.6%).
During the year the GBP45m Bayern facility was repaid and the
GBP22m NIBC short-term facility was converted into a new GBP20m RCF
in light of the pipeline of acquisitions ahead. The acquisition of
the Italian portfolio brought with it project level debt of GBP68m.
The Apollo facility was fully drawn in July 2017 and the Company is
readying itself for the next long-term refinancing once the current
acquisition phase is completed and new investment opportunities
become available. A letter of credit for GBP2.5m from Santander
enabled a debt service reserve account to be released.
The table below is a summary of the debt outstanding:
Termination
Facility Amount (including
Provider/ amount outstanding options Applicable
Arranger Type Borrower Tranches GBP'000 GBP'000 to extend) rate
Fully-amortising NESH (Apollo
long-term portfolio Tranche A -
MIDIS/CBA/NAB debt level debt) Medium-term 48,387 48,387 31-Dec-26 2.91%(1)
Tranche B - Floating
long-term 24,194 24,194 30-Jun-35 3.68%(1)
Tranche C - Index RPI index
linked long-term 38,710 37,766 30-Jun-35 + 0.36%
Tranche D - Fixed
long-term 38,710 38,710 30-Jun-35 3.82%
Debt Service Reserve
Facility 7,500 - 30-Jun-26 1.50%
NESH IV
Fully-amortising (Radius Inflation
long-term portfolio linked RPI index
MIDIS debt level debt) Tranche 27,500 26,151 30-Sep-34 + 1.44%
Fixed Tranche 27,500 27,475 30-Sep-34 4.11%
(Radius
Letter portfolio Fixed
Santander of credit level debt) short-term 2,500 2,043 27-Mar-19 1.50%
NESH V
Fully-amortising (Solis
long-term portfolio Floating
UniCredit debt level debt) long-term 32,764 31,735 30-Jun-29 3.04%(1)
NESH V
Fully-amortising (Solis
long-term portfolio Floating
ING debt level debt) long-term 34,991 33,921 30-Jun-30 4.13%(1)
NIBC RCF NESH II n/a 20,000 - 13-Feb-20 LIBOR+2.20%
Total 270,381
(1) Applicable rate represents the swap rate.
The debt financing strategy of the Company is backed by the
strong indication of support from equity investors for both further
capital raises to increase the Company's size and the employment of
financial leverage up to the 50% maximum level to optimise equity
returns.
As at 31 March 2018 the Company held cash of GBP75.9m at high
credit rating financial institutions in the UK.
Outlook
Despite increased competition for UK assets and reduction in
power price estimates, the outlook of the Company is supported by
the quality of the portfolio acquired and the significant financing
potential given its current capital structure. The Investment
Manager is actively exploring and evaluating the multiple avenues
of growth available, including:
-- Selectively acquiring solar plants previously built under the
various FiT and ROC regimes by parties looking to sell such assets.
There is a growing competition for secondary market opportunities
in the UK and the pace of NESF's acquisitions is therefore
reducing, but the recent acquisitions demonstrate the viability of
deploying capital in carefully selected UK opportunities that add
value to NESF.
-- Developing solar plants to be built in the future without
subsidies. During the year the Company has acquired the project
rights to develop six sites for a total capacity of 172MW. The
financial viability of these projects is improving as the cost of
new installation declines. Significant work is being undertaken,
especially on the revenue monetisation side, to allow these
projects to add value to NESF on a risk adjusted basis, and we
expect to be able to break ground on the most promising ones in the
next 12 months.
-- Adding new technologies to our existing solar plant portfolio
(e.g. electricity storage, other technologies enhancing
productivity). We are active in this space and implementation could
occur over the next six to 12 months. Following the year end, NESF
made its first acquisition in an asset that combines a traditional
solar PV plant with a battery storage system able to provide
revenue generating grid services. This transaction represents an
attractive business model that could be extended on the Company's
current portfolio in the short- to mid-term.
-- Investing in new capacity at existing sites where grid
connection capacity and permits allow. This new capacity would
benefit from the existing investment made in grid connection
infrastructure but would not qualify for the ROC regime.
-- Adding to the portfolio selected solar plants in selected
markets outside the UK where attractive risk-adjusted returns can
be achieved. NESF was always intended to remain UK centred, but the
recent acquisition of the Solis portfolio demonstrates how foreign
investments can add value to and support NESF's return and dividend
targets whilst mitigating risks and reducing exposure on declining
UK power prices.
Furthermore, we continue to optimise the operating performance
of the portfolio and explore value-enhancing opportunities.
Post Year End Update
Since 31 March 2018, the following relevant events occurred:
-- On 17 May 2018, the Company announced an interim dividend of
1.605 pence per ordinary share for the quarter ending 31 March
2018, to be paid on 29 June 2018 to shareholders on the register as
at close of business on 24 May 2018.
-- On 30 May 2018, the Company announced the acquisition of two
plants totalling 7.2MW with an investment value of GBP9.3m. Both
sites have integrated energy storage capabilities with a combined
capacity of c.1MW.
NextEnergy Capital IM Limited
12 June 2018
Principal Risks
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 over the
Company and its subsidiaries as a whole. 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 and includes:
-- external and market risks;
-- investment strategy;
-- investment process and management of assets;
-- monitoring process;
-- valuation process;
-- financial and accounting process; and
-- governance, tax and regulatory compliance.
Based on the Board's assessment, the principal risks faced by
the Group are:
Portfolio Management and Performance Risk
Risk Summary Mitigation
1. Acquisition and pipeline The Company is committed to The Investment Adviser and Investment
increasing the portfolio through Manager regularly review the
further acquisition of solar investment pipeline.
assets. However, a risk is that the
pipeline of acquisitions will
decrease, and the Company
will not be able to meet its
acquisition targets.
The recent decrease in the primary
market for solar assets has led to an
overpricing of assets
thus reducing the availability of
potential investments and pace of
acquisition.
2. Portfolio electricity generation Solar is an intermittent energy There is a level of predictability for
source compared to traditional energy solar energy compared to other
resources such as coal renewable energies such
and gas. as wind, in that irradiation levels
The volume of solar irradiation tend to follow a set trend throughout
available on a given day is out of the year, peaking
the Company's control and over the summer months. The
this is a risk on the performance of geographical location of the asset has
the assets. an impact on irradiation
Historically, the Company's energy levels, due to climate variations and
generation has outperformed its small differences in day lengths
budget regardless of DNO across regions.
outages and other performance Forecasting energy generation from
prohibitors. solar assets can produce accurate
The Operating Asset Manager has results. There will often
value- enhancing tools that optimise be the occasional event such as a DNO
the Company's portfolio outage or a snow storm that cannot be
generation and resolve interruptions predicted.
efficiently.
3. Performance valuation Valuation of an SPV investment is Drivers of the SPV valuation model are
dependent on financial models based frequently reviewed by the Manager to
on several drivers: ensure it is
discount rate, rate of inflation, at the appropriate level. All
power price curve and amount of documentation to prove these
electricity the solar assets calculations are presented to the
are expected to produce. Certain Board quarterly for approval and
assumptions may prove to be adoption.
inaccurate, particularly during To mitigate the impact of the power
periods of volatility. price volatility on the portfolio, the
Investment Adviser
takes an average of the power price
curves from the Consultants.
4. Depreciation of NAV Assets are depreciated over the life The Investment Adviser considers the
of the land lease. This could affect depreciation of the NAV in the
the value of the financial fund model.
NAV. The Investment Manager has long- term
scenario planning including extension
of land leases.
This plan is reviewed by the Company's
Board.
Operational and Strategic Risks
Risk Summary Mitigation
1. Plant operational risk The Company relies on third-party The Company can seek legal recourse
contractors to provide corrective and against failure by an O&M contractor.
preventative maintenance The insurance policy in the O&M contract
through operation and maintenance states the economic penalties in the case
("O&M") contracts. of damages.
The O&M contractor could fail to fulfil The Operating Asset Manager ensures that
its obligation and the solar plant's the O&M contract maintains a detailed
performance could preventative
deteriorate. schedule, with contract warranties and
penalty payments in the event of failure.
2. Counterparty risk This is the risk of counterparty The Operating Asset Manager continuously
failure. The Company has entered into monitors its contracts in line with the
O&M contracts and PPAs, market.
which affect the costs and revenues of There are contractual arrangements in
the Company. place that warranty the care of the
If the counterparty becomes insolvent assets in case of
there is a risk of disruption and defaults.
financial loss until The Operating Asset Manager ensures that
the counterparty is replaced. counterparties are of a high credit
rating to minimise
risk.
3. Reduction in energy prices Revenues of solar assets are dependent Short-term: The Company enters into PPAs
on the electricity market. Exposure to and forward contracts to fix electricity
the wholesale prices for
energy market impacts the prices a future period ranging from six to 12
received for energy generated and months.
revenues forecasted by Long-term: The power prices are often
the operating assets of the Company. beyond the control of the Company. The
The Company is exposed to a reduction in Investment Adviser
the price of electricity. reviews wholesale electricity price
forecasts and enters into both long-term
and short-term
PPA contracts where appropriate.
External and Market Risks
Risk Summary Mitigation
1. Increased competition Risk that increased competition for The Company is involved in
solar assets make it difficult for competitive tenders for solar assets
the Company to continue and therefore becomes aware
to acquire assets in the secondary of competitor returns.
market at attractive value.
This competition may be fuelled by
investors with aggressive financial
structures seeking
lower returns than the Company from
the same solar PV assets.
2. Political uncertainty In March 2017, Article 50 of the The Investment Manager believes
Treaty on the European Union was Brexit is likely to have a very
triggered for the UK to limited effect on the Company's
leave the European Union. The UK financial and operating prospects.
government remains in negotiations The UK's 2008 Climate Change Act
with the European Union. enshrines the Government's
An unfavourable outcome could affect commitment to reduce the country's
an investor's appetite to invest in greenhouse gas emissions by 80%
the Company. compared to 1990 levels. The
In Italy, a coalition government was Investment Manager does not think
announced by the President on 31 May the UK government will introduce
2018. primary legislation to reverse this
Changes by the coalition government commitment as a result
could affect the value of the Italian of Brexit.
assets. The implications of Brexit and the
change in the Italian government on
the Company are not
identifiable at present. These risks
are beyond the control of the
Company, but the Company
closely monitors developments and
their impact on the solar industry.
3. Adverse changes to regulatory Uncertainty for the future regulatory The Company actively monitors
framework framework for solar PV creates a risk regulatory changes within the
that further planned industry and participates in
acquisitions do not take place. This contributing
would affect the Company's growth towards government discussions on
potential, valuation the industry.
and profitability.
4. Changes to tax legislation and Changes to the existing rates and The Investment Manager works with
rates rules could have an adverse effect on tax advisers to ensure constant
the valuation of the awareness of any upcoming
portfolio and levels of dividends changes to tax legislation and
paid to shareholders. rates, to implement the necessary
changes as quickly and smoothly
as possible.
Governance
Forest Farm Solar Plant Through the Seasons
AUT UMN
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 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 2018.
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 2018, the Company has complied with the recommendations of
the AIC Code and the relevant provisions of the UK Code, except for
the provisions relating to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
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.
There have not been any subsequent changes to the Chairman's
business commitments, as stated in the most recent prospectus, that
are required to be declared. A summary of Mr Lyon's commitments can
be identified in his biography on page 56.
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 this 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
boards 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 Chairman, Vic Holmes and Patrick Firth were selected prior
to the Company's launch. Sharon Parr was selected in late 2017, and
appointed with effect from 1 January 2018. All Directors are
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. The
Board reviews the Company's financial performance and oversees the
performance of the Investment Manager and other 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 their 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 their
objection noted and minuted.
No changes to the Directors' significant business commitments
have required to be declared during the year. Each Director's
commitments can be identified in their biographies detailed on
pages 56 to 59.
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 15 minutes
prior to and during the meeting.
During the prior year, Mr Vic Holmes was appointed as 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
telephone.
Balance of the Board and Diversity Policy
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
four Directors appointed ensures that during any transition period,
there are at least two (more likely three) Directors to provide
stability.
At this time, the Board has chosen not to adopt a formal policy
for diversity but it has diversity at the forefront of its decision
making. 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 illustrated by the recent
appointment of Sharon Parr. It is the Board's on-going aspiration
to maintain 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 any 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 prior 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.
The primary role and responsibilities of the Remuneration and
Nominations Committee are clearly defined in its terms of
reference, available at the registered office and the Company's
website.
Each Director is required to be elected by shareholders at the
first Annual General Meeting of the Company following their
appointment and thereafter will be submitted for re-election not
less than once in every three-year period. Vic Holmes and Sharon
Parr are therefore submitting themselves for re-election and
election respectively at the AGM in August 2018.
The Audit Committee Chairman and other Members of the Board
confirm that Vic Holmes and Sharon Parr have proven their 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 Vic Holmes and Sharon Parr be
re-elected.
The Board is aware of the current consultation on the UK Code of
Corporate Governance and will adopt any final change.
Appointment Process
Prior to the appointment of Sharon Parr no new Director had been
appointed since the Company's launch. The Remuneration and
Nominations Committee reviewed the Board's composition and
concluded that a further appointment would be beneficial due to the
significant increase in the size of the Company since launch and to
further enhance the Board's knowledge and experience. The
Remuneration and Nominations Committee reviewed the existing
balance of skills, experience, independence and knowledge on the
Board and, following the evaluation, prepared a description of the
role and capabilities required for the required appointment. The
Company appointed OSA Recruitment (which has no other connection
with the Company) to assist with the search for suitable
candidates, with a number of potential candidates being put forward
by OSA. Of the candidates put forward, four were selected for
interview, following which, two candidates were shortlisted and
invited to meet with the NextEnergy Capital team.
Following the process outlined above, the Board, following the
recommendation of the Remuneration and Nominations Committee,
appointed Sharon Parr as a non-executive Director with effect from
1 January 2018.
For renewal of current appointments, all Directors except the
individual in question are entitled to vote at the meeting. No new
nominations have been made for the role of Chairman of the
Board.
The Remuneration and Nominations Committee will keep under
review the composition of the Board as the Company continues to
develop.
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 Reports; 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
final 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 office.
The Board met four times during the year ended 31 March 2018;
the meeting attendance record is displayed on the next page. The
Company Secretary acts as the Secretary to the Board.
As noted above, the Board fulfils 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 the Investment Manager's 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 sufficient financial skills and
experience. Patrick Firth is Audit Committee Chairman.
The Audit Committee met 3 times during the year ended 31 March
2018; 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
financial 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 sufficient 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
financial 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 66 to 68.
Formal terms of reference for the Audit Committee are available
at the registered office, and are reviewed on a regular basis.
Remuneration and Nominations Committee
The joint Remuneration and Nominations Committee is composed of
all the Directors. 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 twice during the
year ended 31 March 2018; 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 64 to 65.
Formal terms of reference for the Remuneration and Nominations
Committee are available at the registered office, 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
Audit Nominations
Board Committee Committee
Kevin Lyon 4 3 2
Patrick Firth 4 3 2
Vic Holmes 4 3 2
Sharon Parr(1) 1 1 -
Total meetings for the year 4 3 2
(1) Attended all meetings following appointment on 1 January
2018
All Directors have attended all scheduled quarterly Board and
Audit Committee meetings. During the year, a further sixteen ad hoc
Board/Committee meetings were convened in Guernsey at short notice
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 2018 is provided in the Statement of
Directors' responsibilities on page 60.
Further information enabling shareholders to assess the
Company's performance, business model and strategy can be sourced
in the Chairman's Statement on pages 2 to 4, the Strategic Report
on pages 6 to 12 and the Report of the Directors on pages 61 to
63.
Principal Risk Management and Risk Control
Details of the Company's principal risks can be found in the
Principal Risks section on pages 44 to 46.
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 Group,
appropriate consideration has been given to the relevant control
processes and that the risk has been considered, assessed and
managed as an integral part of the business. The Company's system
of internal controls 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 controls 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 Adviser and Investment Manager during periodic Board
updates enabling oversight of the key business processes. The
Investment Adviser also provides an update of the control
environment for the UK HoldCos and SPVs to ensure the Board has
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, Guidance 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 2018.
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.
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. Some 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 the NPPR in order to
market the Company, specifically in the UK, the Republic of
Ireland, the Netherlands and Sweden. 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 the NPPR.
Eligible AIFMs will be able to continue to use the NPPR until at
least July 2018, with the NPPR being the sole regime available to
market in the EU. 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 the AIFMD and its
impact.
The Board has considered the disclosure obligations under
Articles 22 and 23 and can confirm that the Investment Manager
complies with the various organisational, operational and
transparency obligations.
Foreign Account Tax Compliance Act ("FATCA") and the OECD Common
Reporting Standards ("CRS")
The Board, in conjunction with the Company's service providers
and advisers, will ensure the Company's compliance with FATCA's 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 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. During the year, the Chairman met with four
shareholders.
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
12 June 2018
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 also chairman of Inoapps Ltd, a vendor of Oracle software,
of Rovop Ltd, an independent provider of subsea remotely operated
vehicle services, of ACS Clothing Limited, the leading men's
hirewear supplier in the UK and of Spark Energy, a leading
multi-utility serving the needs of home movers. He was former
chairman of Smart Metering Systems plc, Valiant Petroleum plc, RBG,
Wyndeham Press Group, Craneware plc, Incline GTS, Ambrian plc and
Drilling Systems Group Ltd, 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 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.
Sharon Parr
(Independent Non-Executive Director)
Sharon is a Fellow of the Institute of Chartered Accountants in
England and Wales, having qualified with Deloitte and Touche in the
UK. After spending time with Deloitte in Chicago and the British
Virgin Islands Sharon moved to Guernsey with them in 1999. In
addition she is also a member of the Society of Trust and Estate
Practitioners.
After successfully completing a private equity backed MBO of the
trust and fund administration of Walbrook, a division of Deloitte,
in 2003 she sold the business to Barclays Wealth in 2007. As a
Managing Director of Barclays Wealth, Ms Parr reached the position
of global head of the Barclays trust and fund administration
businesses, comprising over 450 staff in 10 countries, as well as
being country head of all Barclays trust, fund administration and
other operations in Guernsey.
In 2011 Sharon stepped down from her executive roles to focus on
other business areas and interests. She has maintained her
directorships of the Bridgemere group of companies; a group that
has significant investment interests in the leisure and property
development sectors both in the UK and Europe, including a
significant shareholding in Redrow plc. In addition she is a
director and treasurer of the Guernsey Literary Festival and is
active with a number of other Guernsey based charities.
Previously, she was a committee member of the Guernsey
Association of Trustees. She 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, Strategic Report, 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 fulfil these requirements. The process by which the
Committee has reached these conclusions is set out in the Audit
Committee Report on pages 66 to 68. Furthermore, the Board believes
that the disclosures set out on pages 6 to 46 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 2018, 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 2018, 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.
For NextEnergy Solar Fund Limited
Kevin Lyon
Chairman of the Board of Directors
12 June 2018
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 primarily in the UK. Not more than 15% of the
Company's Gross Asset Value (calculated at the time of investment)
may be invested in solar PV assets that are located outside the UK.
The Company's principal activities and investment objectives are
detailed more fully in the Strategic Report on pages 6 to 12.
The structure of the Group, as detailed fully on pages 8 to 12
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 3.
During the year, the Company has declared four dividends
totalling GBP34,800,353 (2017: GBP26,525,459) relating to the year
ended 31 March 2018. For each quarterly dividend, a scrip
alternative was offered to cash. Details of the dividends declared
during the year can be seen in note 12 and the scrip dividends can
be seen in note 10 to the Financial Statements.
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 have increased to 575,643,840 as a result of further share
issues made pursuant to the first Placing Programme, tap issues,
the second Placing Programme and scrip dividends. The Placings and
Offers for Subscription made under the placing programme and shares
issued pursuant to scrip dividends during the year ended 31 March
2018, can be seen in note 10 to the Financial Statements.
Debt Facilities
Details of the Company's debt facilities can be seen in the
Investment Manager's Report on page 42.
Business Review
As at 31 March 2018, the Company's portfolio comprised 63 assets
amounting to 569MW installed solar capacity and an invested capital
of GBP734m (2017: 41 assets, 454MW and GBP522m invested
capital).
Full details of the Company's performance during the year ended
31 March 2018, its financial position and future developments are
detailed in the Chairman's Statement, the Strategic Report and the
Investment Manager's Report on pages 2 to 43.
Substantial Interests
As at 31 May 2018, the Company is aware of the following
material shareholdings:
Name Ordinary shares held % shareholding as at 31 May 2018
Prudential plc group of companies 83,362,294 14.48
Artemis Investment Management LLP on behalf of discretionary
funds under management 82,594,562 14.34
Old Mutual plc 76,881,155 13.35
Investec Wealth & Investment Limited 51,807,382 9.00
Legal & General Group plc 35,777,599 6.22
Tredje AP-Fonden (AP 3) 30,290,860 5.26
Directors and Directors' Interests in Shares
The Directors who have served during the year ended 31 March
2018 were Kevin Lyon, Patrick Firth, Vic Holmes and Sharon
Parr.
Biographical details of each of the Directors are shown on pages
56 to 59.
The Directors' interests in shares are shown below:
Name Ordinary shares at 31 March 2018 Ordinary shares at 31 March 2017
Kevin Lyon 160,000 160,000
Patrick Firth 75,807 71,315
Vic Holmes 110,000 110,000
Sharon Parr - -
Corporate Governance
The Corporate Governance Statement on pages 48 to 55 sets out in
detail the code of corporate governance against which the Company
reports. It also sets out the Company's 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 6 to 12. 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.
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.
Authority to purchase ordinary shares to be held in treasury /
cancellation was sought and obtained at the third annual general
meeting of the Company held on 24 August 2017 and will expire at
the conclusion of the fourth annual general meeting of the Company,
at which point it is envisaged that the Directors will propose to
extend the authority.
No shares were repurchased and held in treasury or cancelled
during the year. No shares are held in treasury as at the date of
this report.
Annual General Meeting
The Company's Annual General Meeting will be convened in August
2018 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 60.
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
A resolution 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 115,128,768 shares,
equivalent to 20% of the current issued share capital, when issuing
shares and/or selling shares from treasury for cash. This authority
will expire at the conclusion of the AGM in 2019. 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 a resolution in the Notice of the Annual General Meeting of the
Company and all other applicable laws and regulations). A
resolution 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 2019.
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 345,807 shares.
By order of the Board
Kevin Lyon
Chairman
12 June 2018
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 which comprises all Directors, including Sharon Parr
following her appointment on 1 January 2018. Vic Holmes is Chairman
of the Remuneration and Nominations Committee. The Chairman of the
Board is a member of the Remuneration and Nominations
Committee.
The Remuneration and Nominations Committee endeavours to ensure
the remuneration policy reflects and supports the Company's
strategic aims and objectives throughout the year under review.
The primary role and responsibilities of the Remuneration and
Nominations Committee are clearly defined in its terms of
reference, available at the registered office and on the Company's
website.
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 did
not utilise any external consultants or propose any increase to
Director fees. 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, and 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. 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 2018 which will be
payable out of the assets of the Company equalled GBP146,250 (2017:
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.
Base Fees Per annum GBP
Kevin Lyon - Chairman 60,000
Patrick Firth - Audit Committee Chairman 40,000
Vic Holmes - Senior Independent Director 37,500
Sharon Parr 35,000
Total Directors' Fees 172,500
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. No additional fees were paid to
the Directors during the year.
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 2018 was GBP2,644 (31 March 2017:
GBP3,370).
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, bonuses or
performance fees, 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, and has been (or in Sharon Parr's case, will be)
subject to election at the first Annual General Meeting following
their appointment, 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:
-- resignation by the Director by giving written notice (6
months for the Chairman and three months for the remaining
Directors) to the Board;
-- a resolution of the shareholders;
-- disqualification from acting as Director under the Companies
Law or the Company's Articles, without notice; or
-- 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 GBP146,250 (2016: GBP160,250):
Total Total
fee for the fee for the
year ended year ended
Director 31 March 2018 31 March 2017
Kevin Lyon 60,000 70,000(1)
Patrick Firth 40,000 46,500(1)
Vic Holmes 37,500 43,750(1)
Sharon Parr 8,750(2) -
Aggregate fees 146,250 160,250
Vic Holmes
Remuneration and Nominations
Committee Chairman
12 June 2018
(1) Includes an addition fee of GBP10,000 in connection with the
Placing Programme commenced during the prior year, with base fees
pro-rated based on an increase which applied from 1 October
2016.
(2) GBP35,000 per annum pro-rata for the 3 months from
appointment on 1 January 2018 to 31 March 2018.
Audit Committee Report
The Board is supported by the Audit Committee, and comprises of
all of the Directors, including Sharon Parr following her
appointment on 1 January 2018. 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 and that the Committee as a whole has
competence relevant to the sector in which the Company operates.
All four 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.
The Committee met three times during the year under review;
individual attendance of Directors is outlined on page 52. 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 2018
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 Areas in Relation to the Financial Statements
Following discussions with the Investment Manager, Investment
Adviser and the external Auditor, the Committee determined that the
significant areas connected with the preparation of the financial
statements of the Company related to 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. This
is further complicated following the acquisition of the portfolio
of Italian assets, Project Solis, together with the hedging
arrangements in place as Project Solis benefits from different
feed-in-tariffs when compared to the UK portfolio as well utilising
a different discount rate and having a significantly different
performance profile.
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 and how those assumptions vary between the
UK and Italian assets. During this process the Audit Committee
challenges the assumptions employed by the Investment Adviser and
Investment Manager and 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 are detailed
more fully in the Corporate Governance Statement on pages 48 to
55.
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 efficiency 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 Auditor's 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 Auditor's performance.
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 2019.
Auditor's 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.
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 Auditor's
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 one
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 2018, PwC CI has not provided any
material non-audit services to the Company.
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 are 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 April 2016,
the Board has requested that the Audit Committee advise on whether
it considers that the Annual Report and Audited Financial
Statements fulfil 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 2018,
taken as a whole, are 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
Directors Responsibilities on page 60.
Patrick Firth
Audit Committee Chairman
12 June 2018
Forest Farm Solar Plant Through the Seasons
WINTER
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
(the "Company") as at 31 March 2018, 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 2018;
-- 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
Context
Our audit was planned and executed having regard to the fact
that the operations of the Company were largely unchanged from the
prior year.
In light of this, our overall audit approach in terms of scoping
and key audit matters was largely unchanged with continued scrutiny
over the valuation of investments.
Overview
Materiality
-- Overall materiality was GBP15.1 million (2017: GBP11.9
million) which represents 2.5% of Net Assets (2017: 2.5% of Net
Assets).
Audit scope
-- The principal activity of the Company comprises investing in
a diversified portfolio of solar photovoltaic assets located in the
UK and Italy through a structure of intermediate holding
companies.
-- The financial statements consist of the standalone parent
company financial information and includes the investments into
subsidiaries, which are held at fair value. The financial
statements are not consolidated.
-- 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.
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
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 materiality GBP15.1 million (2017: GBP11.9 million)
How we determined it 2.5% of Net Assets (2017: 2.5% of Net Assets)
Rationale for the materiality benchmark We believe that net assets is the 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 any
misstatements identified during our audit above GBP0.8 million
(2017: GBP0.6 million), as well as misstatements below that amount
that, in our view, warranted reporting for qualitative reasons. We
also agreed with the Audit Committee that we would report on any
disclosure matters that we identified when assessing the overall
presentation of the financial statements.
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 to critically assess management's
The Company's investments amount to GBP526.2 million at assumptions and the investment valuation
31 March 2018 (31 March 2017: GBP415.8 model in which they are applied.
million) and comprise the Company's holdings in direct Our audit procedures included:
subsidiaries, which in turn hold equity * We updated and reconfirmed our understanding and
interests in solar photovoltaic assets (the "underlying evaluation of the Company's processes and internal
investment portfolio") for which there controls in so far as they apply to investment
is no liquid market. valuations, the valuation model used and the areas
The fair value of investments has been determined based where significant judgements and estimates are made;
on the fair value of (1) the underlying
investment portfolio and (2) the other residual net
assets within the subsidiaries as at 31 * We performed tests to assess the operational
March 2018. The fair value of the underlying investment effectiveness of the controls operated by management
portfolio has been valued on a discounted during the valuation process to determine the fair
cash flow basis, which necessitates significant value of the underlying investment portfolio;
judgement in respect of the forecasted cash
flows and discount rates applied.
The judgements in respect of forecasted cash flows * We agreed the cash transfers made between the Company
include assumptions around future energy and its directly held subsidiaries to relevant
yields, discount rates, power prices, inflation, tax supporting agreements and legal documentation where
rates, exchange rates and operating costs. applicable;
The Audit Committee has set out their consideration of
this risk on page 66 as well as the
forecasted cash flows being recognised as a critical * We used our own PricewaterhouseCoopers internal
accounting judgement in note 4 of the valuation specialists to provide audit support in
financial statements. Note 4 includes a breakdown of reviewing and concluding on the fair valuation of the
the investments and assumptions applied underlying investment portfolio. The
to the valuation. Determining the valuation methodology PricewaterhouseCoopers valuation experts (a) reviewed
and determining the inputs to the the appropriateness of the valuation methodology and
valuation are subjective and complex. This, combined approach and (b) reviewed and commented on the
with the significance of the unlisted computation of the discounted cash flow valuation
investments balance in the statement of financial model, including benchmarking the discount rates and
position, meant that this was a key audit other key assumptions against comparable market
matter for our current year audit. participants and other macroeconomic data;
* We obtained satisfactory explanations when
challenging assumptions made by management in the
applicable valuation model;
* We tested the mathematical accuracy of the valuation
model to ensure incorporation of the assumptions into
the valuation model was performed correctly and the
selected discount rates were correctly applied;
* On a sample basis, we verified the inputs into the
model by agreement to third party sources where
applicable; and
* We corroborated the cash flow projections where
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 assets.
We have concluded that the valuation of investments is
within a reasonable range. Additionally,
the valuation is supported by the available evidence and
the significant assumptions and valuation
methodologies used have been assessed by us as being
appropriate and reasonable.
The results of our procedures identified no material errors
in the fair valuation of investments.
Other information
The directors are responsible for the other information. The
other information comprises the items listed on the Contents page
(but does not include the financial statements, notes to 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 62 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 12 June 2018
Financial Statements
Statement of Comprehensive Income
For the year ended 31 March 2018
1 April 2017 1 April 2016
to to
31 March 31 March
2018 2017
Notes GBP'000 GBP'000
Income
Income 5 41,083 35,307
Net changes in fair value of financial
assets at fair value through profit
or loss 6 (2,880) 19,561
Total net income 38,203 54,868
Expenditure
Management fees 17 5,070 3,406
Legal and professional fees 482 947
Administration fees 268 259
Directors' fees 20 146 160
Audit fees 16 177 151
Regulatory fees 144 94
Insurance 29 27
Sundry expenses 12 8
Total expenses 6,328 5,052
Operating profit 31,875 49,816
Finance income 285 13
Profit and comprehensive income
for the year 32,160 49,829
Earnings per share 11 5.88p 13.81p
There were no potentially dilutive instruments in issue at 31
March 2018.
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 2018
2018 2017
Notes GBP'000 GBP'000
Non-current assets
Investments 6, 14 526,221 415,863
Total non-current assets 526,221 415,863
Current assets
Cash and cash equivalents 75,893 59,831
Trade and other receivables 7 28,397 11,166
Total current assets 104,290 70,997
Total assets 630,511 486,860
Current liabilities
Trade and other payables 8 25,521 8,277
Total current liabilities 25,521 8,277
Net assets 604,990 478,583
Equity
Share Capital and reserves 10 593,388 464,341
Reserves 11,602 14,242
Total equity attributable to shareholders 604,990 478,583
Net assets per share 13 105.1p 104.9p
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 12 June 2018 and signed on its behalf
by:
Patrick Firth Sharon Parr
Director Director
Statement of Changes in Equity
For the year ended 31 March 2018
Share Capital Treasury Retained
and Premium shares earnings Total Equity
GBP'000 GBP'000 GBP'000 GBP'000
For the year 1 April 2017
to 31 March 2018
Shareholders' equity at 1
April 2017 464,341 - 14,242 478,583
Profit and comprehensive income
for the year - - 32,160 32,160
Shares issued 129,047 - - 129,047
Dividends paid - - (34,800) (34,800)
Shareholders' equity at 31
March 2018 593,388 - 11,602 604,990
For the year 1 April 2016
to 31 March 2017
Shareholders' equity at 1
April 2016 314,957 (32,084) (9,062) 273,811
Profit and comprehensive income
for the year - - 49,829 49,829
Shares issued 149,384 32,084 - 181,468
Dividends paid - - (26,525) (26,525)
Shareholders' equity at 31
March 2017 464,341 - 14,242 478,583
The accompanying notes are an integral part of these financial
statements.
Statement of Cash Flows
For the year ended 31 March 2018
1 April 2017 1 April 2016
to to
31 March 31 March
2018 2017
Cash flows from operating activities Notes GBP'000 GBP'000
Profit and comprehensive income for
the year 32,160 49,829
Adjustments for:
Proceeds from HoldCos 104,248 94,314
Payments to HoldCos (217,486) (175,150)
Movement in investment payable - (47,469)
Change in fair value on investments 6 2,880 (19,561)
Finance income (285) (13)
Operating cash flows before movements
in working capital (78,483) (98,050)
Changes in working capital
Movement in trade receivables (17,231) (11,153)
Movement in trade payables 17,244 8,140
Net cash used in operating activities (78,470) (101,063)
Cash flows from investing activities
Finance income 285 13
Net cash generated from investing
activities 285 13
Cash flows from financing activities 23
Proceeds from issue of shares 10 124,372 145,078
Proceeds from treasury shares 10 - 32,084
Dividends paid 12 (30,125) (22,219)
Net cash generated from financing
activities 94,247 154,943
Net movement in cash and cash equivalents
during year 16,062 53,894
Cash and cash equivalents at the beginning
of the year 59,831 5,937
Cash and cash equivalents at the end
of the year 75,893 59,831
The accompanying notes are an integral part of these financial
statements.
Notes to the Financial Statements
For the year ended 31 March 2018
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 GBP85.6m. 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 under the ticker NESF as part
of its initial public offering, which completed on 25 April 2014.
Subsequent fund raisings also took place, increasing total equity
to GBP593.4m as at 31 March 2018 (31 March 2017: GBP464.3m).
Details can be found in note 10.
The Company seeks to provide investors with a sustainable and
attractive dividend that increases in line with the retail price
index over the long-term by investing in a diversified portfolio of
solar PV assets that are located in the UK and other OECD
countries. 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 SPVs which are directly or indirectly wholly-owned by
the Company. The Company controls the investment policy of each of
the holding companies and its wholly-owned SPVs 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 acts
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. 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; and
-- 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; and
-- forecast income and cashflows.
The Company has cash and short-term deposits as well as
projected positive income streams and an available credit facility
through its subsidiaries (see note 21) 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 five holding companies, NextEnergy Solar Holdings
Limited, NextEnergy Solar Holdings II Limited, NextEnergy Solar
Holdings III Limited, NextEnergy Solar Holdings IV Limited and
NextEnergy Solar Holdings V Limited, collectively the "HoldCos".
The HoldCos are also 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, 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 HoldCos and SPVs 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 meets all the
typical characteristics of an investment entity and therefore meets
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 solar PV assets is not
subject to any further tax in Guernsey, although these investments
are subject to tax in their country of incorporation.
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 to generate investment
returns whilst preserving capital. 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.
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 re-measured at amortised cost using the effective
interest method where necessary.
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 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.
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
a) Standards and amendments to existing standards effective 1
April 2017
Due to amendments to IAS 7 - Statement of Cash Flows which
became effective for financial periods beginning after 1 January
2017, entities are required to provide disclosures that enable
users of the financial statements to evaluate changes in
liabilities arising from financing activities, including both
changes arising from cash flows and non-cash flows. A
reconciliation providing this information has been included in note
23. There are no other amendments to IFRS that became effective for
financial periods beginning after 1 January 2017 that have a
material impact on the financial statements.
b) New standards, amendments and interpretations effective after
1 April 2017 and not early adopted
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 15 Revenue from Contracts with Customers
IFRS 16 Leases
IFRS 9 with regards to recognition and measurement is the only
standard effective for the Company as of 1 January 2018 which may
have a significant impact on the financial instruments held by the
Company. However, it is the opinion of the Directors that the
treatment as at fair value through profit or loss will remain the
applicable method of recognition and hence there is no expected
impact on the NAV.
There is however expected to be additional disclosure included
in future financial statements of the Company to comply with
requirements of IFRS 9, which is likely to include the judgements
applied by management in the classification and subsequent
recognition of the financial instruments held by the Company.
The Directors have assessed the requirements of IFRS 15 and have
determined that there will be no material impact expected on the
recognition and measurement of income in the financial statements
as a result of the implementation of IFRS 15. This is because the
majority of the Company's revenue, which is primarily derived from
dividend income is not within the scope of IFRS 15.
The Directors do not expect that the adoption of other standards
will have a material impact on the financial statements of the
Company in future periods.
4. Critical accounting estimates and judgements
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) Critical accounting estimate: 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 SPVs.
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 Company classified its investments at fair value through
profit or loss as Level 3 within the fair value hierarchy. Level 3
investments amount to GBP526.2m (31 March 2017: GBP415.9m) and
consist of 63 investments in solar PV assets held indirectly
through the HoldCos (31 March 2017: 41 held indirectly through the
HoldCos), all of which have been valued on a look through basis
based on the discounted cash flows of the solar PV assets (except
for those solar plants not yet operational) and the residual value
of net assets at the HoldCo level. The unlevered discount rate
applied in the 31 March 2018 valuation was 6.75% (31 March 2017:
7.25%). 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 assets 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.
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.
The table below sets out information about significant
unobservable inputs used at 31 March 2018 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 in
Fair value significant
at 31 March Valuation Unobservable unobservable
Description 2018 GBP'000 technique input Input value inputs
Discounted
cash flows The estimated
based on underlying fair value
valuation of 6.75% (unlevered would increase
residual assets assets) up if the discount
at the five to 9.00% (levered rate was lower
Unlisted investments 479,999 HoldCos. Discount rate assets) and vice versa.
Investments
held at cost 1,396 Cost n/a n/a n/a
Adjusted net
Residual value asset value
of net assets attributable
at HoldCo's to the Company
and other adjustments 44,826 at fair value n/a n/a n/a
Total 526,221
b) Significant judgement: consolidation of entities
The Directors have concluded that the Group controls the SPVs
that hold the two assets held at cost even though it does not hold
100% ownership of these entities as at 31 March 2018. 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 Company meets the definition of an investment entity per
IFRS 10 as the following conditions exist:
1. the Company has obtained funds for the purpose of providing
investors with professional investment management services;
2. the Company's business purpose, which was communicated
directly to investors, is investing for capital appreciation and
investment income; and
3. the investments are measured and evaluated on a fair value basis.
The Company does not have any other subsidiaries other than
those determined to be controlled subsidiary investments.
Controlled subsidiary investments are measured at fair value
through profit or loss and are not consolidated in accordance with
IFRS 10. The fair value of controlled subsidiary investments is
determined as described in note 4(a).
5. Income
Year ended
31 March 2018 Year ended
GBP'000 31 March 2017 GBP'000
Investment income 35,242 27,267
Management fee income 5,841 8,040
Total Income 41,083 35,307
6. Investments
The Company owns the Investment Portfolio through its
investments in the HoldCos. This is comprised of the Investment
Portfolio and the Residual Net Assets of the HoldCos. The Total
Investments at fair value are recorded under Non-Current Assets in
the Statement of Financial Position.
As at As at
31 March 2018 31 March 2018
GBP'000 GBP'000
Brought forward cost of investments 404,236 323,400
Proceeds from HoldCos (104,248) (94,314)
Payments to HoldCos 217,486 175,150
Carried forward cost of investments 517,474 404,236
Brought forward unrealised gains/(losses) on valuation 11,627 (7,934)
Movement in unrealised gains on valuation (2,880) 19,561
Carried forward unrealised gains on valuation 8,747 11,627
Total investments at fair value 526,221 415,863
The total change in the value of the investments in the HoldCos
is recorded through profit and loss in the Statement of
Comprehensive Income.
7. Trade and other receivables
As at As at
31 March 2018 31 March 2018
GBP'000 GBP'000
Management fee income receivable 608 3,158
Prepayments 458 13
Due from subsidiaries (note 22) 27,331 7,995
Total trade and other receivables 28,397 11,166
Amounts due from subsidiaries are interest free and repayable on
demand.
8. Trade and other payables
As at As at
31 March 2018 31 March 2017
GBP'000 GBP'000
Other payables 290 282
Due to subsidiaries (note 22) 25,231 7,995
Total trade and other payables 25,521 8,277
Amounts due to subsidiaries are interest free and repayable on
demand.
9. 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. The HoldCos, as per
note 2c, are incorporated in the UK and 100% directly owned (31
March 2017: all 100% directly owned except NextEnergy Holding V
Limited which was not incorporated).
10. Share capital and reserves
Number of Gross amount Issue costs Share premium
Share Issuance shares raised GBP'000 GBP'000 GBP'000
Total Issued on 21 June
2017 456,388,199 469,678 (5,337) 464,341
Issued on 21 June 2017 115,000,000 126,500 (2,128) 124,372
Scrip Dividend - 27
June 2017 44,646 51 - 51
Scrip Dividend - 29
September 2017 1,627,044 1,836 - 1,836
Scrip Dividend - 22
December 2017 2,125,766 2,275 - 2,275
Scrip Dividend - 29
March 2018 458,185 513 - 513
Total issued at 31 March
2018 575,643,840 600,853 (7,465) 593,388
The Company currently has one class of ordinary share in issue.
All the holders of the ordinary shares, which total 575,643,840,
are entitled to receive dividends as declared from time to time and
are entitled to one vote per share at general meetings of the
Company.
Retained reserves
Retained reserves comprise the retained earnings as detailed in
the Statement of Changes in Equity.
11. Earnings per share
Year ended Year ended
31 March 2018 31 March 2017
GBP'000 GBP'000
Profit and comprehensive income for the year (GBP'000) 32,159 49,829
Weighted average number of ordinary shares 547,300,544 360,841,240
Earnings per ordinary share 5.88p 13.81p
12. Dividends
Year ended Year ended
31 March 2018 31 March 2017
GBP'000 GBP'000
Amounts recognised as distributions to equity holders:
Interim dividend for the period ended 31 March 2016 of 3.125p per share, paid on 22
July 2016 - 8,686
Interim dividend for the period ended 30 June 2016 of 1.5775p per share, paid on 30
September
2016 - 5,250
Interim dividend for the period ended 30 September 2016 of 1.5775p per share, paid on
30 December
2016 - 5,414
Interim dividend for the period ended 31 December 2016 of 1.5775p per share, paid on
31 March
2017 - 7,175
Interim dividend for the period ended 31 March 2017 of 1.5775p per share, paid on 30
June
2017 7,199 -
Interim dividend for the period ended 30 June 2017 of 1.605p per share, paid on 29
September
2017 9,171 -
Interim dividend for the period ended 30 September 2017 of 1.605p per share, paid on
28 December
2017 9,198 -
Interim dividend for the period ended 31 December 2017 of 1.605p per share, paid on 28
March
2018 9,232 -
Total 34,800 26,525
13. Net assets per ordinary share
As at As at
31 March 2018 31 March 2017
Shareholders' equity (GBP'000) 604,989 478,583
Number of ordinary shares 575,643,840 456,388,199
Net assets per ordinary share 105.1p 104.9p
14. 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, currency risk and interest rate
risk), credit risk and liquidity risk.
Price 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 solely in a GBP environment and therefore
is not exposed to currency risk as all assets and liabilities are
in pounds sterling, the Company's functional and presentational
currency. Cash flows from Italy to NextEnergy Solar Holdings V
Limited are hedged and so the cash flows to the Company from that
HoldCo are exposed to limited currency risk.
Interest rate risk
The Company is indirectly exposed to interest rate risk from the
credit facilities of the HoldCos. Of the GBP270.4m credit
facilities outstanding, GBP132.2m had fixed interested rates and
the remaining GBP138.2m had floating interest rates. For the
floating amount, Interest Rate Swaps were implemented over the term
of the loans to mitigate interest rate risks for GBP129.2m. The
counterparties to these swaps are all Investment grade financial
institutions. The remaining GBP9.0m had floating rates which are
not hedged and are 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 2018
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 rating Total as at
Standard & 31 March 2018
31 March 2018 Poor's Cash GBP'000 GBP'000
Long - A
Barclays Bank PLC Short - A-1 25,886 25,886
Long - BBB+
Lloyds Bank PLC Short - A-2 25,006 25,006
Long - A-
Deutsche Bank AG Short - A-2 25,000 25,000
Total 75,892 75,892
Credit rating Total as at
Standard & 31 March 2017
31 March 2018 Poor's Cash GBP'000 GBP'000
Long - A-
Barclays Bank PLC Short - A-2 59,831 59,831
Total 59,831 59,831
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 3 Between 1
and and
Up to 3 months 12 months 5 years Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Assets
Cash and cash equivalents 75,892 - - 75,892
Trade and other receivables 28,397 - - 28,397
Liabilities
Trade and other payables (25,521) - - (25,521)
Total 78,768 - - 78,768
Between 3 Between 1
and and
Up to 3 months 12 months 5 years Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Assets
Cash and cash equivalents 59,831 - - 59,831
Trade and other receivables 11,166 - - 11,166
Liabilities
Trade and other payables (8,277) - - (8,277)
Total 62,720 - - 62,720
Valuation methodology
The Directors have satisfied themselves as to the methodology
used and the discount rates and key assumptions applied in
producing the valuations in accordance with the IPEV guidelines.
All operational investments are at fair value through profit or
loss and are valued using a discounted cash flow methodology.
Investments which are not yet operational 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 2018 31 march 2018
Weighted Average discount rate 7.30% 7.90%
Discount rates 6.75% to 9.00% 7.25% to 8.25%
A change to the weighted average discount rate by plus or minus
0.5% has the following effect on the valuation.
Discount rate +0.5% change Total Portfolio value -0.5% change
31 March 2018 (GBP18.2m) GBP481.4m GBP19.4m
Fair value - percentage movement (3.8%) 4.0%
31 March 2017 (GBP11.7m) GBP333.9m GBP12.7m
Fair value - percentage movement (3.5%) 3.8%
14. Financial risk management (continued)
Power price
The NEC Group continuously reviews multiple inputs from market
contributors and leading consultants and adjust the inputs to the
power price forecast when a different approach is deemed more
appropriate. Current estimates imply an average rate of growth of
electricity prices of approximately 0.6% 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, with all
other variables held constant.
Total Portfolio
Power price -10% change value +10% change
31 March 2018 (GBP32.5m) GBP481.1m GBP31.5m
Fair value - percentage movement (6.8%) 6.5%
31 March 2017 (GBP24.0m) GBP333.9m GBP24.4m
Fair value - percentage movement (7.2%) 7.3%
Energy generation
The portfolio's aggregate energy generation yield depends on the
combination of solar irradiation and technical performance of the
solar PV assets. 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, with all other
variables held constant.
Total
5% under Portfolio
Energy generation performance value 5% over performance
31 March 2018 (GBP32.6m) GBP481.4m GBP32.5m
Fair value - percentage movement (6.8%) 6.7%
31 March 2017 (GBP22.7m) GBP333.9m GBP24.4m
Fair value - percentage movement (6.8%) 7.3%
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, with all other variables held constant.
Total Portfolio
Inflation rate -0.5% change value +0.5% change
31 March 2018 (GBP20.1m) GBP481.4m GBP21.2m
Fair value - percentage movement (4.2%) 4.4%
31 March 2017 (GBP19.4m) GBP333.9m GBP20.7m
Fair value - percentage movement (5.8%) 6.2%
14. Financial risk management (continued)
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, with all other variables held constant.
31 March 2018 (GBP8.7m) GBP481.0m GBP8.4m
Fair value - percentage movement (1.8%) 1.7
31 March 2017 (GBP6.3m) GBP333.9m GBP6.3m
Fair value - percentage movement (1.9%) 1.9%
Tax rates
The UK corporation tax assumption for the portfolio valuation is
19% until 2020, and 17% thereafter in accordance with the UK
Government announced reductions. The Italian tax rate used is 24%
with an additional 2.7% after 2020.
15. 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.
16. Audit fees
The analysis of the Auditor's remuneration is as follows:
Year ended Year ended
31 March 2018 31 March 2017
GBP'000 GBP'000
Fees payable to the Auditors for the audit of the Company 165 120
Additional fee and disbursements for prior year 12 31
17. Management fee
The Investment Manager is entitled to receive an annual fee
which is payable monthly in advance, accruing daily on the basis of
the prevailing NAV and calculated on a sliding scale, as follows
below:
-- for the tranche of NAV up to and including GBP200,000k, 1% of
the Net Asset Value ("NAV") of the Company.
-- for the tranche of NAV above GBP200,000k and up to and including GBP300,000k, 0.9% of NAV.
-- for the tranche of NAV above GBP300,000k, 0.8% of NAV.
For the year ended 31 March 2018 the Company has incurred
GBP5,070k in management fees of which GBPnil was outstanding at 31
March 2018. For the year ending 31 March 2017 the Company incurred
GBP3,406k in management fees of which GBPnil was outstanding at 31
March 2017.
18. 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 17.
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 and
WiseEnergy Italia Srl, are related parties 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 the Operating Asset Manager. The total
value of recurring and one-off services paid to the Operating Asset
Manager by the subsidiaries during the reporting year amounted to
GBP4,074k (31 March 2017: GBP1,795k).
At the year end, GBP25,231k (31 March 2017: GBP7,995k) was owed
to and from the subsidiaries. GBP5,841k of management fees was
received from the subsidiaries during the year (31 March 2017:
GBP8,040k), none of which was outstanding at the year end (31 March
2017: Nil). During the year dividends of GBP35,242k (31 March 2017:
GBP27,267k) were received from subsidiaries.
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.
19. 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.
20. Remuneration of the Directors
The remuneration of the Directors was GBP146k for the year (for
the year ended 31 March 2017: GBP160k) which consisted solely of
short-term employment benefits.
21. Revolving credit and debt facilities
In January 2017, NESH closed a syndicated loan with MIDIS, NAB
and CBA for GBP157.5m ("Project Apollo") to refinance its revolving
credit facility. As the beginning of the year GBP51.5m of the
facility was drawn. In April 2017, an additional GBP50.8m of the
facility was drawn, and in June 2017, the remaining GBP47.7m was
drawn. As part of the facility agreement, the lenders provide an
additional Debt Service Reserve Facility of GBP7.5m and hold a
charge over the assets of NESH Limited. As at 31 March 2018, the
outstanding amount was GBP149m.
In July 2015, NESH II agreed a loan with NIBC for GBP22.7m. In
July 2016, GBP1m was repaid and in March 2018, the remaining
balance was repaid. At the same time as the repayment the
short-term facility was converted into a new GBP20m in revolving
credit facility. As at 31 March 2018, the outstanding amount was
GBPnil.
In January 2016, NESH III acquired a portfolio of three
operating plants totalling 53MW for GBP61.7m which had a long term
fully-amortising project financing of GBP45.4m in place. As at 31
March 2018, the outstanding amount was GBPnil.
In March 2016, NESH IV agreed the purchase of Project Radius.
The acquisition was part funded by a debt facility entered between
NESH IV and Macquarie Bank Limited for GBP55.0m, which was fully
drawn down in April 2016. As part of the debt facility agreement
Macquarie Bank Limited holds a charge over the assets of NESH. As
at 31 March 2018, the outstanding amount was GBP53.6m.
In December 2017, NESH V, acquired a portfolio of eight
operating plants totalling 34.5MW for GBP116.2m which had a long
term fully-amortising project financing of GBP68.1m in place. As at
31 March 2018, the outstanding amount was GBP65.6m.
22. Restructuring at subsidiary
During the 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.
23. Reconciliation of Financing Activities
Net income
Cash flows allocation Non-cash flows
Opening (GBP'000) (GBP'000) (GBP'000) (GBP'000) Closing (GBP'000)
Share Capital and
Premium 464,341 124,372 - 4,675 593,388
Reserves 14,242 (30,125) 32,160 (4,675) 11,602
Total 478,583 94,247 32,160 - 604,990
24. Events after the reporting period
-- On 17 May 2018, the Company announced an interim dividend of
1.605 pence per ordinary share for the quarter ending 31 March
2018, to be paid on 29 June 2018 to shareholders on the register as
at close of business on 24 May 2018.
-- On 30 May 2018, the Company announced the acquisition of 2
plants totalling 7.2MW with an investment value of GBP9.3m. Both
sites have integrated energy storage capabilities with a combined
capacity of c.1MW.
Company Information
Directors: Kevin Lyon, Chairman
Patrick Firth
Vic Holmes
Sharon Parr
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
20 Savile Row
London
UK
W1S 3PR
Secretary and Administrator: Ipes (Guernsey) Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Independent Auditor: PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Registered Number: 57739
Registrar: Link Market Services (Guernsey) Ltd
Legal Adviser to the Group as Simmons & Simmons LLP
to UK law:
Legal Adviser to the Group as Mourant Ozannes and Carey Olsen
to Guernsey law:
Legal Adviser to the Group as Stephenson Harwood
to Debt Financing:
Financial Adviser and Broker Cantor Fitzgerald Europe
to the Company:
Brokers to the Company: Shore Capital and Corporate Ltd
Fidante Partners (Europe) Ltd
Macquarie Capital (Europe) Ltd
Media and Public Relations MHP Communications
Adviser:
Glossary of Defined Terms
AGM Annual General Meeting
AIC Association of Investment Companies
AIC Code AIC Code of Corporate Governance
AIC Guide AIC Corporate Governance Guide for Guernsey Domiciled Investment
Companies
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Management Directive
Asset Management Alpha The difference between the delta of energy generation vs. budget and the
delta of solar irradiation vs. budget
Apollo portfolio 21 plants held within NESH
Base Fee The fee that the Investment Manager is entitled to under the Investment
Management Agreement
BEIS The Department for Business, Energy & Industrial Strategy
Brexit The UK voting to leave the European Union
Cash Dividend Cover The ratio of the Company's Cash Income over dividends paid during the financial year.
CBA Commonwealth Bank of Australia
Company/NESF NextEnergy Solar Fund Limited
Consultants Two of the leading energy market consultants
CfD Contract for Difference
CRS Common Reporting Standard for automatic exchange of tax information
CSR Corporate Social Responsibility
DCF Discounted Cash Flow
Developer NextPower Development Limited
Premium/discount to NAV The amount by which the Companies shares trade above or below the NAV
DNO Distribution Network Operators
EPC Engineering, Procurement and Construction
ESG Environmental, Social and Governance
EU European Union
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 Cover The ratio of the Company's Gross Cash Income over dividends 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, NESH IV and NESH V
IAS International Accounting Standards
IFRS International Financial Reporting Standards
Investment Adviser NextEnergy Capital Limited
Investment Manager NextEnergy Capital IM Limited
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 Return The actual rate of return from dividends 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
NESH V NextEnergy Solar Holding V Limited
Net Dividend Cover The ratio of the Company's Net Cash Income over dividends paid during the financial year
NPPR National Private Placement Regime
OCR Ongoing Charges Ratio
OECD Organisation for Economic Co-operation and Development
Official List The Premium Segment of the UK Listing Authority's Official List
Ordinary Shares The issued ordinary share capital of the Company
POI Law Protection of Investors (Bailiwick of Guernsey) Law, 1987
PPA Power Purchase Agreement
PV Photovoltaic
PwC CI PricewaterhouseCoopers CI LLP
Radius portfolio Five plants held with NESH IV
RCF Revolving Credit Facilities
RO Scheme Renewable Obligation Scheme
ROC Renewable Obligation Certificates
RPI Retail Price Index
Solis portfolio Eight plants held with NESH V
SPA Share Purchase Agreement
SPVs Special purpose vehicles which hold the Company's investment portfolio of
underlying operating assets
Total Shareholder Return The actual rate of return from dividends paid and capital gains on share price movements
over
a given period of time
Three Kings portfolio Three plants held with NESH III
UK United Kingdom of Great Britain and Northern Ireland
UK Code UK Corporate Governance Code dated April 2016
UKLA UK Listing Authority
WACC Weighted Average Cost of Capital
WiseEnergy WiseEnergy (Great Britain) Limited and WiseEnergy Italia Srl
Designed by Idea188.com | Produced by Perivan Financial
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
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contact rns@lseg.com or visit www.rns.com.
END
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