LEGAL
ENTITY IDENTIFIER ('LEI'): 213800AJ3TY3OJCQQC53
AQUILA ENERGY EFFICIENCY
TRUST PLC
Aquila Energy Efficiency Trust
Plc (the "Company" or "AEET") is pleased to announce its
audited results for the year ended 31 December 2023.
Investment Objective
Further to the adoption of a new
investment policy at the 2023 AGM, Aquila Energy Efficiency Trust
Plc is being managed with the intention of realising all remaining
assets in the portfolio in a prudent manner consistent with the
principles of good investment management and with a view to
returning cash to shareholders in an orderly manner.
Highlights (Consolidated figures)
|
As at
|
As at
|
|
31 December
|
31 December
|
Financial information
|
2023
|
2022
|
NAV per Ordinary Share
(pence)1
|
94.28
|
95.23
|
Ordinary Share price
(pence)
|
57.25
|
71.00
|
Ordinary Share price discount to
NAV1 (%)
|
(39.3)
|
(25.4)
|
Dividends per Ordinary Share
(pence)2
|
-
|
3.5
|
Net assets (in £ million)
|
94.28
|
95.23
|
Ongoing
charges1 (%)
|
3.5
|
2.6
|
Performance summary
|
% change
|
% change
|
NAV total return per Ordinary
Share2
|
0.3
|
0.1
|
Share price total return per
Ordinary Share1,2
|
(17.6)
|
(23.5)
|
1 These
are Alternative Performance Measures (''APMs'') for the year ended
31 December 2023. Definitions of these APMs and other performance
measures used, together with how these measures have been
calculated can be found at the end of this announcement.
2
Including dividends declared relating to the year under
review.
CHAIR'S STATEMENT
On behalf of the Board, I am pleased
to present the annual report (the "Annual Report") for Aquila
Energy Efficiency Trust Plc, for the year ended 31 December
2023.
Investment Performance
The Company's NAV at 31 December
2023 was £94.28 million (£95.23 million as at 31 December 2022).
The principal change in the NAV was caused by the payment of a
dividend of £1.25 million on 20 March 2023 in respect of the
quarter ended 31 December 2022. The Company declared no dividends
in respect of the quarter periods in 2023 and the Company's share
price, in the context of the failure of the Continuation Vote on 28
February 2023 and the subsequent successful combined Continuation
Managed Run-Off Resolution on 14 June 2023, traded at a significant
discount to NAV over the year to 31 December 2023 resulting in a
share price total return of minus 17.6%.
As at 31 December 2023, the Company
had investments of £65.48 million and legal contractual obligations
to fund committed investments of £5.58 million. During the year,
due to the Managed Run-Off status of the Company, relationships
have become strained with some of the Energy Services Companies
("ESCOs") which have been the intermediaries to the Company's
investments. If these relationships deteriorate further there may
need to be additional impairment to the value of some of the
Company's investments. Meanwhile, the Investment Adviser continues
to monitor the performance of the Company's investments
closely.
In light of the successful
Continuation Managed Run-Off Resolution, the Board has been working
with its financial advisers to ensure that the Company is in a
position to present Shareholders with a proposal to return cash.
This has been a complex process and I will discuss this in some
detail later in my letter. We have, however, operated during the
year with the principal intention to preserve cash. This has
resulted in decisions not to proceed (where it was legally
possible) with £14.6 million of potential investments. This has
left only £5.58 million to be invested, the majority of which was
deployed by the end of April 2024.
The difficulty of ensuring a return
of capital from assets that are individually small in size,
geographically spread, contractually complex and in many instances
of a long maturity should not be underestimated. Our advisers have
run an extensive process to seek offers from market participants
for the portfolio of assets which would deliver value to
Shareholders in a shorter time frame than a Managed Run-Off. The
Board has also been open to entertaining structural proposals which
would address the Company's size and liquidity, mindful always of
the Shareholders' desire to see a full return of capital. However,
it has not yet proved possible to find an asset sale or a
structural solution that provides sufficient value in comparison
with the Managed Run-Off. The Board, with the support of its
advisers, continues to seek alternatives to increase the value
returned to Shareholders via the Managed Run-Off. As announced on 6
March 2024 and detailed fully in the notice of General Meeting
dated 19 April 2024, the first successful return of capital under
the Managed Run-Off is to be achieved by way of a tender offer at a
fixed price of 94.28 pence per share, subject to the approval of
Shareholders at the General Meeting to be held on 13 May
2024.
As mentioned, the Company has been
managed over the year with the principal objective to preserve cash
and, accordingly, we will now, as part of the Managed Run-Off
process, return £17.5 million to Shareholders under the tender
offer. We have decided to return capital to Shareholders by way of
a tender offer as we believe it is in the interests of the majority
of Shareholders and provides an equitable distribution. We will,
however, continue to keep under review the method of distribution,
including the payment of dividends. Whilst further distributions
will be made as unrestricted cash becomes available, I wish to
stress that a significant part of the portfolio may take a
considerable time to realise.
Costs
I am very mindful of the significant
annual additional costs incurred in the running of the Company. In
part, these costs are a consequence of the substantial processes
involved in working towards a return of capital to shareholders.
Whilst a first tender offer was announced on 19 April, this only
reflects one outcome from the work to return capital and the Board
continues to work with its advisers to identify other means of
delivering greater value to shareholders. In addition, a
further significant operational cost element derived from the
financial statement preparation process for the year to
31 December 2022 on the part of the Company's service
providers which was not as efficient as the Board had anticipated,
which remains under review and for which the Company may seek an
element of cost recovery at the appropriate time. The Board is
mindful of the ongoing risks and costs of managing the run-off
process, and is working to find ways to mitigate these
risks.
Dividends
Following the failure of the
Continuation Vote in February 2023 we announced that future
dividends will only be paid from net income, and after reviewing
cash flow forecasts, only in respect of six-month periods. The
Board announced on 6 March 2024 that, subject to Shareholder
approval, it will return capital to Shareholders by way of a tender
offer. As a result, no dividend has been declared in respect of the
year ended 31 December 2023. The Board will continue its policy on
future dividends, while also mindful of the regulations regarding
the retention of Investment Trust status which impact the
declaration and payment of annual dividends.
Miriam Greenwood OBE DL
Chair of the Board
30 April 2024
INVESTMENT ADVISER'S REPORT
Investment Adviser's Background
The Company's AIFM, FundRock
Management Company (Guernsey) Limited (formerly Sanne Fund
Management (Guernsey) Limited), has appointed Aquila Capital
Investmentgesellschaft mbH as the Investment Adviser to the AIFM in
respect of the Company.
The Investment Adviser offers advice
on potential Energy Efficiency Investments in line with the
Company's Investment Policy as approved by the Continuation Managed
Run-Off Resolution. Aquila Capital Investmentgesellschaft mbH is
part of Aquila Group, an investment and asset development company
focused on generating and managing essential assets on behalf of
its clients. Founded in 2001 by Dieter Rentsch and Roman
Rosslenbroich, Aquila Group currently manages and/or advises assets
worth around €14.6 billion on behalf of institutional investors
worldwide (as at 31 December 2023). Daiwa, one of Asia's largest
investors, is a minority shareholder in the Aquila
Group.
By investing in clean energy and
sustainable infrastructure, Aquila Group contributes to the global
energy transition and strengthens the world's infrastructure
backbone. The Company initiates, develops and manages essential
assets along their entire value chain and lifetime. Aquila Group's
primary objective is to generate performance for its clients by
managing the complexity of essential assets.
Currently, Aquila Group manages wind
energy, solar photovoltaic ("PV") and hydropower assets of 19.8
gigawatts ("GWs"). Additionally, 2.2 million square metres of
sustainable real estate and green logistics projects have been
completed or are under development. Aquila Group also invests in
energy efficiency, carbon forestry and data centres. Aquila Group
has been committed to climate change for more than 15 years.
Sustainability has always been part of the company's value system
and is an integral part of its investment strategies, processes and
management of its assets. The company has around 750 employees from
60 nations, operating in 19 offices in 17 countries
worldwide.
Investment Advisory Team
Alex Betts - Senior Investment Manager:
Alex Betts has over 30 years' experience in
private equity and over 15 years in resource efficiency and has
invested in a range of industries, geographies and stages. Based in
London, he joined Aquila Capital from Adaxia Capital Partners
("Adaxia"). Prior to Adaxia Alex was a member of the private equity
team at Climate Change Capital ("CCC"), which span out into Adaxia.
Prior to CCC he was Head of Royal Dutch Shell's corporate venture
capital unit and a former partner of Montagu Private Equity. He is
British and graduated in Classics from Oxford
University.
Franco Hauri - Senior Investment Manager:
Franco Hauri has over 20 years' experience in
private equity with over 15 years in resource efficiency, of which
the last six years have been focused on investing in energy
efficiency projects. Based in Zurich, he joined Aquila Capital from
Adaxia. Franco is a former member of the private equity team at
CCC, an Investment Adviser at NanoDimension, a venture capital firm
investing in nanotechnology, and a consultant with Bain &
Company. Franco holds an MBA from Harvard Business School and a
master's degree in finance, accounting and controlling from the
University of St. Gallen (HSG). He is Swiss and speaks
English, German, Italian, Spanish and French.
Investment Activity
At the start of 2023, the Investment
Adviser was focused on achieving full deployment of the Company's
capital. However, after the failure of the Continuation Vote on 28
February 2023 and following the success of the Continuation Managed
Run-Off Resolution on 14 June 2023, the Investment Adviser has
supported the managed run-off of the Company's portfolio and
preparations for a potential sale of the Company's assets announced
on 16 August 2023. While pre-existing legally binding commitments
are being honoured, the Investment Adviser has taken opportunities
where possible to withdraw the Company from £14.6 million of
commitments extant as at 31 December 2022 to invest into three
Spanish projects. In addition, in October 2023 an agreement was
reached to withdraw from a partially invested Solar PV investment,
which was valued at £2.1 million at 31 December 2022 and had an
unfunded commitment of £4.5 million (see "Investments in Spain"
section below), and receive repayment of the original investment of
£1.5 million plus interest.
During 2023, £21.8 million was
deployed, taking total invested capital, before redemptions and
value adjustments, to £69.5 million. £14.4 million was deployed in
13 commitments which had already been made as at 31 December 2022
and the balance of £7.4 million to nine new commitments that were
concluded by 28 February 2023, the date of the failed Continuation
Vote. These new investments comprised:
·
three Spanish Solar PV investments with three new
ESCOs for a total commitment of £4.7 million, of which
£4.2 million was deployed as at 31 December 2023;
·
two additional rooftop Solar PV projects in Italy,
with a total investment of £1.3 million; these projects are with
Noleggio Energia with whom a further deployment of £0.7 million,
committed to in 2022, was made during 2023 with the final
deployment of £0.5 million completed in January 2024. The Company
has completed seven projects with this ESCO involving total
deployment of £4.2 million.
·
three lighting investments in the UK with two new
ESCOs involving total commitments of £1.8 million, of which £1.6
million was deployed as at 31 December 2023; and
·
a third UK wind power project involving an
additional £0.3 million investment, taking total commitments with
this ESCO to £2.0 million.
The Company now forecasts a further
£5.6 million (including expected transaction costs) will be
invested into existing commitments after 31 December 2023. The
majority of this capital was deployed by the end of April 2024,
leaving only £1.2 million to be deployed through the remainder of
2024.
Overall, the remaining investments
have been performing satisfactorily with only a small number of
exceptions, which have required significant provisions,
including:
·
a full provision of £1.4 million against a Solar
PV investment, which was being developed in Spain due to the
insolvency of the ESCO developing the project and refusal of the
ESCO's client to proceed with the project which had been partly
funded by the Company;
·
a provision of £1.1 million, equal to 82% of the investment value, prior to the provision,
as at 31 December 2023, against the
sub-metering investment in Germany due to the insolvency of the
company servicing the contracts which were financed by the Company;
and
·
an additional provision against the EGA Energy
investment of £0.4 million, taking the total provision to 50% of
the investment cost.
Two of the provisions were caused by
the insolvency of the ESCO as opposed to the counterparty making
payments under the contracts financed by the Company. The
Investment Adviser continues to monitor closely not only the
receipt of payments due under contracts and the financial status of
the counterparties making the payments but also the status of the
ESCOs which developed or which are developing and managing the
Company's investments in those particular projects. This oversight
of ESCOs and the maintenance of relationships with the ESCOs
remains an important activity since the ESCOs in many cases had
been expecting, before the failure of the Continuation Vote, that
the Company would finance multiple other projects.
As at 31 December 2023, the
Company's cash position, including cash held as collateral for
foreign exchange hedging, was £29.1 million. Notwithstanding the
remaining investment commitments, the cash position is forecast to
increase significantly due to the expected realisations of
Superbonus investments, which were valued at £30.9 million as at 31
December 2023 and which are forecast to be realised in full by 31
December 2024. Realisations of Superbonus investments continue to
be subject to timing uncertainties due to the bureaucracy inherent
in the schemes - see further below under "Investments in Italian
"Superbonus" projects".
Portfolio Overview
As at 31 December 2023, the
Company's portfolio of 35 Energy Efficiency Investments was
diversified across geographies (Italy, Spain, Germany and the
United Kingdom), technologies, counterparties and ESCO
partnerships. The Company's portfolio is characterised by projects
with (i) a low technology risk through the
use of proven technologies; (ii) medium to long-term contracts
providing for predictable cash flows; and (iii) counterparties with
good creditworthiness.
Approximately 72% of the Company's
investments by value at the year end had investment grade
counterparties, as assessed using either the Investment Adviser's
credit analysis or external agencies. For projects which are
non-investment grade, there are typically additional protections.
These protections include the ability to export power to the grid,
and to extend the maturity of a contract with the ESCO and the
underlying counterparty to recover missed payments. The latter is
possible because the Company's financing agreements are of a
shorter duration than the useful life of equipment installed and,
in many cases, of a shorter duration than the contract between the
ESCO and the counterparty. The credit quality and performance of
the Company's portfolio is discussed further below in respect of
valuations and expected credit loss provisions.
The Company's portfolio also
benefits from a combination of fixed and variable return cash
flows. While approximately 84% of the total investment value
provides a fixed rate of return from contractual cash flows,
approximately 16% by investment value has variable cash flows
linked to power production and power prices, or inflation
indexation. In many cases, these variable return investments have
significant fixed income elements, for example feed-in tariffs or
fixed power prices in Power Purchase Agreements. In addition,
certain investments have downside protections, for example, minimum
contractual returns in order to reduce the risk of lower than
forecast cash flows. The Company's portfolio of investments is
expected to achieve an unleveraged average return of 8.6% per
annum, an increase from the yield of 8% per annum reported in the
audited Annual Report and Accounts for the year ended 31 December
2022.
Investments in Italy (£34.9 million value at year
end)
In the year ended 31 December 2023,
the Company committed £1.3 million to two new rooftop Solar PV
projects developed by Noleggio Energia, with which the Company has
now made seven investments. During the year, £13.0 million was
deployed to both these new investments and other existing
commitments in Italy, the majority of which, £10.9 million, was
deployed into Superbonus projects.
As at 31 December 2023, total
investment value in Italy was £34.9 million across a total of 13
investments and there was £0.5 million of outstanding commitments,
which was deployed in January 2024.
1)
Investments in Italian "Superbonus" projects (£30.9 million value
at year end)
The net cash deployed in Superbonus
projects increased from £18.1 million as at 31 December 2022 to
£29.0 million as at 31 December 2023. Significant progress has been
made on the 109 individual projects within the five clusters such
that construction has been completed on 105 of these projects to
date, with the remaining four projects forecast to be completed by
the end of June 2024. Fourteen projects have been fully completed
with payments totalling £2.9 million for those tax credits
received, of which £0.9 million was received in 2023 and £2.0
million in January, February and April 2024. Regarding the
remaining projects, the ESCOs are experiencing delays in receiving
certification of the tax credits although as at the end of April
2024 a large majority of the 109 projects had secured tax
credit certification, significant progress from the position as at
the end of September 2023. The ESCOs are also experiencing delays
with final payments from the buyers of the tax credits, which is
understood to be primarily due to the large number of tax credits
which buyers are processing. As a result of the delays, the ESCOs
are expecting the majority of the capital deployed to be redeemed
by the end of 2024. The Investment Adviser has considered whether
these delays represent a significant increase in the credit risk of
these investments and, following detailed enquiries with the ESCOs
managing these projects, has concluded that at this stage there has
been no significant change in credit risk. See note 4 to the
financial statements for further information regarding the
assessment of Superbonus projects.
"Superbonus" is an incentive measure
introduced by the Italian Government through Decree "Rilancio Nr.
34" on 19 May 2020, which aims to make residential buildings
(condominiums and single houses) more energy efficient through
improvements to thermal insulation and heating systems. When
qualifying measures are completed, ESCOs delivering the measures
are awarded a tax credit equal to 110% of the cost of the measures.
These tax credits can then be sold to banks, insurance companies
and other corporations and, thus, projects can be financed without
the need for a financial contribution from landlords. The projects
which the Company committed to finance are being managed by three
ESCOs: Enerstreet, Enerqos Energy Solutions and Sol Lucet. The
projects involve a range of energy efficiency measures including
insulation, the replacement of heating systems with more efficient
solutions and energy efficient windows.
2)
Solar PV investments for self-consumption in Italy (£4.0 million
value at year end)
As at 31 December 2023, the Company
had invested £4.6 million in eight rooftop Solar PV projects with
an aggregate capacity of 5.1 MWp. Following completion of the final
project in January 2024 with an investment of £0.5 million, all of
these projects are operational and cash paying such that as at 31
December 2023, £0.5 million of capital had been redeemed. These
projects enable companies to reduce their energy expenses and
CO2 emissions and avoid grid losses through the self-consumption
of the electricity produced.
2.i) Projects with Noleggio Energia
Of these eight Solar PV projects
which the Company has committed to finance, seven projects have
been developed by the ESCO Noleggio Energia, which was established
in 2017 and is an Italian company that specialises in providing
operating leases for energy efficiency and renewable energy
projects for commercial and industrial clients in Italy. These
projects are all structured as the purchase of receivables from
operating leases with maturities of seven or ten years, with a
weighted average maturity of eight and a half years outstanding,
and all use very similar documentation. Noleggio Energia has
transferred to the SPV the monthly receivables from these operating
lease agreements, which provide for fixed rates of return with a
weighted average return of 7.9% per annum.The projects with Noleggio Energia at year end are summarised
below:
Counterparty
|
Description
|
Investment
Value
£k
|
Capacity
kWp
|
Credit
Rating
|
Initial
Term
Yrs
|
Acetificio Galletti
|
Producer of vinegars, dressings,
pickles and other food products
|
208
|
238
|
BB-
|
7
|
Enofrigo
|
Manufacturer of wine cabinets and
hot and cold food display units
|
89
|
127
|
BBB+ -
BBB-
|
7
|
Tecnocryo
|
Manufacturer of machines for
handling cryogenic fluids
|
1,130
|
1,000
|
BB+ -
BB
|
10
|
Ali Group
|
Manufacturer of food service
equipment
|
294
|
443
|
BBB+ -
BBB-
|
7
|
Orlandi
|
Manufacturer of non-woven products
for a range of applications
|
355
|
876
|
BB+ -
BB
|
10
|
Marangoni
|
Manufacturer of tyre retreading
systems and products
|
809
|
1,000
|
BB+ -
BB
|
10
|
Carpigiani
|
Manufacturer of machinery to produce
ice cream
|
427
|
479
|
BBB+ -
BBB-
|
5
|
Total
|
|
3,312
|
4,163
|
|
|
2.ii) Project with CO-VER Power Technologies
In January 2022, the Company
refinanced the acquisition of an existing rooftop Solar PV plant in
Ascoli Piceno (Central Italy) with a generating capacity of 902
kWp. The investment, with an original cost of £0.7 million, is
based on the purchase of receivables generated by an energy
service contract between the leading Italian engineering firm
CO-VER Power Technologies ("CO-VER") and its subsidiary Futura APV
S.r.l. ("Futura"). The contract governs the management of an
operating roof-mounted Solar PV plant until April 2028. Thereafter,
the investment is based on a feed-in tariff for an additional six
years, aggregating to a twelve-year tenor. The investment, which
generated total cash receipts of £0.2 million in the period from
inception of the investment until the year end, is forecast to
generate a return of 6.5% per annum based on the year end valuation
of £0.7 million. The valuation remains equal to the original cost
due to the discount rate used for the valuation at the year end
being lower than the forecast return at the time of the original
investment.
CO-VER has a successful 20-year
history in developing industrial projects in the areas of energy
storage systems, co/tri-generation plants and renewable energies.
Futura is the owner of the PV plant which benefits from feed-in
tariffs payable by Gestore dei Servizi Energetici ("GSE"). GSE is a
joint stock company managed by the Italian Government which is
responsible for promoting and developing the growth of renewable
assets in Italy. GSE currently has a credit rating of BBB+ from the
Italian Government.
Investments in Spain (£8.6 million value at year
end)
In the year ended 31 December 2023,
the Company deployed £6.8 million into projects in Spain, to
complete five projects which were committed as at 31 December 2022
and to finance a further three Solar PV projects in Spain with
three new project developers. The largest of these projects was a
£3.4 million project at the site of a Spanish agricultural company.
At the year end there were unfunded commitments to investments in
Spain of £1.2 million. £0.6 million is forecast to be deployed
before the end of the third quarter of 2024 to complete a building
energy efficiency investment programme, which received investment
of £2.1 million in the year ended 31 December 2023. The balance of
£0.5 million will complete the financing of Solar PV projects for
an ESCO with whom the Company completed on the first tranche of its
commitment in March 2023.
1)
Solar PV investments in Spain (£6.3 million value at year
end)
The Company has committed capital to
finance the development of ten Solar PV installation projects
throughout Spain with nine project developers. Two of the projects
have been structured to provide fixed rates of return while the
remaining eight projects have been structured under Power Purchase
Agreements ("PPAs") with maturities of up to 18 years and have
variable revenues, often subject to a combination of production
fluctuations, power price changes and inflation. In addition,
excess production beyond the on-site demand may be injected into
the grid.
These variable revenue risks are
mitigated by conducting technical due diligence prior to making
commitments and by contracted prices within the PPAs.
Seven of these investments are now
fully operational while one project is operating at one site and
the Company has an outstanding commitment of £0.5 million to
another site. This commitment is payable at completion of the
project provided that certain conditions are met. As referred to in
the Investment Activity section above, one project has been
realised and one project will not proceed and it has been necessary
to take a £1.4 million provision, equal to 100% of the cost,
against this investment. The developer of this project filed for
insolvency protection in November 2023 having received £1.4 million
as a down payment on the estimated full project cost of £2.8
million.
2)
Building Energy Efficiency Investments in Spain (£2.3 million value
at year end)
The Spanish Government has
established incentive schemes to promote energy efficiency measures
in buildings, including the "Programa de Rehabilitacion Energetica
de Edificios" ("PREE"). PREE is a €402.5 million incentive scheme
in Spain which is designed to promote and reward energy efficiency
improvements for condominiums and other buildings, improving their
energy rating by at least one energy class. Under this scheme, the
Company has committed £2.8 million to fund the refurbishment of
condominiums, which is being managed by a leading ESCO specialised
in designing and implementing energy efficiency and renewable
energy projects in Spain. The investment cash flows are based on
the purchase of receivables generated by the underlying energy
saving contracts between the ESCO and the "Comunidad de
Proprietarios"; the legal entities which represent each of the
owners of the apartments in a residential building. The receivables
have been rated with the S&P equivalent of A+/A. £2.2 million
has been deployed as at 31 December 2023 and the balance is
forecast to be deployed in full by the end of June 2024.
Investments in Germany (£17.3 million value at year
end)
In the year ended 31 December 2023,
no further investments were made in Germany except for the
settlement of £0.1 million of transaction costs. The Company has
four investments in Germany, across four distinct technologies
including sub-metering technologies, water management solutions,
heat pumps and Bio-LNG. There remained an outstanding legal
commitment at the Year End to invest £3.7 million to finance the
installation of liquefaction equipment at a biogas plant in
Northern Germany. This amount was deployed in April 2024 following
receipt of all necessary permits.
Three of the investments in Germany
provide for fixed rates of return while the other, a biogas
investment, has a variable return above a fixed rate of 5% per
annum, which is equivalent to 8% of revenue generated by the
project, capped at £1.1 million across eight years. This
arrangement results in an overall forecast return from this project
of 7.6% per annum based on the year end valuation of £4.8
million.
Three of the investments are
performing in line with the contracts. However, the sub-metering
investment, which had a book value of £1.5 million as at 30 June
2023, before the receipt of £0.2 million in July 2023, required a
significant provision of £1.1 million to reduce the holding value
to £0.2 million following the insolvency of the service provider in
October 2023. While the Company's investment is through a special
purpose subsidiary of the service provider ("SPV"), which owns
sub-metering and other services contracts with various landlords
and which is not in insolvency, the insolvency requires the SPV to
secure an alternative company to service the contracts. This search
is in progress with the support of an industry expert.
Unfortunately, it is likely that a new servicer will not wish to
take on one of the major contracts, as a result of which the SPV is
likely to lose c.35% of the contractual income stream due to the
difficulties of servicing the contract, reducing total future
revenue to £1.1 million. In addition, an alternative servicer is
likely to require a higher percentage of revenues than the service
provider required, which combined with the likely loss of income
requires a provision against the investment.
Investments in the United Kingdom (£4.7 million value at year
end)
In the year ended 31 December 2023,
the Company committed £2.0 million to four new investments. The
four new investments, developed by two new and one existing ESCO
relationship, comprised:
·
two groups of lighting investments for an
industrial company and schools, totalling £1.2 million, of which
£0.1 million remains to be deployed;
·
another group of 17 lighting investments for a
range of schools and industrial companies, totalling
£0.5 million, which has been fully deployed;
and
·
an investment of £0.3 million into a fifth
operating wind power project.
As at 31 December 2023, total cash
deployed to investments in the UK was £5.3 million, with £0.1
million of commitments outstanding for lighting investments.
Deployment is expected in the first half of 2024.
The CHP investment for a food
producer, Vale of Mowbray, to which £0.9 million had been deployed
and, as previously reported in the Half-Yearly Financial Report for
the six months to 30 June 2023 and in the 2022 Annual Report, this
investment remains on hold because Vale of Mowbray was placed into
administration. Discussions continue between Ega Energy, the
developer of the original project, and the new owner of the site, a
cold store logistics business. However, the new owner of the site
has not yet decided whether or how to proceed with the CHP
investment. Ega Energy remains confident that it will be able to
deploy the CHP equipment either at this site or at the sites of
other potential clients in the UK. Nevertheless, the Company has
increased the provision against this investment from £0.06 million
as at 31 December 2022 to £0.48 million at the year end and the
Company is forecasting that no further capital will be deployed to
this investment.
The UK investments in the wind power
projects are variable return investments due to the variability of
power production and export tariffs, which are renewed each year,
although a significant percentage of revenue is based on feed-in
tariffs which benefit from annual inflation adjustments. The other
UK investments which are in CHP and lighting projects are all fixed
return investments albeit the lighting projects with one of the
ESCOs have annual inflation adjustments.
Valuations and Expected Credit Loss Provisions as at 31
December 2023
As at 31 December 2023, the
Company's investments had a book value of £65.5 million, with
investments held at amortised cost valued at £55.0 million and
investments held at fair value through profit or loss valued at
£10.5 million (see Note 3 of the Accounts).
The investments held at amortised
cost are net of expected credit loss provisions of £1.9 million,
which increased by £1.8 million from £0.1 million as at 31 December
2023. The principal reasons for the increase were the provision of
£1.1 million made against the sub-metering investment in Germany,
and a provision of £0.5 million against the Ega Energy Vale of Mowbray investment. Apart from these
projects, the Company has not experienced payment issues of
material significance on the receivables due to be paid to it in
the year.
The change in valuation of the
investments held at fair value through profit or loss was impacted
primarily by: (i) the realisation of a partially completed
investment in a Spanish Solar PV project; and (ii) a full provision
of £1.4 million against another Solar PV investment in
Spain.
In October 2023, the Company
received repayment in full plus interest of an investment in a
partially completed investment in a Spanish Solar PV project. This
investment had involved an initial investment of £1.5 million in
August 2022, which was part of a total commitment of £6.3 million
as at 31 December 2022. The valuation as at 31 December 2022 was
marked up from its cost of £1.5 million to £2.1 million but as at
30 June 2023 was marked down to £0.8 million, primarily due to
lower forecast power prices. The repayment of the cost of the
investment plus interest, totalling £1.7 million, has resulted in a
capital loss over the year but a capital gain from the position as
at 30 June 2023 of £0.8 million.
The Company has taken a full
provision of £1.4 million against a Solar PV investment, which was
being developed in Spain due to the insolvency of the ESCO
developing the project and refusal of the ESCO's client to proceed
with the project which had been partly funded by the
Company.
At the year end the remaining ten
fair value investments comprised:
·
the Bio-LNG investment in Germany with a value of
£4.8 million;
·
six Solar PV projects in Spain with an aggregate
value of £3.1 million;
·
two wind projects in the United Kingdom with an
aggregate value of £1.9 million; and
·
a Solar PV project in Italy with a value of £0.7
million.
The performance of these remaining
ten fair value investments with a value as at year end of £10.5
million resulted in an increase in fair value of 2.1%.
The valuation increase was driven
primarily by:
·
valuation timing, which is the time value of money
effect between the two valuation dates, which had a positive effect
of +7.4%; and
·
an overall reduction in the discount rates applied
to the valuations, which had a positive effect of +2.3%.
Lower discount rates were primarily
due to the completion of construction of Solar PV projects in Spain
and thus a reduction in construction risk, together with reductions
in risk-free rates.
Offsetting these factors
were:
·
distributions from these investments,
-3.3%;
·
FX effects, -1.4%; and
·
business plan updates, -3.0%.
Business plan updates comprise
changes to power price, inflation and production forecasts. The
principal change was lower forecast power prices in the short term,
which reversed a positive increase in valuations as at 31 December
2022. The impact of this was softened by the relatively low
exposure of the Company's projects to power prices due to PPA terms
and FiTs.
Summary of Investments as at 31 March 2024
Description
|
Receivables
Weighted
Avg. Credit
Rating
|
Term
Years
|
Technology
|
Status
|
Country
|
Value
£k
|
Commitment
o/s
£k
|
Receivables (fixed) from a 238
kWp rooftop Solar PV project installed
on the production facilities of a
food manufacturer in Lombardy.
|
BB-
|
7
|
Solar
PV
|
Operating
|
Italy
|
208
|
0
|
Receivables (fixed) from a 127
kWp Solar PV project installed on
the production facilities of a
manufacturer in Veneto.
|
BBB+ /
BBB-
|
7
|
Solar
PV
|
Operating
|
Italy
|
89
|
0
|
Receivables (fixed) from sales of
tax credits generated under the
Italian Superbonus, which supports
energy efficiency retrofits (insulation,
more efficient heating etc) of
residential buildings.
|
BB+ /
BB
|
2
|
Building
Retrofit
|
Construction
|
Italy
|
5,326
|
0
|
Receivables (fixed) from sales of
tax credits generated under the
Italian Superbonus, which supports
energy efficiency retrofits (insulation,
more efficient heating etc) of
residential buildings.
|
BBB+ /
BBB-
|
2
|
Building
Retrofit
|
Construction
|
Italy
|
9,846
|
0
|
Receivables (fixed with RPI)
from lighting as a service contracts
with six UK companies.
|
BBB+ /
BBB-
|
5
|
Lighting
|
Operating
|
United
Kingdom
|
232
|
0
|
Receivables (fixed/variable) from
a 901.6 kWp rooftop Solar PV project at a
site in Ascoli Piceno, Central Italy.
|
BBB+ /
BBB-
|
12
|
Solar
PV
|
Operating
|
Italy
|
694
|
0
|
Receivables (fixed) from sales of
tax credits generated under the
Italian Superbonus, which supports
energy efficiency retrofits (insulation,
more efficient heating etc) of
residential buildings.
|
A+ /
A
|
2
|
Building
Retrofit
|
Construction
|
Italy
|
1,332
|
0
|
Receivables (fixed) from a 1,000
kWp rooftop Solar PV project to be
installed at a manufacturer's production
facility in Lombardy.
|
BB+ /
BB
|
10
|
Solar
PV
|
Operating
|
Italy
|
1,130
|
0
|
Receivables (fixed) from
sub-metering hardware and services
contracts with landlords of
multi-occupancy buildings.
|
Default
|
9
|
Sub-meters
|
Operating
|
Germany
|
245
|
107
|
Receivables (fixed) from CHP
Energy Services Agreement with a
major conference centre in
Wales.
|
BBB+ /
BBB-
|
6
|
CHP
|
Operating
|
United
Kingdom
|
139
|
0
|
Receivables (fixed) from CHP
Energy Services Agreement with a
food manufacturer in North East
England.
|
Default
|
7
|
CHP
|
Construction
|
United
Kingdom
|
475
|
0
|
Receivables (fixed) from sales of
tax credits generated under the
Italian Superbonus, which supports
energy efficiency retrofits (insulation,
more efficient heating etc) of
residential buildings.
|
BB+ /
BB
|
2
|
Building
Retrofit
|
Construction
|
Italy
|
7,402
|
0
|
Receivable from a PPA with a poultry
producer for three Solar PV Plants around
Zaragoza, Northern Spain, with a total
capacity of c. 400 kWp.
|
BB+ /
BB
|
15
|
Solar
PV
|
Construction
|
Spain
|
319
|
0
|
Receivables (fixed) from CHP
Energy Services Agreement with a hotel
near Birmingham.
|
BB+ /
BB
|
8
|
CHP
|
Operating
|
United
Kingdom
|
429
|
0
|
Receivables (fixed) from sales of
tax credits generated under the
Italian Superbonus, which supports
energy efficiency retrofits (insulation,
more efficient heating etc) of
residential buildings.
|
BBB+ /
BBB-
|
2
|
Building
Retrofit
|
Construction
|
Italy
|
6,965
|
0
|
Receivables from PPAs with a
manufacturer of irrigation products
and a manufacturer of doors and
kitchen cabinets for 3 solar PV plants
with a total capacity of c.950 kWp in
Valladolid and Toledo.
|
BBB+ /
BBB-
|
18
|
Solar
PV
|
Operating
|
Spain
|
652
|
0
|
Receivables (fixed) from two solar
PV plants around Barcelona, Spain,
with a total capacity of c.210 kWp,
between a Spanish developer and a
manufacturer of bread and pastry products and a
provider of IT services to universities.
|
BB+ /
BB
|
10
&
12
|
Solar
PV
|
Operating
|
Spain
|
133
|
0
|
Receivables (fixed) from a 443
kWp rooftop Solar PV project installed
on the production facilities of a
food service equipment manufacturer
in Veneto, Northern Italy.
|
BBB+ /
BBB-
|
7
|
Solar
PV
|
Operating
|
Italy
|
294
|
0
|
Purchase of receivables generated
by PPA form a Solar PV plant with a
capacity of c.1,600 kWp between a
Spanish developer and a Spanish
ceramic tiles manufacturer near
Valencia.
|
BBB+ /
BBB-
|
15
|
Solar
PV
|
Operating
|
Spain
|
1,000
|
0
|
Receivables of FiTs and export
tariffs generated from three operating
wind turbines in the UK with a total
capacity of 166 kWp, of which the
generated energy is used for
self-consumption and for export to the
grid.
|
BBB+ /
BBB-
|
10.6
|
Wind
|
Operating
|
United
Kingdom
|
410
|
0
|
Subscription for a Note for
the refinancing of an operating
biogas plant in north-eastern Germany
and an upgrade to a Bio-LNG facility.
The Note provides for a fixed return
plus an agreed share of revenues from
the facility.
|
A-
|
8.25
|
Biogas
/
Bio-LNG
|
Operating
(Phase
2
construction)
|
Germany
|
4,770
|
3,704
|
Receivables (PPA with fixed
price) from a rooftop Solar PV project
with a capacity of c.350 kWp for an
agricultural cooperative specialised in
the production and marketing of
extra virgin olive oils in Granada.
|
BB-
|
15
|
Solar
PV
|
Operating
|
Spain
|
311
|
0
|
Receivables (fixed) from Solar PV
plant in self-consumption for a total installed capacity of 875.6 kWp located at the site of a
non-wovens manufacturer in Lombardy, Northern Italy.
|
BB+ /
BB
|
10
|
Solar
PV
|
Operating
|
Italy
|
799
|
0
|
Receivables from service
agreements related to the water
management between the developer and
condominiums and multi-family homes, mainly managed by large property managers via a Note structure.
|
BBB+ /
BBB-
|
10
|
Water
management
|
Operating
|
Germany
|
10,044
|
0
|
Receivables generated by two
energy saving contracts between the
developer and five Spanish condominiums located in the proximity of Madrid, Guadalajara and Gerona, as
well as subsidies generated under the
incentive scheme.
|
A+ /
A
|
15
|
Building
Retrofit
|
Construction
|
Spain
|
2,306
|
584
|
Acquisition of receivables of FiTs
and export tariffs generated from
4 operating wind turbines in Scotland, with a total capacity of c.250 kWp.
|
A-
|
14
|
Wind
|
Operating
|
United
Kingdom
|
1,531
|
0
|
Subscription for a Junior Note
issued by the largest heating installer
in Germany, entitling the Noteholder
to receivables generated through
service and maintenance contracts for
heat pump systems for the
residential sector throughout
Germany.
|
AAA /
AA-
|
15
|
Heating
|
Operating
|
Germany
|
2,233
|
0
|
Receivables (fixed) from Solar
PV installations for a leading
agricultural business engaged in the
cultivation of grapevines, cereals, onions,
olives, almonds and peas with a
total capacity of c.4,000 kWp near
Valencia.
|
BBB+ /
BBB-
|
10
|
Solar
PV
|
Operating
|
Spain
|
3,044
|
67
|
Receivables from PPAs with a
manufacturer of acoustical insulation
products and a manufacturer of textiles for two Solar PV plants in self-consumption for a total installed capacity of c.870 kWp located around
Alicante.
|
BB+ /
BB
|
14
&
15
|
Solar
PV
|
Operating
|
Spain
|
659
|
0
|
Purchase of receivables
generated from PPA and grid sales
agreement for a Solar PV plant with a
capacity of c.200 kWp for a perfume
retailer in Malaga.
|
BB+ /
BB
|
18
|
Solar
PV
|
Operating
|
Spain
|
145
|
509
|
Receivables (fixed) generated
from the installation and operation
of metering and LED projects with
eleven different counterparties in
the UK.
|
BB+ /
BB
|
5 to
7
|
Various
|
Operating
|
United
Kingdom
|
716
|
41
|
Receivables (fixed payments
indexed to CPI) from a roof-mounted Solar
PV plant with a total capacity of
c.1,000 kWp for a developer and distributor
of materials and technologies for
tyre re-treading in Central
Italy.
|
BB+ /
BB
|
10
|
Solar
PV
|
Operating
|
Italy
|
809
|
7
|
Receivables (fixed) from a
roof- mounted Solar PV plant with a
total capacity of c.480 kWp for an
ice cream machine manufacturer in
Northern Italy.
|
BBB+ /
BBB-
|
5
|
Solar
PV
|
Operating
|
Italy
|
427
|
7
|
Receivables (fixed) generated
from refinancing the installation of
LED lighting projects for 17
different clients in the UK. The
various operating lease agreements
range from five to ten years.
|
BBB+ /
BBB-
|
10
|
Lighting
|
Operating
|
United
Kingdom
|
407
|
0
|
Receivables (fixed) generated
from refinancing the installation of a
LED lighting project for a UK
logistics business. The lease agreement has
a five-year maturity.
|
BBB+ /
BBB-
|
5
|
Lighting
|
Operating
|
United
Kingdom
|
411
|
0
|
Notes:
The values in the table above are as at 31 December 2023 plus,
where applicable, the cost of investment made in the period from 1
January 2024 to 31 March 2024 using the foreign exchange rate as at
31 December 2023 of EUR1.1535:£1.
The term is the original maturity of the
investment.
Status and commitment outstanding are the positions as at 31
March 2024.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
Introduction
The Company's goal is to generate
attractive returns for investors by reducing Primary Energy
Consumption ("PEC"). The Company seeks to achieve this through
investing principally in a diversified portfolio of energy
efficiency projects with high-quality counterparties. The Company
investments positively impact the environment by reducing the
amount of carbon dioxide produced, by decreasing PEC and by
increasing the amount of renewable energy used.
The synergies1
generated by the reduction of PEC and
simultaneously using renewable energy sources further decrease
CO2 emissions.
This is reflected across the
investment philosophy and approach of both the Company and its
Investment Adviser, Aquila Capital, who are both of which dedicated
to the green energy transition. The Company is committed to being a
responsible investor, ensuring that environmental, social and
governance criteria are incorporated into day-to-day investment
decisions as well as generating a positive impact for society. By
reducing PEC, the Company often improves life standards for end
users; for example, better lights, easier maintenance, reduced
danger, security of supply and, very importantly, the reduction of
emissions like Nitrogen Oxides.
Over the year ended 31 December
2023, the portfolio performed as follows2:
·
6,566 tonnes of avoided CO2 emissions
("tCO2e"); and
·
23,639 MWh of energy saved,
·
for total emission savings equivalent to 2,873
passenger flights around the world.
Method of Calculation for Energy Savings (kWh) and Avoided
CO2 Emissions
(tCO2e)
The energy savings (in kWh) and
avoided CO2 emissions (in tCO2e) are reported to Aquila
Capital by third parties, including the development companies,
ESCOs and other third parties. These reports are supported by
asset-level documentation of individual methodologies. Aquila
Capital has reviewed the individual methodologies for technical
consistency and reconciled the reported values for plausibility.
Where quantification of likely energy savings and avoided
CO2 emissions is not clear, for example, with the Superbonus
projects in Italy and the Bio-LNG, water metering and heat pump
projects in Germany, no estimations are included in the avoided
CO2 emissions and energy savings statistics above.
Only energy savings and avoided
CO2 emissions for operational projects are considered on a
pro-rata basis for the time of operation during the reporting
period. Avoided CO2
emissions are estimated in gross terms and derived
from energy savings in kWh using a conversion factor (except
CHP, see below) which measures the grid's emission intensity.
Emissions incurred during the life cycle of the light bulbs such as
materials sourcing, manufacturing, installation, maintenance etc.
are not available. The reported metrics are estimations based on
assumptions. For technical reasons, it is not possible or feasible
to observe or measure actual energy or emission avoidance in
real‑time.
·
LED/Lighting: Savings estimates
are derived based on technical, product-specific attributes
provided by the product manufacturer. Lighting assets are typically
not connected to a distinct circuit. These solutions are designed
according to the requirements of a given functional unit, i.e.
office, street or space, which varies on asset level. Changes in
the number of light bulbs or lumen are not considered.
·
Solar
PV: Electricity production is
translated into emissions avoidance with a conversion factor (see
above). Production estimates for Solar PV assets are evaluated
during technical due diligence processes.
·
CHP: Avoided CO2
emissions are calculated directly by comparing the asset's
emissions based on the feedstock used for a specific plant with a
reference co-generation unit's emission factor.
·
Metering: Metering solutions
are being applied to a large portfolio of individual households.
Annual average household consumption is estimated, and a
developer's specific savings estimate is applied to the average
household consumption.
ESG
Approach
The Company has adopted Aquila
Capital's ESG Integration Policy3, ensuring that environmental,
social and governance criteria were incorporated into day-to-day
investment decisions as well as generating a positive contribution
for society. The Company investment approach is focused on
investments in energy efficiency projects located primarily in
Europe. These investments are predominantly into proven
technologies that deliver energy savings for commercial, industrial
and public sector buildings. Prior to the adoption of the New
Investment Policy, the Company sought to invest in projects for the
long term with a focus on optimising and improving the assets' PEC
(and, of course, the Company's investments continue to meet
this initial objective). Technologies include:
·
LED Lighting Systems;
·
Solar PV;
·
HVAC/Buildings;
·
Smart Metering/Sub-metering; and
·
Bio LNG.
Environmental Contribution
The Company's investments are
focused on reducing PEC, which should lead to significant
reductions in greenhouse gas emissions. In addition, local
production of energy (CHP, biomass boilers, Solar PV) reduces
transportation energy losses and grid over-utilisation. Smart
meters and other control technologies enable a better visibility
and management of energy and therefore represent a basis for energy
savings.
Social Contribution
Energy efficiency measures not only
reduce PEC, but typically also have a positive impact on health and
quality of life for different stakeholders, such as employees and
users of public facilities. This is largely achieved through the
installation of advanced solutions for lighting, heating, cooling,
ventilation and the associated control units. All project
developers are required to adhere to local, regional and national
health and safety laws, to train and educate employees accordingly,
to make sure casualties and injuries are avoided. Aquila Capital's
ESG Integration Policy, as adopted by the Company, has sought to
exclude suppliers and manufacturers that do not meet Aquila
Capital's criteria (exclusion of certain sectors/subsectors, or
companies that, for example, use unfavourable labour conditions).
For all counterparties a rating has been performed (in
collaboration with a third-party rating agency) assessing the
creditworthiness of the relevant counterparty as well as a "Know
Your Client" check for the relevant parties involved to increase
transparency of the counterparties' activities.
Governmental Contribution
The Company's business partners are
required to adhere to the requirements of the relevant social
security and tax authorities. The Company's business partners are
required to provide evidence that they adhere to anti-bribery and
corruption laws.
Due
Diligence
The Investment Adviser performed
detailed ESG due diligence for each asset prior to investment. The
investment management team followed a structured screening, due
diligence and investment process designed to ensure that
investments are reviewed and compared on a consistent basis.
Execution of this process was facilitated by the team's deep
experience in energy efficiency project investing. As part of this
process, the Investment Adviser, as relevant for each investment,
considered:
·
total PEC reduction, and implied CO2
emissions reduced and/or avoided; and/or
·
total energy production from renewable and
non-renewable sources.
Governance Framework
The Company has an independent Board
of Directors, with FundRock Management Company (Guernsey) Limited
(formerly Sanne Fund Management (Guernsey) Limited) as the AIFM.
The Board of Directors supervises the AIFM, which is responsible
for making recommendations in relation to any investment proposals
put forward by the Investment Adviser. The Investment Adviser is
fully regulated and supervised by BaFin in Germany. The Company
maintains a comprehensive risk register which is regularly updated
and reviewed by the AIFM and the Board of Directors. The Company
has established procedures to deal with any potential conflicts of
interest in circumstances where Aquila Capital (or any affiliate)
is advising both the AIFM (for the Company)
and other Aquila Capital managed funds. In the context of an
investment decision, these procedures may include a fairness
opinion in relation to the valuation of an investment, which is
obtained from an independent expert.
Monitoring of ESG
The Company's commitment to and
compliance with the Company's established ESG approach is monitored
on a continuous basis throughout the lifecycle of investments, as
they become operational. This includes:
·
ongoing monitoring of the PEC based on the energy
consumption and deriving from that the CO2 savings,
where appropriate, monitoring additional environment and ESG
relevant developments both at the portfolio and asset level;
and
·
annual reporting, including ESG aspects, to
relevant stakeholders including ad-hoc reporting of any material
and urgent issues identified in the monitoring process.
The Company has been awarded the
Green Economy Mark from the London Stock Exchange. The Green
Economy Mark identifies London-listed companies and funds that
generate between 50% and 100% of total annual revenues from
products and services that contribute to the global green
economy.
1
International Renewable Energy Agency (Irena), "Synergies between
renewable energy and energy efficiency" (2017), available at:
https://www.irena.org/ publications/2017/
Aug/Synergies-between-renewable-energy-and-energy-efficiency#:~:text=Renewables%20would%20account%20for%20
about,country%2C%20sector%20and%20 technology%20levels
2
Passenger flights around
the world: This number is derived from passenger flight emissions
data retrieved on 4 April 2023 from the International Civil
Aviation Organization;
https://applications.icao.int/icec/Home/Index. The total emissions
associated with a passenger flight around the world based on a
standard itinerary from New York to Dubai, Bangkok, Sydney, Los
Angeles and back to New York in the economy class is 2,285.80 kg
CO2.
3
For details please refer
to: https://www.aquila-capital.de/fileadmin/user_upload/
ESG_report/Aquila_Group_ESG_Integration_Policy.pdf
INVESTMENT POLICY
As at the date of this Annual
Report, the Company's Investment Policy (including defined terms)
is as adopted at the June 2023 AGM pursuant to the Continuation
Managed Run-Off Resolution, which replaced the previous investment
objective and policy in its entirety and is set out
below.
The Company will be managed with the
intention of realising all remaining assets in the portfolio in a
prudent manner consistent with the principles of good investment
management and with a view to returning cash to Shareholders in an
orderly manner.
The Company will pursue its
investment objective by effecting an orderly realisation of its
assets in a manner that seeks to achieve the best balance for
Shareholders between maximising the value received from those
assets and making timely returns of capital to Shareholders. This
process might include sales of individual assets, mainly structured
as loans/receivables, or groups of assets, or running off the
portfolio in accordance with the existing terms of the assets, or a
combination.
The Company will cease to make any
new investments or to undertake capital expenditure except where,
in the opinion of both the Board and the Investment Adviser (or,
where relevant, the Investment Adviser's successors):
·
the investment is a follow-on investment made in
connection with an existing asset in order to comply with the
Company's pre-existing obligations; or
·
failure to make the follow-on investment may
result in a breach of contract or applicable law or regulation by
the Company; or
·
the investment is considered necessary to protect
or enhance the value of any existing investments or to facilitate
orderly disposals,
and in these circumstances the
Company will observe the following restrictions when making any
such investments:
·
no more than 20 per cent. of its Gross Asset Value
will be invested in any single asset;
·
no more than 20 per cent. of its Gross Asset Value
will be invested in Energy Efficiency Investments with the same
counterparty;
·
no investments will be made outside of Europe;
and
·
no more than 7.5 per cent. of its Gross Asset
Value, in aggregate, will be invested in Equity Investments, and at
all times such investments will only be made with appropriate
Shareholder protections in place.
Any cash received by the Company as
part of the realisation process prior to its distribution to
Shareholders will be held by the Company as cash on deposit and/or
as cash equivalents.
The Company will not undertake new
borrowing.
As required by the Listing Rules,
any material change to the Investment Policy of the Company will be
made only with the approval of Shareholders by way of ordinary
resolution.
Currency and Hedging
The Company does not use hedging or
derivatives for investment purposes. The functional currency of the
Company is Sterling. With many of its investment assets in euros
the Company uses a series of regular forward foreign exchange
contracts to provide protection against movements in the Sterling
exchange rate. Under these arrangements the Company is required to
provide £2.5 million in cash as collateral for these forward
foreign exchange contracts.
Cash Management
Cash held pending investment in
Energy Efficiency Investments or for working capital purposes will
either be held in cash or invested in cash, cash equivalents, near
cash instruments, bearer bonds and/or money market instruments
("Cash and Cash Equivalents"). There is no restriction on the
amount of Cash and Cash Equivalents that the Company may hold and
there may be times when it is appropriate for the Company to have a
significant Cash and Cash Equivalents position. For the avoidance
of doubt, the restrictions set out above in relation to investing
in UK listed closed-ended investment companies do not apply to
money market type funds.
Changes To and Compliance With the Investment
Policy
As required by the Listing Rules,
any material changes to the Company's Investment Policy as set out
above will require the approval of Shareholders by way of an
ordinary resolution at a General Meeting and the approval of the
FCA.
Compliance with the above
restrictions will be measured at the time of investment and
non-compliance resulting from changes in the price or value of
assets following investment will not be considered as a breach of
the investment restrictions.
In the event of a breach of the
investment guidelines and the investment restrictions set out
above, the AIFM shall inform the Board upon becoming aware of the
same and if the Board considers the breach to be material,
notification will be made to a Regulatory Information
Service.
KEY
PERFORMANCE INDICATORS
The Board measures the Company's
success in achieving its investment objective by reference to the
Key Performance Indicators ("KPIs") described below:
Efficient Return of Capital
In line with the Managed Run-Off
status of the Group, the Board is focused on the efficient return
of capital to Shareholders.
As announced on 6 March 2024, the
Board proposes to return no less than £17.5 million to Shareholders
by way of a tender offer at a fixed price of 94.28 pence per share
which is the Company's last published NAV per share (the "Tender
Offer"). Eligible Shareholders will each be able to elect to tender
that proportion of their holding, at the time, as is represented by
their entitlement under the Tender Offer, or such lower number as
they wish.
On 19 April 2024, the Board
published a circular, which includes further details of the Tender
Offer (including the amount to be returned to Shareholders in the
Tender Offer and the maximum number of shares to be acquired).
A General Meeting will be convened on 13 May 2024 to approve
the Tender Offer.
As and when sufficient cash has been
accumulated, the Board's current intention is there will be further
tender offers to Shareholders.
Discount of Share Price to NAV
The Board monitors the price of the
Company's shares in relation to their NAV and the premium or
discount at which they trade. The share price closed at a 39.3%
discount to the NAV as at 31 December 2023.
Following the failed Continuation
Vote in February 2023, a new Investment Policy to reflect the
managed run-off of the Company was put to Shareholders at the AGM
in June. Following the approval of the Continuation Managed Run-Off
Resolution, the Board continued to review the strategic options for
the portfolio. On 16 August 2023, the Company announced a process
to market-test a portfolio sale which was conducted by Stifel
Nicolaus Europe Limited ("Stifel"). As
announced on 6 March 2024, despite interest from a number of
parties who entered into the sale process, the Board has not
received a definitive proposal which it believes could deliver
greater value to Shareholders than the Managed Run-Off. Given the
complexity and the very long-dated nature of some of the
investments, the Board is continuing to seek and evaluate any other
strategic proposals which would deliver greater value to its
Shareholders than would otherwise be achieved under the Managed
Run-Off.
Maintenance of a Reasonable Level of Ongoing
Charges
The expenses of managing the Group
are carefully monitored by the Board. The Board receives and
reviews management accounts which contain an analysis of
expenditure which are reviewed at quarterly Board meetings.
The Board reviews the ongoing charges on a quarterly basis.
Expenses were higher in 2023 due to the cost of the market-testing
process announced on 16 August 2023 and the ongoing significant
involvement of advisers following the failure of the Continuation
Vote in February 2023. Based on the Group's average net assets
during the year ended 31 December 2023, the Group's ongoing charges
figure calculated in accordance with the AIC methodology was 3.5%
(31 December 2022: 2.6%).
RISK MANAGEMENT
Principal Risks and Uncertainties
During the year under review, the
Company has carried out a robust assessment of its principal and
emerging risks and the procedures in place to identify any emerging
risks are described below.
Procedures to identify principal or emerging
risks:
The Board regularly reviews the
Company's risk matrix, with a focus on ensuring that the
appropriate controls are in place to mitigate each risk. The
experience and knowledge of the Board is important, as is advice
received from the Board's service providers, specifically the AIFM,
which is responsible for the risk and portfolio management services
and outsources the portfolio management to the Investment Adviser.
Each service provider has a role with respect to the identification
of risks:
1.
Investment Adviser: the Investment Adviser
submits a quarterly report on the investment portfolio to the Board
which includes risks faced by the projects in the portfolio, plus
an update on hedging;
2.
Alternative Investment Fund Manager:
following advice from the Investment Adviser and other service
providers, the AIFM maintains a register of identified risks
including emerging risks likely to impact the Company;
3.
Broker: provides advice periodically
specific to the Company on the Company's sector, competitors and
the investment company market whilst working with the Board and
Investment Adviser to communicate with Shareholders;
4.
Company Secretary: briefs the Board on
forthcoming legislation/regulatory change that might impact on the
Company; and
5.
Association of Investment Companies
(''AIC''): the Company is a member of the AIC, which
provides regular technical updates as well as drawing members'
attention to forthcoming industry and regulatory issues.
Procedure for oversight
The Audit and Risk Committee
undertakes a review at least twice a year of the Company's risk
matrix and a formal review of the risk procedures and controls in
place at the AIFM and other key service providers to ensure that
emerging (as well as known) risks are adequately identified and, so
far as is practicable, mitigated.
Principal Risks
The Board considers the following to
be the principal risks faced by the Company along with the
potential impact of these risks and the steps taken to mitigate
them.
Portfolio
|
|
|
Principal Risks
|
Potential Impact/Description
|
Mitigation
|
Counterparty/ credit
|
The risk that the Company has
allocated funds to a counterparty that defaults on its
obligations.
This could impact the financial
performance of the Company and its ability to meet dividends as
well as achieving its intended goals and returns for its
investors.
|
The Company has sought to invest
mostly, although not exclusively, in projects where the
counterparties have an investment grade or near investment grade
rating. The Investment Adviser uses third party credit rating
service providers to support its credit risk
assessments.
Continued monitoring of the
investments and the associated counterparties/service providers,
including the use of credit rating data providers, allows the
Investment Adviser to identify and address these risks early. The
Investment Adviser has sought to mitigate credit risks, for
example, in the case of Solar PV investments, by the counterparty
having the opportunity to sell electricity to the grid or other
customers where possible. The Investment Adviser has also sought to
structure investments whereby contracts can be adapted/extended to
accommodate periods of payment defaults.
Diversification of counterparties
and service providers reduces the potential impact is limited. In
addition, a diversified portfolio provides further
mitigation.
|
Concentration risk
|
The risk that the concentration of
investments in a limited number of countries, counterparties,
geographical markets, tenure and currencies could expose the
Company to unnecessary fluctuations in a narrow range of markets.
This risk could negatively impact the Company's performance and
ability to meet strategic targets.
|
The AIFM and the Investment Adviser
continuously monitor the existing portfolio and any proposed
investments (in advance of completion) against the Company's
portfolio concentration limits and Investment Policy. This
mitigates the risk by ensuring that concentration limits and asset
diversification limits are observed.
|
Environmental/ Social/ Governance ("ESG")
|
Failure to adequately consider ESG
implications when making and monitoring investments could lead to
reputational risk: exposure to greenwashing claims and potentially
have an adverse impact on the portfolio's ability to achieve its
targeted returns.
|
The Investment Adviser has performed
detailed due diligence on ESG for each asset prior to
recommendation and continues to capture and monitor ESG data
relating to the operation of the assets.
General standards including IFS
Performance Standards, IFC Environmental Health and Safety
Guidelines (''EHS'') and Equator Principles as well as local health
and safety and social laws are reviewed on a regular basis for all
assets depending on the location and development status of each
asset.
|
Economic and Markets
|
Principal Risks
|
Potential Impact/Description
|
Mitigation
|
Discount management
|
Market sentiment has moved the share
price to a persistent discount to Net Asset Value.
There is a risk that the Company
will not be able to find ways to bring the share price back to NAV,
leading to Shareholders being unable to realise their investments
through the secondary market at Net Asset Value or at market
price.
Loss of market confidence in the
Board/Investment Adviser.
|
The Company's Broker monitors the
market for the Company's shares and reports at quarterly Board
meetings. The Company has the authority, if appropriate, to
purchase Ordinary Shares in the market with the result of, amongst
other things, enhancing the Net Asset Value per Ordinary
Share.
The Board and Broker maintain
engagement with Shareholders and ensure good market information is
available to investors.
Following the successful
continuation and managed run-off vote in June 2023, the Board, with
its advisers, is considering strategic options to maximise value
for Shareholders. For more information regarding the continuation
and managed run-off of the Company, please see the Chair's
Statement in the Annual Report.
|
Interest rates/ inflation
|
Changes to interest rates may impact
the valuation of the investment portfolio by impacting the
valuation discount rate. This in turn may have an adverse impact on
the attractiveness of returns.
Although energy prices have fallen
from the heights they reached in mid-2022, the current geopolitical
environment uncertainty in Europe could in turn lead to increased
price volatility again in the future.
|
The Company's investments, which
provide in many cases for fixed returns, are not significantly
exposed to inflation and interest rate movements because the income
streams from investments are not subject to significant deductions
for operating costs associated with the investments. While there
may be O&M costs these are not a high percentage of revenues
and so any inflationary pressures on such costs are not expected to
have a significant impact. Furthermore, the Company has not taken
on indebtedness to finance its investments and so there is no risk
of the costs of indebtedness negatively impacting the revenues from
investments. Were the Company to take on indebtedness it may use
derivative instruments such as futures, options and swaps to
protect the Company from fluctuations in interest rates.
The Investment Adviser manages the
correlation of cash flows to inflation and resilience to the
economic environment.
The Investment Adviser has sought to
incorporate RPI adjustments in investment documentation where
possible.
In addition, investing in energy
efficiency assets can in some cases provide an effective protection
against inflation, as many such assets benefit from rising
electricity prices with no burden on the cost side in relation to
the use of resources.
|
Changes to subsidies or other support mechanisms for the
Company's investments
|
The value of the Company's
investments may be adversely affected if subsidies or other support
mechanisms, on which such investments may depend, are changed
negatively.
|
Diversification of investments by
technology and geography mitigates the impact of any such risks.
Many of the investments which the Investment Adviser seeks do not
rely on subsidies or other support mechanisms.
|
Act
of war/ sanctions
|
As evidenced with conflict in the
Ukraine and the Middle East, various sanctions may be imposed.
There is a possibility that there could be supply delays for
Operations and Maintenance ("O&M"), sanction considerations,
volatile markets and general uncertainty. More difficult energy
markets are expected along with inflationary pressures on
inputs.
It has also led to short-term price
increases and more focus on renewable energy
infrastructure.
Possible change to the world order
and globalisation.
Conflict brings uncertainty to the
commodities market and how price levels of modules and other
hardware will be impacted directly or indirectly.
|
The Company does not have any direct
exposure in Ukraine, Russia or the Middle East, there are also no
direct business relationships with counterparties from these
countries; therefore assessments lead the Company to the conclusion
that its investments in Europe are not impacted directly at this
time.
|
Operational
|
Principal Risks
|
Potential Impact/Description
|
Mitigation
|
Service provider risk
|
Risks that the Company's third party
service providers do not perform to the appropriate
standards.
Potential lack of resource,
experience or depth in the Investment Adviser's team to manage the
Company's investments. This may be exacerbated by the Managed
Run-Off status of the Company which will lead, in time, to reduced
fees for the Investment Adviser.
Possible conflicts with other
private Aquila clients and private investing vehicles which Aquila
cannot disclose to the Board or the AIFM.
The Investment Adviser is dependent
on key people to identify, acquire and manage the Company's
investments.
|
The Board continues to monitor the
quality of services provided by all of its service providers, and
in particular the Investment Adviser. Where it is deemed that work
carried out by any service provider is of insufficient quality, the
Board will procure additional services from other service providers
with a view to ensuring the required standard of portfolio
management and reporting is maintained. The Board will reserve its
right to recover the cost of such additional services from the
current service providers.
Additionally, through the Management
Engagement Committee, the Board conducts a formal assessment of
each key service provider's performance once a year. To assist its
ability to properly oversee the Company's service providers, the
Board requires each service provider to notify it as soon as
reasonably practicable following any material breach of its
contract with the Company.
The Investment Adviser has
substantial resources.
The Company and AIFM are made aware
of and review potential conflicts of interest at the time of each
investment being made.
Conflicts of interest and investment
allocation policies are in place and agreed with the
Board.
The strength and depth of the
Investment Adviser's resources mitigate the risk of a key person
departure and provides the ability to draw skills from other areas
if needed.
|
IT
security
|
A hacker or third party could obtain
access to the Investment Adviser or any other service provider and
destroy data or use it for malicious purposes resulting in
reputational damage and possible GDPR concern.
Data records could be destroyed,
resulting in an inability to make investment decisions and/or
monitor investments.
|
Service providers have been
carefully selected for their expertise and reputation in the
sector. Each service provider has provided assurances to both the
AIFM and the Company on their cyber policies and business
continuity plans along with external audit reviews of their
procedures where applicable.
The AIFM, Administrator and Board
include Cyber Risk in their reviews of
counterparties.
|
Financial
|
Principal Risks
|
Potential Impact/Description
|
Mitigation
|
Portfolio valuation
|
The principal component of the
Company's balance sheet is its portfolio of energy efficiency
assets. The Investment Adviser is responsible for preparing a fair
market value of the investments where such investments have
variable returns. Fair value calculations rely on projections,
which involve estimates of the future, which are inherently
judgemental.
There is a risk that these
valuations and underlying assumptions such as discount rates being
applied are not a fair reflection of an open market valuation,
therefore the investment portfolio could be over or under
valued.
Investments with fixed returns are
measured at amortised cost and subject to expected credit loss
provisions, which are based on numerous assumptions and
judgements.
|
The Investment Adviser has
experience in undertaking valuations of renewable
sustainability/energy transition assets.
The AIFM and the Board review and
interrogate the valuations and underlying assumptions provided by
the Investment Adviser.
It should be noted that valuations
are held at fair value and at amortised cost and not at net
realisable value.
|
Emerging Risks
|
Principal Risks
|
Potential Impact/Description
|
Mitigation
|
Capital Preservation
|
During the run-off, there is a risk
that overdistribution of cash will leave the Company short of
sufficient liquidity to meet ongoing expenditure.
|
The Board, Investment Adviser and
AIFM will review the ongoing liquidity requirements and cashflow
forecasts of the Company prior to making distributions to ensure
that sufficient funds are maintained throughout the run-off
process.
|
Relations with ESCOs during managed run-off
|
Entering a managed run-off has
strained relations with some ESCOs who may have expected further
business from AEET over time, giving rise to further
counterparty/credit risk for the Company.
|
Communications with the ESCOs from
the Investment Adviser take into account these considerations and
professional advice has been sought by the Company where
needed.
The Board and Investment Adviser
will continue to monitor relations with ESCOs as the run-off
progresses.
|
Viability Statement
In accordance with the UK Corporate
Governance Code ("UK Code") and the Listing Rules, the Directors
have assessed the prospects of the Company over a longer period
than the 12 months required by the 'Going Concern'
provision.
In reviewing the Company's
viability, the Directors have assessed the viability of the Company
for the period to 31 December 2026 (the "Look-forward
Period").
Following the AGM held in June 2023,
and in accordance with the New Investment Policy, the Company
entered a managed run-off of its portfolio, meaning that it is not
making any new investments (save for in limited circumstances as
set out in the New Investment Policy) and its investing activity is
solely in respect of funding legal commitments to existing
investments (the "Managed Run-Off"). The Board has continued and
will continue to review strategic options in respect of the
Company's assets to realise the maximum value for Shareholders in
the shortest possible time, recognising the inherent difficulties
in the construction of the portfolio, including the number of
individual investments, multiple geographies and long tenors. On 16
August 2023, the Company announced a process to market-test a
portfolio sale which was conducted by Stifel Nicolaus Europe
Limited ("Stifel"). An extensive number of UK and international
investors were approached through this process which completed in
early February. As announced on 6 March 2024, despite interest
from a number of parties who entered into the sale process, the
Board did not receive a definitive proposal which it believed could
deliver greater value to shareholders than the Managed Run-Off. As
announced on 6 March 2024 and 19 April 2024, the Board has proposed
to return £17.5 million to shareholders by way of a tender offer at
a fixed price of 94.28 pence per share (the "Tender Offer"). This
is subject to the approval of Shareholders at the General Meeting
on 13 May 2024.
As referred to above, the Company is
operating currently under a Managed Run-Off with the term of some
of the Company's assets being several years. While the Company is
continuing to explore other strategic options, there remains no
certainty that any of these options will materialise and be put to
Shareholders for consideration. Accordingly, the Directors
recognise that these conditions indicate the existence of material
uncertainty which may cast significant doubt about the Group and
Company's viability over the look forward period.
Notwithstanding the above, the Board
believes that the Look-forward Period, being approximately three
years, is an appropriate time horizon over which to assess the
viability of the Company, particularly when taking into account the
long-term nature of the maturity of the Company's assets, which is
modelled over three years and the principal risks outlined above.
In considering the prospects of the Company, the Directors looked
at the key risks facing the Company, focusing on the likelihood and
impact of each risk as well as any key contracts, future events or
timescales that may be assigned to each key risk.
The Directors have a reasonable
expectation that the Company has adequate resources to: continue in
operation; realise the Company's assets in an orderly manner; and
meet its liabilities as they fall due, over the Look-forward
Period.
Going Concern
The Directors have adopted the going
concern basis in preparing the financial statements. The following
is a summary of the Directors' assessment of the going concern
status of the Group and Company.
The Group and Company continue to
meet day-to-day liquidity needs through their cash resources. The
Directors have a reasonable expectation that the Group and Company
have adequate resources to continue in operational existence for at
least twelve months from the date of this document.
In reaching this conclusion, the
Directors have considered the Group's investment commitments, cash
position, income and expense flows. As at 31 March 2024, the latest
practicable date before publication of this report, the total
commitments were £4.92 million. The value of investments as at 31
December 2023 was £65.5 million and has not changed materially
since that date. The investments are mostly fully operational and
income producing. As at 31 March 2024, the Group had cash of
£31.2 million (including the £2.5 million held as collateral for FX
hedging). The Directors reviewed downside scenarios which
assumed some delay in cash receipts and are satisfied that the
Group and the Company would continue to meet its obligations as
they fall due. Total expenses for the year were £3.30 million
(excluding impairment losses) (2022: £2.4 million), which
represented approximately 3.49% of average net assets during the
year (2022: 2.63%). At the date of approval of this document, based
on the aggregate of investments and cash held, the Group and
Company have substantial operating expenses cover.
At the Annual General Meeting of the
Company (the "AGM") held on 14 June 2023, Shareholders voted in
favour of the Company's change of investment policy (the "New
Investment Policy"). Following the AGM, and in accordance with the
New Investment Policy, the Company entered a continuation and
managed run-off of its portfolio ("Managed Run-Off"), meaning that
it is not making any new investments (save for the limited
circumstances as set out in the New Investment Policy) and its
investing activity is solely in respect of funding legal
commitments to existing investments.
The Continuation and Managed Run-Off
Resolution was put forward as a resolution to Shareholders in
response to the outcome of the Company's Continuation Vote held in
February 2023, which did not pass.
On 6 March 2024, the Company
announced, subject to the approval of Shareholders, a return of
capital to Shareholders by way of a tender offer of not less than
£17.5 million.
As referred to above, the Company is
operating currently under a Managed Run-Off with the term of some
of the Company's assets being several years. While the Company is
continuing to explore other strategic options, there remains no
certainty that any of these options will materialise and be put to
Shareholders for consideration.
Accordingly, while the Directors
recognise that these conditions indicate the existence of material
uncertainty which may cast significant doubt about the Group and
Company's ability to continue as a going concern. Based on the
assessment and considerations above, the Directors have concluded
that the financial statements of the Group and the Company should
be prepared on a going concern basis. The financial statements do
not include the adjustments that would result if the Group and the
Company were unable to continue on a going concern
basis.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for
preparing the Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the Directors
to prepare financial statements for each financial year. Under that
law the Directors have prepared the Group's and the Company's
financial statements in accordance with UK-adopted international
financial reporting standards in conformity with the requirements
of the Companies Act 2006.
Under company law, Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group
and the Company and of the profit or loss of the Group and the
Company for that year. In preparing the financial statements, the
Directors are required to:
·
select suitable accounting policies and then apply
them consistently;
·
state whether applicable
UK-adopted international financial reporting standards in
conformity with the requirements of the Companies Act 2006 have
been followed, subject to any material departures disclosed and
explained in the financial statements;
·
make judgements and
accounting estimates that are reasonable and prudent;
and
·
prepare the financial statements on the going
concern basis unless it is inappropriate to presume that the Group
and the Company will continue in business.
The Directors are also responsible
for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for
keeping adequate 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 and the
Directors' Remuneration Report comply with the Companies Act
2006.
The Directors have delegated
responsibility to the Investment Adviser
for the maintenance and integrity of the corporate and financial
information included on the Company's website. Legislation in the
UK governing the preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
Directors' Confirmations
The Directors consider that the
Annual Report and Accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Group's and the Company's position and
performance, business model and strategy.
Each of the Directors, whose names
and functions are listed in the Corporate Governance section,
confirm that, to the best of their knowledge:
·
the Group's and the Company's financial
statements, which have been prepared in accordance with UK-adopted
international financial reporting standards in conformity with the
requirements of the Companies Act 2006, give a true and fair view
of the assets, liabilities, financial position and loss of the
Group and the Company; and
·
the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Group and the Company, together with a description of the principal
risks and uncertainties that it faces.
In the case of each Director in office at
the date the Directors' report is approved:
·
so far as
the Director is aware, there is no relevant audit
information of which the Group's and Company's auditors are
unaware; and
·
they have taken
all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Group's and the Company's
auditors are aware of that information.
For and on behalf of the
Board
Miriam Greenwood OBE DL
Chair of the Board
30 April 2024
Financial Statements
Aquila Energy Efficiency Trust Plc
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE
INCOME
FOR THE YEAR ENDED 31 DECEMBER
2023
|
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Unrealised (loss)/gain on
investments
|
4
|
-
|
(2,380)
|
(2,380)
|
-
|
1,211
|
1,211
|
Unrealised gain/(loss) on
derivatives
|
|
-
|
122
|
122
|
-
|
(1,016)
|
(1,016)
|
Realised gain on
derivatives
|
|
-
|
1,713
|
1,713
|
-
|
-
|
-
|
Net foreign exchange
(loss)/gain
|
|
-
|
(64)
|
(64)
|
-
|
282
|
282
|
Investment income
|
5
|
5,948
|
-
|
5,948
|
2,197
|
-
|
2,197
|
Investment advisory fees
|
6
|
(808)
|
-
|
(808)
|
(615)
|
-
|
(615)
|
Impairment loss
|
4
|
(1,735)
|
-
|
(1,735)
|
(136)
|
-
|
(136)
|
Other expenses
|
7
|
(2,492)
|
-
|
(2,492)
|
(1,786)
|
-
|
(1,786)
|
Profit/(loss) on ordinary activities before
taxation
|
|
913
|
(609)
|
304
|
(340)
|
477
|
137
|
Taxation
|
8
|
-
|
-
|
-
|
-
|
-
|
-
|
Profit/(loss) on ordinary activities after
taxation
|
|
913
|
(609)
|
304
|
(340)
|
477
|
137
|
Return per Ordinary Share
|
9
|
0.91p
|
(0.61p)
|
0.30p
|
(0.34p)
|
0.48p
|
0.14p
|
The total column of the Consolidated
Statement of Profit or Loss and Comprehensive Income is the profit
and loss account of the Group.
All revenue and capital items in the
above consolidated statement derive from continuing operations. No
operations were discontinued during the year.
Profit/(loss) on ordinary activities
after taxation is also the "Total comprehensive income/(expense)
for the year".
The notes are an integral part
of these financial statements.
COMPANY STATEMENT OF PROFIT OR LOSS AND COMPREHENSIVE
INCOME
FOR THE YEAR ENDED 31 DECEMBER
2023
|
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Unrealised gain on
investments
|
4
|
-
|
961
|
961
|
-
|
2,144
|
2,144
|
Net foreign exchange loss
|
|
-
|
(37)
|
(37)
|
-
|
(99)
|
(99)
|
Investment income
|
5
|
4,080
|
-
|
4,080
|
697
|
-
|
697
|
Investment advisory fees
|
6
|
(808)
|
-
|
(808)
|
(615)
|
-
|
(615)
|
Other expenses
|
7
|
(1,912)
|
-
|
(1,912)
|
(1,375)
|
-
|
(1,375)
|
Impairment loss
|
|
(2,041)
|
-
|
(2,041)
|
-
|
-
|
-
|
(Loss)/profit on ordinary activities before
taxation
|
|
(681)
|
924
|
243
|
(1,293)
|
2,045
|
752
|
Taxation
|
8
|
-
|
-
|
-
|
-
|
-
|
-
|
(Loss)/profit on ordinary activities after
taxation
|
|
(681)
|
924
|
243
|
(1,293)
|
2,045
|
752
|
Return per Ordinary Share
|
9
|
(0.68p)
|
0.92p
|
0.24p
|
(1.29p)
|
2.05p
|
0.75p
|
The total column of the Company
Statement of Profit or Loss and Comprehensive Income is the profit
and loss account of the Company.
All revenue and capital items in the
above statement derive from continuing operations. No operations
were acquired or discontinued during the year.
Profit/(loss) on ordinary activities
after taxation is also the "Total comprehensive income/(expense)
for the year".
The notes are an integral part
of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2023
|
|
2023
|
2022
|
|
Notes
|
£'000
|
£'000
|
Fixed assets
|
|
|
|
Investments at fair value through
profit or loss
|
4
|
10,492
|
11,742
|
Investments at amortised
cost
|
4
|
54,990
|
38,550
|
|
|
65,482
|
50,292
|
Current assets
|
|
|
|
Trade and other
receivables
|
10
|
652
|
70
|
Derivative financial
instrument
|
4
|
122
|
-
|
Cash and cash equivalents
|
|
29,082
|
46,625
|
|
|
29,856
|
46,695
|
Creditors: amounts falling due
within one year
|
11
|
(1,057)
|
(904)
|
Derivative financial
instrument
|
|
-
|
(856)
|
Net
current assets
|
|
28,799
|
44,935
|
Net
assets
|
|
94,281
|
95,227
|
Capital and reserves: equity
|
|
|
|
Share capital
|
12
|
1,000
|
1,000
|
Special reserve
|
13
|
93,500
|
94,750
|
Capital reserve
|
|
(178)
|
431
|
Revenue reserve
|
|
(41)
|
(954)
|
Shareholders' funds
|
|
94,281
|
95,227
|
Net assets per Ordinary
Share
|
14
|
94.28p
|
95.23p
|
No. of Ordinary Shares in
issue
|
|
100,000,000
|
100,000,000
|
Approved by the Board of Directors
and authorised for issue on 30 April 2024.
Signed on behalf of the Board of
Directors
Miriam Greenwood OBE DL
Aquila Energy Efficiency Trust Plc
is incorporated in England and Wales with Company number
13324616.
The notes are an integral part of
these financial statements.
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2023
|
|
2023
|
2022
|
|
Notes
|
£'000
|
£'000
|
Fixed assets
|
|
|
|
Investment in
subsidiaries
|
4
|
45,654
|
31,220
|
Current assets
|
|
|
|
Cash and cash equivalents
|
|
22,548
|
32,714
|
Intercompany receivable
|
10
|
-
|
32,966
|
Shareholder loan
receivable
|
17
|
27,293
|
-
|
Trade and other
receivables
|
10
|
255
|
33
|
|
|
50,096
|
65,713
|
Creditors: amounts falling due
within one year
|
11
|
(874)
|
(1,050)
|
Net
current assets
|
|
49,222
|
64,663
|
Net
assets
|
|
94,876
|
95,883
|
Capital and reserves: equity
|
|
|
|
Share capital
|
12
|
1,000
|
1,000
|
Special reserve
|
13
|
93,500
|
94,750
|
Capital reserve
|
|
2,923
|
1,999
|
Revenue reserve
|
|
(2,547)
|
(1,866)
|
Shareholders' funds
|
|
94,876
|
95,883
|
Approved by the Board of Directors
and authorised for issue on 30 April 2024.
Signed on behalf of the Board of
Directors
Miriam Greenwood OBE DL
Aquila Energy Efficiency Trust Plc
is incorporated in England and Wales with Company number
13324616.
The notes are an integral part of
these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER
2023
|
|
Share
|
Special
|
Capital
|
Revenue
|
|
|
|
capital
|
reserve
|
reserve
|
reserve
|
Total
|
For
the year ended 31 December 2023
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Opening equity as at 1 January 2023
|
|
1,000
|
94,750
|
431
|
(954)
|
95,227
|
Dividends paid
|
15
|
-
|
(1,250)
|
-
|
-
|
(1,250)
|
(Loss)/profit for the
year
|
|
-
|
-
|
(609)
|
913
|
304
|
Closing equity as at 31 December 2023
|
|
1,000
|
93,500
|
(178)
|
(41)
|
94,281
|
|
|
|
|
|
|
|
|
|
Share
|
Special
|
Capital
|
Revenue
|
|
|
|
capital
|
reserve
|
reserve
|
reserve
|
Total
|
For
the year ended 31 December 2022
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Opening equity as at 1 January 2022
|
|
1,000
|
97,000
|
(46)
|
(573)
|
97,381
|
Impact of the acquisition of
subsidiaries on 1 January 2022
|
|
-
|
-
|
-
|
(41)
|
(41)
|
Dividends paid
|
15
|
-
|
(2,250)
|
-
|
-
|
(2,250)
|
Profit/(loss) for the
year
|
|
-
|
-
|
477
|
(340)
|
137
|
Closing equity as at 31 December 2022
|
|
1,000
|
94,750
|
431
|
(954)
|
95,227
|
The notes are an integral part of
these financial statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER
2023
|
|
Share
|
Special
|
Capital
|
Revenue
|
|
|
|
capital
|
reserve
|
reserve
|
reserve
|
Total
|
For
the year ended 31 December 2023
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Opening equity as at 1 January 2023
|
|
1,000
|
94,750
|
1,999
|
(1,866)
|
95,883
|
Dividends paid
|
15
|
-
|
(1,250)
|
-
|
-
|
(1,250)
|
Profit/(loss) for the
year
|
|
-
|
-
|
924
|
(681)
|
243
|
Closing equity as at 31 December 2023
|
|
1,000
|
93,500
|
2,923
|
(2,547)
|
94,876
|
|
|
|
|
|
|
|
|
|
Share
|
Special
|
Capital
|
Revenue
|
|
|
|
capital
|
reserve
|
reserve
|
reserve
|
Total
|
For
the year ended 31 December 2022
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Opening equity as at 1 January 2022
|
|
1,000
|
97,000
|
(46)
|
(573)
|
97,381
|
Dividends paid
|
15
|
-
|
(2,250)
|
-
|
-
|
(2,250)
|
Profit/(loss) for the
year
|
|
-
|
-
|
2,045
|
(1,293)
|
752
|
Closing equity as at 31 December 2022
|
|
1,000
|
94,750
|
1,999
|
(1,866)
|
95,883
|
The notes are an integral part of
these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER
2023
|
Notes
|
For the year ended
31 December 2023
£'000
|
For the year ended
31 December 2022
£'000
|
Operating activities
|
|
|
|
Profit on ordinary activities before
taxation
|
|
304
|
137
|
Adjustments for:
|
|
|
|
Unrealised loss/(gain) on
investments
|
4
|
2,380
|
(1,211)
|
Unrealised loss/(gain) on derivative
instruments
|
4
|
(122)
|
1,016
|
Realised gains on derivative
instruments
|
|
(108)
|
-
|
Impairment loss
|
|
1,735
|
136
|
Net foreign exchange loss
|
|
116
|
-
|
(Increase)/decrease in trade and
other receivables
|
|
(310)
|
34
|
Increase in creditors: amounts
falling due within one year
|
|
968
|
570
|
Interest receivable from amortised
cost investments
|
|
(2,420)
|
(1,349)
|
Net
cash flow from/(used in) operating activities
|
|
2,543
|
(667)
|
Investing activities
|
|
|
|
Purchase of investments
|
4
|
(21,834)
|
(47,602)
|
Repayment of investments
|
4
|
3,050
|
264
|
Net cash received on acquisition of
Attika Holdings Ltd.
|
|
-
|
5,000
|
Net cash received on acquisition of
SPV Project 2013 S.r.l.
|
|
-
|
11,751
|
Net
cash flow used in investing activities
|
|
(18,784)
|
(30,587)
|
Financing activities
|
|
|
|
Dividends paid
|
15
|
(1,250)
|
(2,250)
|
Net
cash flow used in financing activities
|
|
(1,250)
|
(2,250)
|
Decrease in cash and cash equivalents
|
|
(17,491)
|
(33,504)
|
Cash and cash equivalents at start
of year
|
|
46,625
|
80,129
|
Effect of foreign currency exchange
translation
|
|
(52)
|
-
|
Cash and cash equivalents at end of year
|
|
29,082
|
46,625
|
The notes are an integral part of
these financial statements.
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER
2023
|
|
For the
year
|
For the
year
|
|
|
ended
|
ended
|
|
|
31 December
|
31 December
|
|
|
2023
|
2022
|
|
Notes
|
£'000
|
£'000
|
Operating activities
|
|
|
|
Profit on ordinary activities before
taxation
|
|
243
|
752
|
Adjustments for:
|
|
|
|
Unrealised gain on
investments
|
4
|
(961)
|
(2,144)
|
Net foreign exchange loss
|
|
(17)
|
-
|
Shareholder loan interest
income
|
|
(1,912)
|
-
|
Impairment loss
|
|
2,041
|
-
|
Increase in intercompany
receivables
|
|
(1,901)
|
(27,796)
|
(Increase)/Decrease in trade and
other receivables
|
|
(91)
|
71
|
(Decrease)/Increase in
creditors
|
|
(175)
|
544
|
Net
cash flow used in operating activities*
|
|
(2,773)
|
(28,573)
|
Investing activities
|
|
|
|
Purchase of investments
|
4
|
(4,808)
|
(16,592)
|
Repayment of investments
|
|
1,306
|
-
|
Net
cash flow used in investing activities
|
|
(3,502)
|
(16,592)
|
Financing activities
|
|
|
|
Loan to subsidiary
|
10
|
(4,437)
|
-
|
Shareholder loan interest income
received
|
|
1,782
|
-
|
Dividends paid
|
15
|
(1,250)
|
(2,250)
|
Net
cash flow used in financing activities
|
|
(3,905)
|
(2,250)
|
Decrease in cash and cash equivalents
|
|
(10,180)
|
(47,415)
|
Cash and cash equivalents at start
of year
|
|
32,714
|
80,129
|
Effect of foreign currency exchange
translation
|
|
14
|
-
|
Cash and cash equivalents at end of year
|
|
22,548
|
32,714
|
*Cash flows from operating
activities were presented after the below non-cash
|
|
|
|
transactions:
|
|
|
|
Conversion of intercompany
receivables to investment in subsidiary
|
|
11,791
|
-
|
Conversion of intercompany
receivable to shareholder loan
|
|
23,076
|
-
|
|
|
34,867
|
-
|
The notes are an integral part of
these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR
THE YEAR ENDED 31 DECEMBER 2023
1.
GENERAL INFORMATION
Aquila Energy Efficiency Trust Plc
(the "Company") is a public company limited by shares incorporated
in England and Wales on 9 April 2021 with registered number
13324616. The Company is domiciled in England and Wales. The
Company is a closed-ended investment company with an indefinite
life. The Company commenced its operations on 2 June 2021 when
the Company's Ordinary Shares were admitted to trading on the
London Stock Exchange. The Directors intend, at all times, to
conduct the affairs of the Company as to enable it to qualify as an
investment trust for the purposes of section 1158 of the
Corporation Tax Act 2010, as amended.
The Company owns 100% of its
subsidiary, Attika Holdings Limited (the "HoldCo" or ''AHL'') and
100% of the notes issued by one compartment of SPV Project 2013
S.r.l. (the ''SPV'' or ''Italian SPV'') issued to the Company,
which entitles the Company to a 100% economic interest in the
receivables purchased through the proceeds of these notes, together
the ''Group''.
The registered office address of the
Company is 6th Floor, 125 London Wall, London, EC2Y 5AS.
Further to the adoption of a new
investment policy at the 2023 AGM, the Company is being managed
with the intention of realising all remaining assets in the
Portfolio in a prudent manner consistent with the principles of
good investment management and with a view to returning cash to
Shareholders in an orderly manner.
FundRock Management Company
(Guernsey) Limited (formerly Sanne Fund Management (Guernsey)
Limited) acts as the Company's Alternative Investment Fund Manager
(the "AIFM") for the purposes of Directive 2011/61/EU on
alternative investment fund managers ("AIFMD").
The Group's Investment Adviser is
Aquila Capital Investmentgesellschaft mbH, authorised and regulated
by the German Federal Financial Supervisory Authority.
Apex Listed Companies Services (UK)
Limited (the "Administrator") (formerly Sanne Fund Services (UK)
Limited) provides administrative and company secretarial services
to the Group under the terms of an administration agreement between
the Company and the Administrator. The Italian SPV is administered
by Zenith Service S.p.A.
2.
BASIS OF PREPARATION
Group financial statements
The consolidated financial
statements have been prepared in accordance with UK-adopted
international accounting standards in conformity with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
The consolidated financial
statements have also been prepared as far as is relevant and
applicable to the Group in accordance with the Statement of
Recommended Practice ("SORP") issued by the Association of
Investment Companies ("AIC") in July 2022.
The consolidated financial
statements are prepared on the historical cost basis, except for
the revaluation of certain financial instruments at fair value
through profit or loss. The principal accounting policies adopted
are set out below. These policies are consistently
applied.
The financial statements are
presented in Sterling rounded to the nearest thousand. They have
been prepared on the basis of the accounting policies, significant
judgements, key assumptions and estimates as set out
below.
Company financial statements
The financial statements have been
prepared in accordance with the UK-adopted international accounting
standards in conformity with the requirements of the Companies Act
2006 as applicable to companies reporting under those
standards.
The financial statements have also
been prepared as far as is relevant and applicable to the Company
in accordance with the Statement of Recommended Practice ("SORP")
issued by the AIC in July 2022.
The financial statements are
prepared on the historical cost basis, except for the revaluation
of certain financial instruments at fair value through profit or
loss. The principal accounting policies adopted are set out below.
These policies are consistently applied.
The functional currency of the
Company is Sterling. The capital of the Company was raised in
Sterling and the majority of its expenses are in Sterling. The
liquidity of the Company is managed in Sterling as the Company's
performance is evaluated in that currency. Accordingly, the
financial statements are presented in Sterling, rounded to the
nearest thousand. They have been prepared on the basis of the
accounting policies, significant judgements, key assumptions and
estimates as set out below.
Basis of consolidation
The Group's financial statements
consolidate those of the Company and of its subsidiaries at 31
December 2023. The subsidiaries have a reporting date of 31
December. AHL's functional currency is Sterling. The Italian SPV's
functional currency is Euro. However, to align with the Group's
functional currency, the balances of the Italian SPV have been
converted to Sterling at a year-end rate for the Statement of
Financial Position accounts and at an average rate during the year
for the Statement of Profit or Loss and Comprehensive Income
accounts.
All transactions and balances
between Group companies are eliminated on consolidation. The
accounting policies adopted by the Group are consistent with those
adopted by the Company and the subsidiaries.
Characteristics of an investment entity
Under the definition of an
investment entity, the Company should satisfy all three of the
following tests:
I. the Company obtains
funds from one or more investors for the purpose of providing those
investors with investment management services;
II.
the Company commits to its investors that its business purpose is
to invest funds solely for returns from capital appreciation,
investment income, or both; and
III.
the Company measures and evaluates the performance of substantially
all of its investments on a fair value basis.
Investment entity status
The Directors determined that the
Company does not meet the characteristics of an investment entity
for the following reasons:
I. the Company is in full
control of its subsidiary AHL and the notes in the Italian
SPV;
II.
the majority of the investments held and added to during the year
for the Italian SPV are valued at amortised cost rather than on a
fair value basis; and
III.
the majority of the investments held and purchased during the year
in AHL are valued at amortised cost rather than on a fair value
basis.
The financial statements are
presented on a consolidated basis of the Company, AHL and the
Italian SPV.
Accounting for wholly owned entities
AHL
The Company owns 100% of its
subsidiary, AHL. The registered office address of AHL is Leaf B,
20th Floor, Tower 42, Old Broad Street, London, England, EC2N 1HQ.
The Company has acquired Energy Efficiency Investments through its
investment in the subsidiary. The Company will finance the
subsidiary through a mix of equity and debt instruments. The
Company consolidates the subsidiary.
Italian SPV
The Italian SPV is a company
established under the laws of Italy to hold securitised
receivables. The Company does not hold any equity in the SPV.
However, it does own 100% of the notes issued by one compartment of
the SPV which entitles the Company to a 100% economic interest in
the receivables purchased through the proceeds of this notes. The
Company does not have an economic interest in any of the other
securities receivables issuances by the Italian SPV. The notes
subscribed by the Company, issued by the Italian SPV, and the
receivables purchased from the proceeds of these notes, together
with all associated assets and liabilities and income and costs,
are ring-fenced from other assets and liabilities of the Italian
SPV and thus the Company's holdings have been deemed a silo under
IFRS 10 paragraph b 77. The Company consolidates the results of the
Italian SPV in respect of the performance of the receivables in the
silo.
Going concern
The Directors have adopted the going
concern basis in preparing the financial statements. The following
is a summary of the Directors' assessment of the going concern
status of the Group and Company.
The Group and Company continue to
meet day-to-day liquidity needs through their cash resources. The
Directors have a reasonable expectation that the Group and Company
have adequate resources to continue in operational existence for at
least twelve months from the date of approval of these financial
statements.
In reaching this conclusion, the
Directors have considered the Group's investment commitments, cash
position, income and expense flows. As at 31 March 2024, the latest
practicable date before publication of this report, the
total commitments were £4.92 million. The value of investments
as at 31 December 2023 was £65.5 million and has not changed
materially since that date. The investments are mostly fully
operational and income producing. As at 31 March 2024, the
Group had cash of £31.2 million (including the £2.5 million held as
collateral for FX hedging). The Directors reviewed downside
scenarios which assumed some delay in cash receipts and are
satisfied that the Group and the Company would continue to meet its
obligations as they fall due. Total expenses for the year were
£3.30 million (excluding impairment losses) (2022: £2.4 million),
which represented approximately 3.49% of average net assets during
the year (2022: 2.63%). At the date of approval of these financial
statements, based on the aggregate of investments and cash held,
the Group and Company have substantial operating expenses
cover.
At the Annual General Meeting of the
Company (the "AGM") held on 14 June 2023, Shareholders voted in
favour of the Group's change of investment policy (the "New
Investment Policy"). Following the AGM, and in accordance with the
New Investment Policy, the Company entered a continuation and
managed run-off of its portfolio ("Managed Run-Off"), meaning that
it is not making any new investments (save for the limited
circumstances as set out in the New Investment Policy) and its
investing activity is solely in respect of funding legal
commitments to existing investments.
The Continuation and Managed Run-Off
Resolution was put forward as a resolution to Shareholders in
response to the outcome of the Company's Continuation Vote held in
February 2023, which did not pass.
On 6 March 2024, the Company
announced, subject to the approval of Shareholders, a return of
capital to Shareholders by way of a tender offer of not less than
£17.5 million.
As referred to above, the Group is
operating currently under a Managed Run-Off with the term of some
of the Group's assets being several years. The Company is
continuing to explore other strategic options, such as an asset
sale or structural solution. There remains no certainty that any of
these options will materialise and be put to Shareholders for
consideration, or on the potential timing of other strategic
options.
Accordingly, the Directors recognise
that these conditions indicate the existence of material
uncertainty which may cast significant doubt about the Group and
Company's ability to continue as a going concern. Based on the
assessment and considerations above, the Directors have concluded
that the financial statements of the Group and the Company should
be prepared on a going concern basis. The financial statements do
not include the adjustments that would result if the Group and the
Company were unable to continue on a going concern
basis.
Critical accounting judgements, estimates and
assumptions
The preparation of the consolidated
financial statements requires the application of estimates and
assumptions which may affect the results reported in the
consolidated financial statements. Estimates, by their nature, are
based on judgement and available information.
The estimates and assumptions that
have a significant risk of causing a material adjustment to the
carrying value of assets and liabilities are those used to
determine the fair value of the investments and expected credit
loss as disclosed in Note 4 to the consolidated financial
statements.
Investment fair value
The key assumptions that have a
significant impact on the value of the Group's investments are
discount rates, energy yield, power prices and capital expenditure
factors, the price at which the power and associated benefits can
be sold and the energy yield are expected to produce. The impact of
risks associated with climate change is assessed on an
investment-by-investment basis and factored into the underlying
cash flows where relevant.
The discount factors are subjective
and therefore it is feasible that a reasonable alternative
assumption may be used resulting in a different value. The discount
factors applied to the cash flows are reviewed semi-annually by the
Investment Adviser to ensure they are at the appropriate level. The
Investment Adviser will take into consideration market
transactions, where they are of similar nature, when considering
changes to the discount factors used.
The operating costs of the operating
companies are frequently partly or wholly subject to indexation and
an assumption is made that inflation will increase at a long-term
rate.
The values of Energy Efficiency
Investments are not significantly sensitive to fluctuations in
future revenues if a fixed indexation clause is applied to its cash
flow schedule.
Expected credit loss (''ECL'') allowance for financial assets
measured at amortised cost
The calculation of the Group's ECL
allowances and provisions against receivable purchase agreements
under IFRS 9 is complex and involves the use of significant
judgement and estimation. Loan impairment provisions represent an
estimate of the losses incurred in the loan portfolios at the
balance sheet date. Individual impairment losses are determined as
the difference between the carrying value and the present value of
estimated future cash flows, discounted at the loans' original EIR.
The calculation involves the formulation and incorporation of
multiple conditions into ECL to meet the measurement objective of
IFRS 9. Refer to Note 4 for more details.
Investment entity status assessment
Refer to the assessment within this
note above.
Adoption of new IFRS standards from 1 January
2023
A number of new standards and
amendments to standards are effective for the annual periods
beginning after 1 January 2023. None of these have a significant
effect on the measurement of the amounts recognised in the
financial statements of the Group.
New
standards and amendments issued but not yet effective or adopted
early by the Group
The relevant new and amended
standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group's financial
statements are disclosed below. These standards are not expected to
have a material impact on the entity in future reporting periods
and on foreseeable future transactions.
Amendments to IAS 1 Presentation of Financial Statements -
Classification of Liabilities as Current or
Non‑current
The amendments to IAS 1 clarify that
the classification of liabilities as current or non-current is
based on rights that are in existence at the end of the reporting
period, specify that classification is unaffected by expectations
about whether an entity will exercise its right to defer settlement
of a liability, explain that rights are in existence if covenants
are complied with at the end of the reporting period, and introduce
a definition of 'settlement' to make clear that settlement refers
to the transfer to the counterparty of cash, equity instruments,
other assets or services. The amendments are applied
retrospectively for annual periods beginning on or after 1 January
2024, with early application permitted.
Amendments to IAS 1 Presentation of Financial Statements -
Non‑current Liabilities with Covenants
The amendments specify that only
covenants that an entity is required to comply with on or before
the end of the reporting period affect the entity's right to defer
settlement of a liability for at least twelve months after the
reporting date (and therefore must be considered in assessing the
classification of the liability as current or non-current). Such
covenants affect whether the right exists at the end of the
reporting period, even if compliance with the covenant is assessed
only after the reporting date (e.g. a covenant based on the
entity's financial position at the reporting date that is assessed
for compliance only after the reporting date). The amendments are
applied retrospectively for annual reporting periods beginning on
or after 1 January 2024. Earlier application of the amendments is
permitted.
Amendments to IAS 7 Statement of Cash Flows and IFRS 7
Financial Instruments: Disclosures - Supplier Finance
Arrangements
The amendments add a disclosure
objective to IAS 7 stating that an entity is required to disclose
information about its supplier finance arrangements that enables
users of financial statements to assess the effects of those
arrangements on the entity's liabilities and cash flows. In
addition, IFRS 7 was amended to add supplier finance arrangements
as an example within the requirements to disclose information about
an entity's exposure to concentration of liquidity risk. The
amendments, which contain specific transition reliefs for the first
annual reporting period in which an entity applies the amendments,
are applicable for annual reporting periods beginning on or after 1
January 2024. Earlier application is permitted.
3.
MATERIAL ACCOUNTING POLICIES
Financial instruments
Financial assets
The Group's financial assets
principally comprise of cash and cash equivalents, investments held
at fair value through profit and loss, investments held at
amortised cost, derivative financial instruments, interest income
receivables, shareholder loan receivables and other
receivables.
Interest income receivables,
prepayments and other receivables are initially recognised at fair
value and subsequently measured at amortised cost using the
effective interest rate method.
The Group's investments are debt
instruments held at fair value through profit or loss and debt
instruments at amortised cost. Gains or losses resulting from the
movements in the fair value are recognised in the Group's
Consolidated Statement of Profit or Loss and Comprehensive Income
under capital column. Debt instruments at amortised cost are
revalued with the functional currency exchange rate at each
valuation point and recognised in the Group's Consolidated
Statement of Profit or Loss and Comprehensive Income and are
subject to ECL.
Derivatives comprise of currency
forward transactions used to hedge the Group's foreign currency
exposure. The fair value of the currency forward transactions is
the difference between the spot rate and the forward rate at the
date of the Consolidated Statement of Financial
Position.
Derivatives
Derivatives comprise of foreign
currency swaps used to hedge the Group's foreign currency exposure.
The fair value of the foreign currency swaps is the difference
between the spot rate and the forward rate that were applied at the
date of the Statement of Financial Position. Realised
gains/(losses) on derivatives relates to actual cash
received/(paid) at the end of the term of foreign currency swaps
and are recognised upon settlement.
Investment in subsidiaries
The Company's investment in its
subsidiary, AHL, is composed of equity shares. The Company's
investments in AHL is held at cost less impairment in the Company's
Statement of Financial Position. Impairment charge has been
determined to be the net liability amount of AHL less any
impairment associated with the shareholder loan
receivable.
The Company's investment in its
subsidiary, SPV, is composed of loan notes receivables. The
Company's investments in the SPV is held at fair value through
profit or loss. The fair value of SPV as at 31 December 2023 has
been determined through an aggregation of the fair value of SPV's
individual investments adjusted for the cash and liabilities of SPV
as at 31 December 2023. The fair values of SPV's individual
investments take account of projections of future cash flows and
discount rates which seek to take account of the risk profile of
the counterparty, and other areas of judgement.
Financial liabilities
The Group's financial liabilities
include trade and other payables and other short-term monetary
liabilities which are initially recognised at fair value and
subsequently measured at amortised cost using the effective
interest rate method. The Group's financial liabilities also
include derivative financial instruments.
Recognition and derecognition
Financial assets and financial
liabilities are recognised in the Group's Consolidated Statement of
Financial Position when the Group becomes a party to the
contractual provisions of the instrument. Financial assets and
financial liabilities are initially measured at fair
value.
At initial recognition, financial
instruments classified at fair value through profit or loss are
measured at fair value which is normally the transaction price.
Other financial instruments not classified at fair value through
profit or loss are measured initially at fair value but are
adjusted for incremental and directly attributable transaction
costs.
Transaction costs that are directly
attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or
deducted from the value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction
costs directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss are
recognised immediately in profit or loss.
A financial liability (in whole or
in part) is recognised when the Group has extinguished its
contractual obligations, it expires or is cancelled. Financial
assets are recognised when the rights to receive cash flows from
the investments have expired or the Group has transferred
substantially all risks and rewards of ownership.
Classification and measurement of financial
assets
IFRS 9 contains a classification and
measurement approach for debt instruments that reflects the
business model in which assets are managed and their cash flow
characteristics. For debt instruments two criteria are used to
determine how financial assets should be classified and
measured:
·
the entity's business model (i.e. how an entity
manages its debt instruments in order to generate cash flows by
collecting contractual cash flows, selling financial assets or
both); and
·
the contractual cash flow characteristics of the
financial asset (i.e. whether the contractual cash flows are solely
payments of principal and interest).
A debt instrument is measured at
amortised cost if it meets both of the following conditions and is
not designated as at fair value through profit and loss
("FVTPL"):
(a) it is
held within a business model whose objective is to hold assets to
collect contractual cash flows; and
(b) its
contractual terms give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal
amount outstanding.
A debt instrument is measured at
fair value through other comprehensive income ("FVOCI") if it meets
both of the following conditions and is not designated as at
FVTPL:
(a) it is
held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets;
and
(b) its
contractual terms give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal
amount outstanding.
In assessing whether the contractual
cash flows are solely payments of principal and interest, the
contractual terms of the instrument are considered. This includes
assessing whether the financial asset contains a contractual term
that could change the timing or amount of contractual cash flows
such that it would not meet this condition.
Subsequent to initial recognition,
financial assets that are classified as measured at fair value
through profit or loss are measured at fair value in the
Consolidated Statement of Financial Position (with no deduction for
sale or disposal costs). Gains and losses resulting from the
movement in fair value are recognised in the Consolidated Statement
of Profit or Loss and Comprehensive Income.
Subsequent to initial recognition,
financial assets that are measured at amortised cost require the
use of the effective interest method and are subject to expected
credit loss.
Taxation
Investment trusts which have
approval under section 1158 of the Corporation Tax Act 2010 are not
liable for taxation on capital gains. Shortly after listing the
Company received approval as an investment trust by HMRC. Current
tax is the expected tax payable on the taxable income for the year,
using tax rates that have been enacted or substantively enacted at
the date of the Consolidated Statement of Financial
Position.
Taxation of subsidiary entities
Income tax expense represents the
sum of the tax currently payable and deferred tax.
The tax payable is based on taxable
profit for the year. There is no tax payable at 31 December 2023
due to the subsidiaries being in a loss position. Taxable profit
differs from profit as reported in the Statement of Profit or Loss
and Comprehensive Income because of items of income or expense that
are taxable or deductible in other years and items that are never
taxable or deductible. The Company's liability for current taxes is
calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period.
Deferred taxation
Deferred tax is the tax expected to
be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the consolidated financial
statements and the corresponding tax bases used in the computation
of taxable profit and is accounted for using the statement of
financial position liability method. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be recognised.
Deferred tax is calculated at the
tax rates that are expected to apply in the period when the
liability is settled or the asset is recognised. Deferred tax is
charged or credited to the Consolidated Statement of Profit or Loss
and Comprehensive Income except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Segmental reporting
The Chief Operating Decision Maker
("CODM"), which is the Board, is of the opinion that the Group is
engaged in a single segment of business, being investment in energy
efficiency assets to generate investment returns whilst preserving
capital. The financial information used by the CODM to manage the
Group presents the business as a single segment.
Income
Income includes investment interest
income from financial assets at amortised cost, dividend income and
bank interest income.
Investment interest income for the
year is recognised in the Consolidated Statement of Profit or Loss
and Comprehensive Income using the effective interest method
calculation.
Dividend income is recognised when
the right to receive it is established and is reflected in the
Consolidated Statement of Profit or Loss and Comprehensive Income
as investment income.
Bank interest income is recognised
for the year in the Consolidated Statement of Profit or Loss and
Comprehensive Income on an accruals basis.
Expenses
All expenses are accounted for on an
accrual basis. In respect of the analysis between revenue and
capital items presented within the Consolidated Statement of Profit
or Loss and Comprehensive Income, all expenses are presented as
revenue as it is directly attributable to the operations of the
Group. Details of the Group's fee payments to the Investment
Adviser are disclosed in Note 6 to the consolidated financial
statements. Details of the Group's other expenses are disclosed in
Note 7 to the consolidated financial statements. These fees are
presented under the revenue column in the Consolidated Statement of
Profit or Loss and Comprehensive Income.
Foreign currency
Transactions denominated in foreign
currencies are translated into Sterling at actual exchange rates as
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at year end are reported at the
rates of exchange prevailing at the year end. Any gain or loss
arising from a change in exchange rates subsequent to the date of
the transaction is included as an exchange gain or loss to capital
or revenue in the Consolidated Statement of Profit or Loss and
Comprehensive Income as appropriate. Foreign exchange movements on
investments are included in the capital account of the Consolidated
Statement of Profit or Loss and Comprehensive Income.
Cash and cash equivalents
Cash and cash equivalents include
deposits held at call with banks and other short-term deposits with
original maturities of three months or less.
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.
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 recognised against the value of the Ordinary Share
premium account.
Repurchases of the Company's own
shares are recognised and deducted directly in equity. No gain or
loss is recognised in profit or loss on the purchase, sale, issue
or cancellation of the Company's own equity instruments.
Expected credit loss allowance for financial assets measured
at amortised cost
Many of the Group's investments are
financial assets measured at amortised cost. These investments are
structured as purchases of receivables or purchases of notes which
have the right to receivables. The purchased receivables derive
from energy services agreements for the provision of energy
efficiency and/or renewable energy solutions provided by ESCOs to
their corporate clients and these receivables provide a fixed
return for the Group. The receivables are due to be received over a
range of maturities from less than twelve months to more than
fifteen years. Individual agreements provide for the receivables to
be paid mostly on a monthly or quarterly basis.
In addition to past events and
current conditions, reasonable and supportable forecasts affecting
collectability are also considered when determining the amount of
impairment in accordance with IFRS 9. Under the IFRS 9 expected
credit loss model, expected credit losses are recognised at each
reporting period, even if no actual loss events have taken place.
In addition to past events and current conditions, reasonable and
supportable forward-looking information that is available without
undue cost or effort is considered in determining impairment, with
the model applied to all financial instruments subject to
impairment testing.
At initial recognition, allowance is
made for expected credit losses resulting from default events that
are possible within the next 12 months (twelve-month expected
credit losses). In the event of a significant increase in credit
risk, allowance (or provision) is made for expected credit losses
resulting from all possible default events over the expected life
of the financial instrument (lifetime expected credit
losses).
Financial assets where twelve month
expected credit losses are recognised are Stage 1; financial assets
which are considered to have experienced a significant increase in
credit risk are in Stage 2; and financial assets which have
defaulted or are otherwise considered to be credit-impaired are
allocated to Stage 3. Stage 2 and Stage 3 are based on lifetime
expected credit losses.
The measurement of expected credit
loss, referred to as "ECL", is primarily based on the product of
the instrument's probability of default ("PD"), loss given default
("LGD"), and exposure at default ("EAD"), taking into account the
value of any collateral held or other mitigants of loss and
including the impact of discounting using the EIR.
·
The PD represents the likelihood of a borrower
defaulting on its financial obligation, either over the next twelve
months ("12M PD"), or over the remaining lifetime ("Lifetime PD")
of the obligation. This has been calculated by an external
third-party credit rating agency using a wide range of parameters
such as the company's financial statements and the macroeconomic
environment. The external credit rating company has also designed a
downside and upside scenario based on historic data. Company
financials are modified to reflect various factors leading to a
deterioration in performance.
·
In each of the scenarios, various macro and
financial variables are flexed and applied in the calculation.
The macro variables are GDP growth, inflation, unemployment
rate and interest rate. The financial variables are turnover, net
debt, shareholder equity, working capital, tangible assets,
interest expense, EBITDA, EBIT and net income. A base,
optimistic and pessimistic scenario is applied for
each of these above variables to calculate the corresponding
expected credit loss.
The probability weighting of the
scenarios was based on an analysis of the level of severity. It was
determined that a weighting of 50% for the base case and 25% for
each of the other scenarios was appropriate. The resulting
forecasts are thus neither overly optimistic nor unduly
conservative for IFRS 9 purposes.
|
Optimistic
|
Base case
|
Pessimistic
|
IFRS 9 probability weighting
|
25%
|
50%
|
25%
|
·
The EAD represents the amounts the Group expects
to be owed at the time of default.
·
LGD represents the Group's expectation of the
extent of loss on a defaulted exposure. LGD varies by type of
counterparty, type and seniority of claim and availability of
collateral or other credit support. LGD is expressed as a
percentage loss per unit of EAD. LGD is calculated on a twelve
month or lifetime basis, where twelve month LGD is the percentage
of loss expected to be made if the default occurs in the next
twelve months and lifetime LGD is the percentage of loss expected
to be made if the default occurs over the remaining expected
lifetime of the loan ("Lifetime LGD").
The ECL is determined by estimating
the PD, LGD and EAD for each individual exposure or collective
segment. These three components are multiplied together and
adjusted for the likelihood of survival (i.e. the exposure has not
prepaid or defaulted in an earlier month). This effectively
calculates an ECL.
Management is aware that there is a
high level of judgement in calculating the scenarios and the inputs
given the assets are relatively recent with minimal historic
data.
The main difference between Stage 1
and Stage 2 is the respective PD horizon. Stage 1 estimates use a
maximum of a twelve month PD, while Stage 2 estimates use a
lifetime PD. The main difference between Stage 2 and Stage 3 is
that Stage 3 is effectively the point at which there has been a
default event.
Movements between Stage 1 and Stage
2 are based on whether an instrument's credit risk as at the
reporting date has increased significantly relative to the date it
was initially recognised. Where the credit risk subsequently
improves such that it no longer represents a significant increase
in credit risk since origination, the asset is transferred back to
Stage 1.
In assessing whether a counterparty
has had a significant increase in credit risk, the following
indicators are considered:
1.
Early signs of cash flow/liquidity problems such as an ongoing
delay in servicing of payables;
2.
Significant increase in PD;
3.
Actual or expected late payments or restructuring of payments
due;
4.
Actual or expected significant adverse change in operating results
of the borrower, where this information is available;
and
5.
Significant adverse changes in business, financial and/or economic
conditions in which the counterparty operates.
Movements between Stage 2 and Stage
3 are based on whether financial assets are credit-impaired as at
the reporting date. The Group uses a rebuttable presumption that a
credit deterioration (i.e. Stage 1 to Stage 2) occurs no later than
when a payment is 90 days past due. The Group uses this 90-day
backstop for all its assets. Assets can move in both directions
through the stages of the impairment model. The Directors do not
believe that being 30 days overdue is considered a credit
deterioration given the nature and payment profile of some of its
small counterparties. Payments are different from consumer loan
payments and often comprise of a very large quantity of payments
each of a very small amount. There is also significant evidence of
catch-up payments where a counterparty has just passed the 30 days
and very rarely have these counterparties missed the payment
completely.
We recognise that individual credit
exposures, which define the Company's investments, are different
from, for example, consumer mortgage or consumer car loan
portfolios. Late payments can arise due to the corporate
counterparties refusing to utilise direct debit or standing order
payment processes with the result that payment chasing can be
required for relatively small amounts, e.g., lighting service
contracts. Accordingly, we do expect that in certain cases 90 days
late payments may not lead to movements through the ECL
stages.
4.
INVESTMENTS
Fair value measurements
IFRS 13 requires disclosure of fair
value measurement by level. The level of fair value hierarchy
within the financial assets or financial liabilities is determined
on the basis of the lowest level input that is significant to the
fair value measurement.
Financial assets and financial
liabilities are classified in their entirety into only one of the
following three levels:
Level 1
The unadjusted quoted price in an
active market for identical assets or liabilities that the entity
can access at the measurement date.
Level 2
Inputs other than quoted prices
included within Level 1 that are observable (i.e. developed using
market data) for the asset or liability, either directly or
indirectly.
Level 3
Inputs are unobservable (i.e. for
which market data is unavailable) for the asset or
liability.
The classification of the Group's
investments held is detailed in the table below:
|
|
31
December 2023
|
|
|
31
December 2022
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Group
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Investments at fair value through
profit and loss
|
-
|
-
|
10,492
|
10,492
|
-
|
-
|
11,742
|
11,742
|
Derivative financial
instrument
|
-
|
122
|
-
|
122
|
-
|
(856)
|
-
|
(856)
|
|
-
|
122
|
10,492
|
10,614
|
-
|
(856)
|
11,742
|
10,886
|
There were no transfers between
investment levels for the Group during the year.
The classification of the Company's
investments held is detailed in the table below:
|
|
31
December 2023
|
|
|
31
December 2022
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Company
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Investment in SPV, at fair value
through profit or loss
|
-
|
-
|
35,683
|
35,683
|
-
|
-
|
31,220
|
31,220
|
|
-
|
-
|
35,683
|
35,683
|
-
|
-
|
31,220
|
31,220
|
|
|
|
|
|
|
|
|
| |
There were no transfers between
investment levels for the Company during the year.
The movement on the Level 3 unquoted
investments of the Group during the year is shown below:
|
31 December
|
31 December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Opening balance
|
11,742
|
-
|
Additions during the year
|
1,675
|
10,926
|
Disposals during the year
|
(1,551)
|
(43)
|
Unrealised (loss)/gain on
investments
|
(1,374)
|
859
|
Closing balance
|
10,492
|
11,742
|
The movement on the Level 3 unquoted
investments of the Company (Investment in SPV, at fair value
through profit or loss) during the year is shown below:
|
31 December
|
31 December
|
|
2023
|
2022
|
|
Company
|
Company
|
|
£'000
|
£'000
|
Opening balance
|
31,220
|
12,307
|
Additions during the year
|
4,808
|
16,769
|
Repayments during the
year
|
(1,306)
|
-
|
Unrealised gain on
investments
|
961
|
2,144
|
Closing balance
|
35,683
|
31,220
|
Assets and liabilities not carried at fair value but for which
fair value is disclosed
The following table presents the
fair value of the Group's assets and liabilities not measured at
fair value through profit and loss at 31 December 2023 but for
which fair value is disclosed:
|
31 December
2023
|
31 December
2022
|
|
|
Fair market
|
|
Fair market
|
|
Carrying
value
|
value
|
Carrying
value
|
value
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Assets
|
|
|
|
|
Investments at amortised
cost
|
54,990
|
57,221
|
38,550
|
38,755
|
Total
|
54,990
|
57,221
|
38,550
|
38,755
|
For all other assets and liabilities
not carried at fair value, the carrying value is a reasonable
approximation of fair value.
Valuation methodology
Debt instruments at fair value through profit or
loss
The Group through its subsidiary
(AHL) and its notes in the Italian SPV has continued to acquire
debt instruments at fair value through profit or loss. The
Investment Adviser has determined the fair value of debt
investments as at 31 December 2023. The Directors have satisfied
themselves as to the fair value of the debt instrument investments
as at 31 December 2023.
Valuation assumptions
The Investment Adviser has carried
out fair market valuations on some of the debt instruments held by
the subsidiaries as at 31 December 2023 and the Directors have
satisfied themselves as to the methodology used, the discount rates
and key assumptions applied, and the valuation. Investments that
are valued at fair value through profit or loss are valued using
the IFRS 13 framework for fair value measurement. The following
economic assumptions were used in the valuation of the
investments.
Valuation assumptions
Discount rates
|
The discount rate used in the
valuations is derived according to internationally recognised
methods. Typical components of the discount
rate are risk-free rates, country-specific and asset-specific risk
premia.
The latter comprise the risks
inherent to the respective asset class as well as specific premia
for other risks such as development and
construction.
|
Power price
|
Power prices are based on power
price forecasts from leading market analysts. The forecasts are
independently sourced from a provider with coverage in almost all
European markets as well as providers with regional
expertise.
|
Energy yield
|
Estimated based on third party
energy yield assessments campaigns as well as operational
performance data (where applicable) by
taking into account regional expertise of a second
analyst.
|
Inflation rates
|
Long-term inflation is based on
central bank targets for the respective jurisdiction.
|
Capital expenditure
|
Based on the contractual position
(e.g., engineering, procurement and construction agreement), where
applicable.
|
Valuation sensitivities
For each of the sensitivities, it is
assumed that potential changes occur independently of each other
with no effect on any other base case assumption, and that the
number of investments remains static throughout the modelled
life.
The Net Asset Value impacts from
each sensitivity are shown below.
Discount rates
The Discounted Cash Flow (''DCF'')
valuation of the investments which are held at fair value
represents one component of the Net Asset Value of the Group and
the key sensitivities are considered to be the discount rate used
in the DCF valuation and assumptions.
The weighted average valuation
discount rate applied to calculate the investment valuation is 7.7%
at 31 December 2023. An increase or decrease in this rate by 0.5%
at investment level has the following effect on
valuation.
|
31 December
2023
|
31 December
2022
|
|
+0.5%
|
-0.5%
|
-0.5%
|
+0.5%
|
|
Change
|
Change
|
Change
|
Change
|
Discount rate
|
£'000
|
£'000
|
£'000
|
£'000
|
Valuation
|
(242)
|
250
|
(488)
|
512
|
Power price
Long-term power price forecasts are
provided by leading market consultants and are updated quarterly.
The sensitivity below assumes a 10% increase or decrease in
merchant power prices relative to the base case for every year of
the asset life. The sensitivity considers a flat 10% movement in
power prices for all years, i.e. the effect of adjusting the
forecast electricity price assumptions in each of the jurisdictions
applicable to the investments down by 10% and up by 10% from the
base case assumptions for each year throughout the operating life
of the investment.
A change in the forecast electricity
price assumptions by plus or minus 10% has the following effect on
valuation.
|
31 December
2023
|
31 December
2022
|
|
-10.0%
|
+10.0%
|
-10.0%
|
+10.0%
|
|
Change
|
Change
|
Change
|
Change
|
Power price
|
£'000
|
£'000
|
£'000
|
£'000
|
Valuation
|
(64)
|
66
|
(542)
|
547
|
Energy yield
The base case assumes a ''P50''
level of output. The P50 output is the estimated annual amount of
electricity generation (in MWh) that has a 50% probability of being
exceeded both in any single year and over the long term and a 50%
probability of being under-achieved. Hence the P50 is the expected
level of generation over the long term. The sensitivity illustrates
the effect of a 10% lower annual production (a downside case) and a
10% higher annual production (upside case). The sensitivity is
applied throughout the whole term of the projects.
The table below shows the
sensitivity of the project values to changes in the energy yield
applied to cash flows from projects as explained above.
|
31 December
2023
|
31 December
2022
|
|
-10.0%
|
+10.0%
|
-10.0%
|
+10.0%
|
|
Change
|
Change
|
Change
|
Change
|
Energy yield
|
£'000
|
£'000
|
£'000
|
£'000
|
Valuation
|
(555)
|
533
|
(1,570)
|
1,866
|
Inflation rates
As most payments are fixed and not
linked to the inflation rate, a sensitivity of the inflation rate
has only a negligible impact on the NAV.
Capital expenditure
The Company has contractual
protections if capex is delayed (i.e. reduce the capex or increase
receivables due) and the Company is not obliged to fund the overrun
costs. Therefore, capex sensitivities are not appropriate for the
Company's type of investments.
Investments at amortised cost
a)
Investments at amortised cost
The disclosure below presents the
gross carrying value of financial instruments to which the
impairment requirements in IFRS 9 are applied and the associated
allowance for ECL. Please see Note 3 for more detail on the
allowance for expected credit loss (''ECL'') where the Group has
classified the investment portfolio according to stages.
The following table analyses loans
by staging for the Group as at 31 December 2023:
|
31 December
2023
|
31 December
2022
|
|
Gross
|
|
Net
|
Gross
|
|
Net
|
|
carrying
|
Allowance
|
carrying
|
carrying
|
Allowance
|
carrying
|
|
amount
|
for ECL
|
amount
|
amount
|
for ECL
|
amount
|
Group
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Fixed value investments at amortised cost
|
|
|
|
|
|
|
Stage 1
|
54,399
|
(259)
|
54,140
|
37,735
|
(77)
|
37,658
|
Stage 2
|
156
|
(24)
|
132
|
951
|
(59)
|
892
|
Stage 3
|
2,306
|
(1,588)
|
718
|
-
|
-
|
-
|
Total assets
|
56,861
|
(1,871)
|
54,990
|
38,686
|
(136)
|
38,550
|
|
|
|
|
|
|
|
As noted in the Investment Adviser's
Report the Superbonus investments, which in total amount to £30.96
million of the gross carrying amount of £54.40 million of Stage I
investments, have been experiencing delays with final payments from
the buyers of the tax credits generated by these projects. The ECL
provisions for Superbonus investments are based on the exposures
being considered as remaining in Stage 1. Payments for validated
tax credits in certain cases have not been made within 90 days of
seeking payment from the buyers of the tax credits. The decision
not to move the classification of these investments from Stage 1 to
Stage 2 is based on the judgment that
there has been no significant deterioration in the credit risk for
the following reasons:
· there
has been a significant de-risking of the construction risks in the
Superbonus projects;
· the
large majority of the 109 projects have now secured tax credit
certification, a significant improvement on the position as at the
end of September 2023;
· the
delays in payment are attributable in large part to bureaucratic
delays in processing large volumes of tax credits generated by
other projects/ESCOs and not just those financed by the
Company;
· payments for tax credits generated by tranches 1 and 2 of
relevant projects have been made; and
· £2.9m
of final payments have been received of which £2.0m in the year to
date.
If the projects identified as
experiencing payment delays of over 90 days were moved to Stage 2
there would be no increase in the allowance for ECL since the
amounts due are within 12 months. Notwithstanding the comments
above, by way of illustration, if the PDs and LGDs were increased
by 4 times and 2 times respectively the allowance for ECL would
increase by £0.45 million.
b)
Expected credit loss allowance for IFRS 9
Impairment provisions are driven by
changes in credit risk of instruments, with a provision for
lifetime expected credit losses recognised where the risk of
default of an instrument has increased significantly since initial
recognition.
The following table analyses Group
ECL by stage.
|
2023
|
2022
|
Group
|
£'000
|
£'000
|
At 1 January
|
136
|
-
|
Charge for the year - Stage
1
|
182
|
77
|
Charge for the year - Stage
2
|
(35)
|
59
|
Charge for the year - Stage
3
|
1,588
|
-
|
Allowance for ECL at 31 December
|
1,871
|
136
|
Stage 3 losses
The Stage 3 losses relate to two
investments: Ega Energy and the sub-metering investment in
Germany.
Ega Energy - (£475,000)
The CHP investment for a food
producer, Vale of Mowbray, to which £0.9 million had been deployed,
as previously reported, remains on hold because Vale of Mowbray was
placed into administration. Discussions continue between Ega
Energy, the developer of the original project, and the new owner of
the site, a cold store logistics business. However, the new owner
of the site has not yet decided whether or how to proceed with the
CHP investment. Ega Energy remains confident that it will be
able to deploy the CHP equipment either at this site or at the
sites of other potential clients in the UK. Nevertheless, the
Group has increased the provision against this investment from
£0.06 million as at 31 December 2022 to £0.48 million at the
period end and the Group is forecasting that no further capital
will be deployed to this investment.
Sub-metering investment in Germany -
(£1,111,000)
The Company invested a total of £1.7
million in the sub-metering investment in Germany investment in
April and June 2022 of which £0.4 million had been redeemed at the
year end. The investment was made by way of a subscription for a
note issued by a SPV. The SPV is party to a series of contracts
with various landlords for the provision of sub-metering, hardware,
maintenance and billing services contracts. The SPV appointed an
insolvency administrator in October 2023. The provision of
£1,111,000 is based on an offer from a potential buyer.
Measurement uncertainty and sensitivity analysis of
ECL
The recognition and measurement of
ECL is complex and involves the use of judgement and estimation.
This includes the formulation and incorporation of multiple
forward-looking economic conditions into ECL to meet the
measurement objective of IFRS 9.
The ECL recognised in the financial
statements reflects the effect on expected credit losses of a range
of three possible outcomes, calculated on a probability-weighted
basis, based on the economic scenarios described in Note 3 to the
financial statements, including management overlays where required.
The probability-weighted amount is typically a higher number than
would result from using only the base (most likely) economic
scenario. ECLs typically have a non-linear relationship to the many
factors which influence credit losses, such that more favourable
macroeconomic factors do not reduce defaults as much as less
favourable macroeconomic factors increase defaults. The ECL
calculated for each of the scenarios represents three outcomes that
have been evaluated to estimate ECL. As a result, the ECL
calculated for the upside and downside scenarios should not be
taken to represent the upper and lower limits of possible actual
ECL outcomes. There is a high degree of estimation uncertainty in
numbers representing tail risk scenarios when assigned a 100%
weight. A wider range of possible ECL outcomes reflects uncertainty
about the distribution of economic conditions and does not
necessarily mean that credit risk on the associated loans is higher
than for loans where the distribution of possible future economic
conditions is narrower.
In addition to the scenario analysis
outlined above, two further extreme downside scenarios were
provided as follows: the first scenario is LGD% assumed increased
to 100%, in which event we calculate that this would result in an
ECL of £2,906,575. A further second, harsher scenario would be to
assume that in addition to an LGD% of 100%, the PD% is also
increased by 50%. In this case the ECL would be
£3,206,722.
Investment in Subsidiaries (Company level)
The Company has two subsidiaries,
AHL and in the SPV. The Company's investment in its subsidiary,
AHL, is composed of equity shares. The Company's investments in AHL
is held at cost less impairment in the Company's Statement of
Financial Position. The Company's investment in its subsidiary,
SPV, is composed of loan notes receivables. The Company's
investments in the SPV is held at fair value through profit or
loss.
The composition of the Company's
investment in subsidaries is as follows:
|
2023
|
2022
|
Company
|
£'000
|
£'000
|
Investment in SPV, at fair value
through profit or loss
|
35,683
|
31,220
|
Investment in AHL, held at cost less
impairment
|
9,971
|
-*
|
Investment in subsidiaries
|
45,654
|
31,220
|
The movement of the Company's
investments in AHL are as follows:
|
2023
|
2022
|
Gross carrying amount
|
£'000
|
£'000
|
Balance 1 January
|
-
|
-
|
Additions during the year
|
11,791
|
-*
|
Balance 31 December
|
11,791
|
-*
|
Accumulated impairment
|
|
|
Balance 1 January
|
-
|
-
|
Impairment loss
recognised
|
(1,820)
|
-
|
Balance 31 December
|
(1,820)
|
-
|
Carrying amount at 31 December
|
9,971
|
-*
|
* The investment in
AHL for the year ended 31 December 2022 was £1.
5.
INVESTMENT INCOME
Group
|
For the
year
ended
31 December
2023
£'000
|
For the year
ended
31 December
2022
£'000
|
Investment
interest income
|
5,027
|
1,646
|
Bank
interest income
|
921
|
551
|
Total investment
income
|
5,948
|
2,197
|
Company
|
For the
year
ended
31
December
2023
£'000
|
For the
year ended
31
December 2022
£'000
|
Investment
interest income
|
3,426
|
235
|
Bank
interest income
|
654
|
462
|
Total
investment income
|
4,080
|
697
|
6.
INVESTMENT ADVISORY FEES
|
For the year ended 31
December 2023
|
For the year ended 31
December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Group
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Investment advisory fees
|
808
|
-
|
808
|
615
|
-
|
615
|
|
For the year ended 31
December 2023
|
For the year ended 31
December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Company
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Investment advisory fees
|
808
|
-
|
808
|
615
|
-
|
615
|
Under the Investment Advisory
Agreement, the following fee is payable to the Investment
Adviser:
(i) 0.95 per cent. per annum
of committed capital of the Company up to and including £500
million; and
(ii) 0.75 per cent. per annum of
committed capital of the Company above £500 million.
7.
OTHER EXPENSES
|
For the year ended 31
December 2023
|
For the year ended 31
December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Group
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Secretary and administrator
fees
|
281
|
-
|
281
|
319
|
-
|
319
|
Tax compliance
|
62
|
-
|
62
|
37
|
-
|
37
|
Directors' fees
|
281
|
-
|
281
|
143
|
-
|
143
|
Broker's fees
|
182
|
-
|
182
|
61
|
-
|
61
|
Auditors' fees*
|
|
|
|
|
|
|
- Fees payable to the Company's
auditors for
|
|
|
|
|
|
|
the audit of the Company's annual
accounts
|
590
|
-
|
590
|
211
|
-
|
211
|
- Fees payable to the Company's
auditors
|
|
|
|
|
|
|
and its associates for other
services:
|
|
|
|
|
|
|
Audit of the accounts of
subsidiaries
|
26
|
-
|
26
|
16
|
-
|
16
|
AIFM fees
|
91
|
-
|
91
|
98
|
-
|
98
|
Registrar's fees
|
23
|
-
|
23
|
16
|
-
|
16
|
Marketing fees
|
104
|
-
|
104
|
107
|
-
|
107
|
FCA and listing fees
|
26
|
-
|
26
|
17
|
-
|
17
|
Investment expenses
|
332
|
-
|
332
|
222
|
-
|
222
|
Legal fees
|
235
|
-
|
235
|
365
|
-
|
365
|
Other expenses
|
259
|
-
|
259
|
174
|
-
|
174
|
Total other expenses
|
2,492
|
-
|
2,492
|
1,786
|
-
|
1,786
|
|
For the year ended 31
December 2023
|
For the year ended 31
December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Company
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Secretary and administrator
fees
|
199
|
-
|
199
|
233
|
-
|
233
|
Tax compliance
|
41
|
-
|
41
|
37
|
-
|
37
|
Directors' fees
|
203
|
-
|
203
|
108
|
-
|
108
|
Broker's fees
|
182
|
-
|
182
|
61
|
-
|
61
|
Auditors' fees*
|
|
|
|
|
|
|
- Fees payable to the Company's
auditors for
|
|
|
|
|
|
|
the audit of the Company's annual
accounts
|
590
|
-
|
590
|
211
|
-
|
211
|
- Fees payable to the Company's
auditors and its associates for other services:
|
|
|
|
|
|
|
audit of the accounts of
subsidiaries
|
26
|
-
|
26
|
16
|
-
|
16
|
AIFM fees
|
91
|
-
|
91
|
98
|
-
|
98
|
Registrar's fees
|
23
|
-
|
23
|
16
|
-
|
16
|
Marketing fees
|
104
|
-
|
104
|
107
|
-
|
107
|
FCA and listing fees
|
26
|
-
|
26
|
17
|
-
|
17
|
Legal fees
|
235
|
-
|
235
|
351
|
-
|
351
|
Other expenses
|
192
|
-
|
192
|
120
|
-
|
120
|
Total other expenses
|
1,912
|
-
|
1,912
|
1,375
|
-
|
1,375
|
|
|
|
|
|
|
| |
* For
the year to 31 December 2023, the statutory audit fees to the
Company's auditors and its associates for the audit of the Company
and consolidated financial statements was £336,000 (2022: £187,000)
excluding VAT. The audit fees payable to the Company's auditors and
its associates for the audit of the Company's subsidiaries is
£21,500 (2022: £16,000) excluding VAT, which was paid for by the
Parent entity. Included in the above audit fees are overruns
relating to the previous year's audit amounting to £177,500 (2022:
£nil), excluding VAT. This is explained further in the Audit and
Risk Committee Report.
8.
TAXATION
(a)
Analysis of charge in the year
|
For the year ended 31
December 2023
|
For the year ended 31
December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Group
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Corporation tax
|
-
|
-
|
-
|
-
|
-
|
-
|
Taxation
|
-
|
-
|
-
|
-
|
-
|
-
|
|
For the year ended 31
December 2023
|
For the year ended 31
December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Company
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Corporation tax
|
-
|
-
|
-
|
-
|
-
|
-
|
Taxation
|
-
|
-
|
-
|
-
|
-
|
-
|
(b)
Factors affecting total tax charge for the year
The effective UK corporation tax
rate applicable to the Group for the year is 23.5% (2022: 19%). The
tax charge differs from the charge resulting from applying the
standard rate of UK corporation tax for an investment trust
company.
The differences are explained
below:
|
For the year ended
31 December 2023
|
For the year ended
31 December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Group
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Profit/(loss) on ordinary activities
before taxation
|
913
|
(609)
|
304
|
(340)
|
477
|
137
|
Corporation tax at 23.5% (2022:
19%)
|
215
|
(143)
|
72
|
(65)
|
91
|
26
|
Effects of:
|
|
|
|
|
|
|
Utilisation of carried forward tax
losses/
|
|
|
|
|
|
|
management expenses
|
(320)
|
(35)
|
(355)
|
65
|
-
|
65
|
Movement on investments not
taxable
|
(310)
|
178
|
(132)
|
-
|
-
|
-
|
Loss not recognised
|
415
|
-
|
415
|
-
|
(91)
|
(91)
|
Total tax charge for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
|
For
the year ended 31 December 2023
|
For
the year ended 31 December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Company
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
(Loss)/Profit on ordinary activities
before taxation
|
(681)
|
924
|
243
|
(1,293)
|
2,045
|
752
|
Corporation tax at 23.5% (2022:
19%)
|
(160)
|
217
|
57
|
(246)
|
389
|
143
|
Effects of:
|
|
|
|
|
|
|
Utilisation of carried forward tax
losses/
|
|
|
|
|
|
|
management expenses
|
(320)
|
-
|
(320)
|
246
|
-
|
246
|
Non-deductible impairment
|
480
|
-
|
480
|
-
|
-
|
-
|
Gain on investments not
taxable
|
-
|
(217)
|
(217)
|
-
|
(389)
|
(389)
|
Total tax charge for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
Investment companies which have been
approved by HM Revenue & Customs under section 1158 of the
Corporation Tax Act 2010 are exempt from tax on capital gains. Due
to the Company's status as an investment trust, and the intention
to continue meeting the conditions required to obtain approval in
the foreseeable future, the Company has not provided for deferred
tax on any capital gains or losses arising on the revaluation of
investments.
The Company has not recognised a
deferred tax asset of £89,000 (2022: £429,000) on trading losses of
£369,000 (2022: £429,000) in the UK. The asset has not been
recognised as it is considered unlikely that the Company will
generate sufficient future profits against which to utilise the
assets. There is no time limit for expiry of the losses. On 3 March
2021, the UK Government announced its intention to increase the
rate of UK corporation tax rate from 19% to 25% with effect from 1
April 2023. The increase to 25% was substantively enacted on 24 May
2021 and, accordingly, the unrecognised deferred tax asset has been
measured using the 25% tax rate.
9.
RETURN PER ORDINARY SHARE
Group
Return per share is based on the
consolidated profit for the year of £304,000 (2022: £137,000)
attributable to the weighted average number of Ordinary Shares in
issue of 100,000,000 in the year to 31 December 2023 (2022:
Ordinary Shares in issue 100,000,000). Consolidated revenue profit
and capital loss are £913,000 (2022: Consolidated revenue loss of
£340,000) and £609,000 (2022: Consolidated capital gains of
£477,000) respectively.
Company
Return per share is based on the
profit for the year of £243,000 attributable to the weighted
average number of Ordinary Shares in issue of 100,000,000 in the
year to 31 December 2023 (2022: Company gain of £752,000; weighted
average number of Ordinary Shares in issue 100,000,000). Company
revenue loss and capital gain are £681,000 (2022: Company revenue
loss of £1,293,000) and £924,000 (2022: Company capital gain of
£2,045,000) respectively.
10.
TRADE AND OTHER RECEIVABLES
|
As at 31 December
2023
|
As at 31 December
2022
|
|
Company
|
Group
|
Company
|
Group
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Intercompany receivable
|
-
|
-
|
32,966
|
-
|
Shareholder loan
receivable
|
27,293
|
-
|
-
|
-
|
Unsettled trades
|
-
|
272
|
-
|
-
|
Trade and other
receivables
|
255
|
380
|
33
|
70
|
Total
|
27,548
|
652
|
32,999
|
70
|
As at 31 December 2023, the Company
has an intercompany receivable from AHL in the amount of £nil
(2022: £32,966,000).
The amount is non-interest bearing
and payable on demand.
As at 31 December 2023, the Company
has a shareholder loan receivable from AHL in the amount of
£27,293,000 (2022: £nil), which is net of ECL provision of £221,000
(2022: £nil). The initial interest rate was 7.90% per annum which
is then being adjusted every fourth quarter of the financial year
in order for the Company not to have a gross margin of less than
50bps from its financing activities. The loan is repayable in full
on 31 December 2046.
11.
CREDITORS: AMOUNTS FALLING DUE IN ONE YEAR
|
As at 31 December
2023
|
As at 31 December
2022
|
|
Company
|
Group
|
Company
|
Group
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Accrued expenses
|
874
|
1,016
|
867
|
892
|
Unsettled payment of notes
purchased
|
-
|
-
|
177
|
-
|
Unsettled trades
|
-
|
41
|
-
|
-
|
Other creditors
|
-
|
-
|
6
|
12
|
Total
|
874
|
1,057
|
1,050
|
904
|
12.
SHARE CAPITAL
|
As at 31 December
2023
|
As at 31 December
2022
|
|
No. of
shares
|
£'000
|
No. of
shares
|
£'000
|
Allotted, issued and fully
paid:
|
|
|
|
|
Ordinary Shares of 1p each
("Ordinary Shares")
|
100,000,000
|
1,000
|
100,000,000
|
1,000
|
Total
|
100,000,000
|
1,000
|
100,000,000
|
1,000
|
On incorporation, the issued share
capital of the Company was 1 Ordinary Share of £0.01 issued to the
subscriber to the Company's memorandum. The Company's issued share
capital was increased by £50,000 represented by 50,000 Management
Shares of nominal value £1.00 each, which were subscribed for by
the Investment Adviser. Following Admission, the Management Shares
were redeemed by the holder.
On incorporation on 2 June 2021,
99,999,999 Ordinary Shares were allotted and issued to Shareholders
as part of the placing and offer for subscription in accordance
with the Company's prospectus dated 10 May 2021.
|
Shares in issue
at
|
|
Shares in
issue
|
|
the
beginning
|
Shares
|
at the end
of
|
For
the year ended 31 December 2023
|
of the year
|
subscribed
|
the year
|
Management Shares
|
-
|
-
|
-
|
Ordinary Shares
|
100,000,000
|
-
|
100,000,000
|
|
Shares in issue
at
|
|
Shares in
issue
|
|
the beginning
of
|
Shares
|
at the end
of
|
For
the year ended 31 December 2022
|
the year
|
subscribed
|
the year
|
Management Shares
|
-
|
-
|
-
|
Ordinary Shares
|
100,000,000
|
-
|
100,000,000
|
13.
SPECIAL RESERVE
As indicated in the Company's
prospectus dated 10 May 2021, following admission of the Company's
Ordinary Shares to trading on the London Stock Exchange, the
Directors applied to the Court and obtained a judgement on 12
August 2021 to cancel the amount standing to the credit of the
share premium account of the Company. The amount of the share
premium account cancelled and credited to a special reserve was
£97,000,000. As at 31 December 2023, the total special reserves
were £93,500,000 (2022: £94,750,000).
14.
NET ASSETS PER ORDINARY SHARE
The Group's net assets per Ordinary
Share as at 31 December 2023 is based on £94,281,000 (2022:
£95,227,000) of net assets of the Group attributable to the
100,000,000 Ordinary Shares in issue as at 31 December 2023 (2022:
100,000,000).
The Company's net assets per
Ordinary Share as at 31 December 2023 is based on £94,876,000
(2022: £95,883,000) of net assets of the Company attributable to
the 100,000,000 Ordinary Shares in issue as at 31 December
2023 (2022: 100,000,000).
15.
DIVIDEND
The Company has paid the following
interim dividends in respect of the year under review:
|
For the year
ended
|
For the year
ended
|
|
31 December
2023
|
31 December
2022
|
|
Pence per
|
Total
|
Pence per
|
Total
|
Total dividends paid in the year
|
Ordinary
Share
|
£'000
|
Ordinary
Share
|
£'000
|
30 June 2022 interim - Paid 31
October 2022
|
N/A
|
N/A
|
1.00p
|
1,000
|
30 September 2022 interim - Paid 9
December 2022
|
N/A
|
N/A
|
1.25p
|
1,250
|
31 December 2022 interim - Paid 20
March 2023
|
1.25p
|
1,250
|
N/A
|
N/A
|
Total
|
1.25p
|
1,250
|
2.25p
|
2,250
|
The dividend relating to the year
ended 31 December 2023, which is the basis on which the
requirements of section 1159 of the Corporation Tax Act 2010
are considered, is detailed below:
|
For the year
ended
|
For the year
ended
|
|
31 December
2023
|
31 December
2022
|
|
Pence per
|
Total
|
Pence per
|
Total
|
Total dividends declared in the year
|
Ordinary
Share
|
£'000
|
Ordinary
Share
|
£'000
|
30 June 2022 interim - Paid 31
October 2022
|
-
|
-
|
1.00p
|
1,000
|
30 September 2022 interim - Paid 9
December 2022
|
-
|
-
|
1.25p
|
1,250
|
31 December 2022 interim - Paid 20
March 2023
|
-
|
-
|
1.25p
|
1,250
|
Total
|
-
|
-
|
3.50p
|
3,500
|
16.
FINANCIAL RISK MANAGEMENT
The Investment Adviser, AIFM and the
Administrator report to the Board on a quarterly basis and provide
information to the Board which allows it to monitor and manage
financial risks relating to the Group's operations. The Group's
activities expose it to a variety of financial risks: market risk
(including price risk, interest rate risk and foreign currency
risk), credit risk and liquidity risk. These risks are monitored by
the AIFM. Each risk and its management are summarised
below.
(i)
Currency risk
Foreign currency risk is defined as
the risk that the fair values of future cash flows will fluctuate
because of changes in foreign exchange rates. The Group's and the
Company's financial assets and liabilities are denominated in GBP
and EUR and substantially all of their revenues and expenses are in
GBP and EUR. The Group and the Company are therefore exposed to
foreign currency risk.
For any non-base currency assets,
the Investment Adviser can use forward foreign exchange contracts
to seek to hedge up to 100% of non-GBP exposure.
The Company does not intend to use
hedging or derivatives for investment purposes but may use
derivative instruments such as forwards, options, future contracts
and swaps to hedge currency, inflation, interest rates, commodity
prices and/or electricity prices.
With many of its investment assets
held in Euros, the Group uses a series of regular forward foreign
exchange contracts to provide a level of protection against
movement in the Sterling exchange rate. Under these arrangements
the Group is required to provide £2.5 million in cash as collateral
for these forward foreign exchange contracts. Following the failure
of the Continuation Vote, the Group is currently reviewing the
strategic options for realising value for Shareholders. The Board
will consider the appropriateness of the current hedging
arrangements and the cash collateral as part of the review of
strategic options and in light of the cash requirements of the
Group.
The currency profile of the Group as
at 31 December 2023 is as follows:
|
31 December
2023
|
31 December
2022
|
|
GBP
|
EUR
|
Total
|
GBP
|
EUR
|
Total
|
Assets
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Cash and cash equivalents
|
23,547
|
5,535
|
29,082
|
37,444
|
9,181
|
46,625
|
Trade and other
receivables
|
159
|
493
|
652
|
33
|
37
|
70
|
Derivative financial
instruments
|
122
|
-
|
122
|
-
|
-
|
-
|
Investments
|
3,566
|
61,916
|
65,482
|
4,306
|
45,986
|
50,292
|
Total assets
|
27,394
|
67,944
|
95,338
|
41,783
|
55,204
|
96,987
|
Liabilities
|
|
|
|
|
|
|
Creditors
|
(901)
|
(156)
|
(1,057)
|
(900)
|
(4)
|
(904)
|
Derivative financial
instruments
|
-
|
-
|
-
|
(856)
|
-
|
(856)
|
Total liabilities
|
(901)
|
(156)
|
(1,057)
|
(1,756)
|
(4)
|
(1,760)
|
If the value of Sterling against the
Euro increased or decreased by 10% (2022: 10%), if all other
variables remained constant, the NAV of the Group would increase or
decrease by £6,794,000 (2022: £5,520,000).
The currency profile of the Company
as at 31 December 2023 is as follows:
|
31 December
2023
|
31 December
2022
|
|
GBP
|
EUR
|
Total
|
GBP
|
EUR
|
Total
|
Assets
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Cash and cash equivalents
|
19,884
|
2,664
|
22,548
|
32,169
|
545
|
32,714
|
Intercompany balance with Attika
Holdings
|
-
|
-
|
-
|
16,371
|
16,595
|
32,966
|
Shareholder loan
receivable
|
27,293
|
-
|
27,293
|
|
|
|
Trade and other
receivables
|
255
|
-
|
255
|
33
|
-
|
33
|
Investments
|
9,971
|
35,683
|
45,654
|
-
|
31,220
|
31,220
|
Total assets
|
57,403
|
38,347
|
95,750
|
48,573
|
48,360
|
96,933
|
Liabilities
|
|
|
|
|
|
|
Creditors
|
(874)
|
-
|
(874)
|
(1,050)
|
-
|
(1,050)
|
Total liabilities
|
(874)
|
-
|
(874)
|
(1,050)
|
-
|
(1,050)
|
If the value of Sterling against the
Euro increased or decreased by 10% (2022: 10%), if all other
variables remained constant, the NAV of the Group would increase or
decrease by £3,835,000 (2022: £4,836,000).
(ii) Interest rate risk
The Group's interest rate risk on
interest bearing financial assets is limited to interest earned on
cash and investments. The interest rates of investments held at
amortised cost are fixed, therefore the interest rate risk is
minimal. Investments held at fair value through profit or loss have
variable returns based on e.g. power production levels and not on
variability in interest rates.
The Group's interest rate risk on
interest bearing financial assets is limited to interest earned on
cash and investments. The interest rates of investments are fixed,
therefore the interest rate risk is minimal.
The Group's interest and
non-interest bearing assets and liabilities as at 31 December 2023
are summarised below:
|
31 December
2023
|
31 December
2022
|
|
Interest
|
Non-interest
|
|
Interest
|
Non-interest
|
|
|
bearing
|
bearing
|
Total
|
bearing
|
bearing
|
Total
|
Assets
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Cash and cash equivalents
|
27,817
|
1,265
|
29,082
|
44,854
|
1,771
|
46,625
|
Trade and other
receivables
|
-
|
652
|
652
|
-
|
70
|
70
|
Derivative financial
instruments
|
-
|
122
|
122
|
-
|
-
|
-
|
Investments
|
54,990
|
10,492
|
65,482
|
38,550
|
11,742
|
50,292
|
Total assets
|
82,807
|
12,531
|
95,338
|
83,404
|
13,583
|
96,987
|
Liabilities
|
|
|
|
|
|
|
Creditors
|
-
|
(1,057)
|
(1,057)
|
-
|
(904)
|
(904)
|
Derivative financial
instruments
|
-
|
-
|
-
|
-
|
(856)
|
(856)
|
Total liabilities
|
-
|
(1,057)
|
(1,057)
|
-
|
(1,760)
|
(1,760)
|
The Company's interest and
non-interest bearing assets and liabilities as at 31 December in
each reporting year are summarised below:
|
31 December
2023
|
31 December
2022
|
|
Interest
|
Non-interest
|
|
Interest
|
Non-interest
|
|
|
bearing
|
bearing
|
Total
|
bearing
|
bearing
|
Total
|
Assets
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Cash and cash equivalents
|
21,606
|
942
|
22,548
|
31,174
|
1,540
|
32,714
|
Trade and other
receivables
|
-
|
255
|
255
|
-
|
33
|
33
|
Intercompany receivable
|
-
|
-
|
-
|
-
|
32,966
|
32,966
|
Shareholder loan
receivable
|
27,293
|
-
|
27,293
|
-
|
-
|
-
|
Investments
|
35,683
|
9,971
|
45,654
|
31,220
|
-
|
31,220
|
Total assets
|
84,582
|
11,168
|
95,750
|
62,394
|
34,539
|
96,933
|
Liabilities
|
|
|
|
|
|
|
Creditors
|
-
|
(874)
|
(874)
|
-
|
(1,050)
|
(1,050)
|
Total liabilities
|
-
|
(874)
|
(874)
|
-
|
(1,050)
|
(1,050)
|
(iii) Price risk
Price risk is defined as the risk
that the fair value of a financial instrument held by the Group
will fluctuate. As of 31 December 2023, the Group held
investments at fair value through profit or loss with an aggregate
fair value of £10,492,000 (2022: £11,742,000). All other things
being equal, the effect of a 10% increase or decrease in the prices
of the investments held at the year end would have been an increase
or decrease of £1,049,200 (2022: £1,174,000) in the profit after
taxation for the year ended 31 December 2023 and the Group's net
assets at 31 December 2023. The sensitivity of the investment
valuation due to price risk is shown further in Note 4.
As of 31 December 2023, the Company
held investments at fair value through profit or loss with an
aggregate fair value of £35,683,000 (2022: £31,220,000). All other
things being equal, the effect of a 10% increase or decrease in the
prices of the investments held at the year end would have been an
increase or decrease of £3,568,300 (2022: £3,122,000) in the
profit after taxation for the year ended 31 December 2023 and the
Company's net assets at 31 December 2023.
(iv) Credit risk
Credit risk is the risk of loss due
to the failure of a borrower or counterparty to fulfil its
contractual obligations. The Group and the Company are exposed to
credit risk in respect of the investments valued at amortised cost,
interest income receivable and other receivables and cash at bank.
The Group and the Company's credit risk exposure is minimised by
dealing with financial institutions with investment grade credit
ratings.
Continued monitoring of the
investments and the counterparties/service providers, including the
use of credit rating data providers, allows the Investment Adviser
to identify and address these risks early. Where possible, the
Investment Adviser seeks to mitigate credit risks by the
counterparty having the opportunity to sell electricity to the grid
or other customers. The Investment Adviser also seeks to structure
investments whereby contracts can be adapted/extended to
accommodate periods of payment defaults. Diversification of
counterparties and service providers ensures any impact is limited.
In addition, a diversified portfolio provides further
mitigation.
The table below shows the cash
balances of the Group and the Company as well as the credit rating
for each counterparty:
|
|
As at 31 December
2023
|
As at 31 December
2022
|
|
|
Company
|
Group
|
Company
|
Group
|
|
Rating
|
£'000
|
£'000
|
£'000
|
£'000
|
Goldman Sachs - Liquid reserve
fund
|
AAA (Fitch Rating)
|
6,632
|
6,632
|
7,752
|
7,752
|
EFG Deposit account
|
A (Fitch Rating)
|
15,858
|
19,248
|
23,904
|
23,957
|
Royal Bank of Scotland
International
|
A-1/A (S&P Rating)
|
58
|
2,998
|
1,058
|
6,314
|
Bank of New York Mellon
|
AA (Fitch Rating)
|
-
|
204
|
-
|
8,602
|
|
|
22,548
|
29,082
|
32,714
|
46,625
|
The table below shows the amortised
cost investment balances of the Group as well as the credit rating
for each counterparty:
|
As at
|
As at
|
|
31 December
|
31 December
|
Group
|
2023
|
2022
|
A
|
5,871
|
4,138
|
B
|
31,890
|
23,895
|
C
|
16,509
|
10,517
|
D
|
720
|
-
|
|
54,990
|
38,550
|
The Group and the Company classified
each project using a certain credit risk band. Listed below are the
conversion methodologies used:
|
Corresponding
|
Credit risk band
|
S&P rating
range
|
A
|
AAA to
A-
|
B
|
BBB+ to
BBB-
|
C
|
BB to
CC-
|
D
|
Default
|
(v)
Liquidity risk
Liquidity risk is the risk that the
Company may not be able to meet a demand for cash or fund an
obligation when due. The Investment Adviser, AIFM and the Board
continuously monitor forecast and actual cash flows from operating,
financing and investing activities to consider payment of dividends
or further investing activities.
The financial liabilities by
maturity of the Group at the year end are shown below:
|
31 December
2023
|
31 December
2022
|
|
Less than
|
|
|
|
Less than
|
|
|
|
|
1 year
|
1-2 years
|
2-5 years
|
Total
|
1 year
|
1-2 years
|
2-5 years
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Liabilities
|
|
|
|
|
|
|
|
|
Creditors
|
(1,057)
|
-
|
-
|
(1,057)
|
(904)
|
-
|
-
|
(904)
|
Derivative financial
instruments
|
-
|
-
|
-
|
-
|
(856)
|
-
|
-
|
(856)
|
|
(1,057)
|
-
|
-
|
(1,057)
|
(1,760)
|
-
|
-
|
(1,760)
|
The financial liabilities by
maturity of the Company at the year end are shown below:
|
31 December
2023
|
31 December
2022
|
|
Less than
|
|
|
|
Less than
|
|
|
|
|
1 year
|
1-2 years
|
2-5 years
|
Total
|
1 year
|
1-2 years
|
2-5 years
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Liabilities
|
|
|
|
|
|
|
|
|
Creditors
|
(874)
|
-
|
-
|
(874)
|
(1,050)
|
-
|
-
|
(1,050)
|
|
(874)
|
-
|
-
|
(874)
|
(1,050)
|
-
|
-
|
(1,050)
|
As at 31 December 2023, the Group
has total commitments of £5.26 million (31 December 2022: £35.45
million) to its investments which are unfunded.
Capital management
The Company considers its capital to
comprise Ordinary Share capital, distributable reserves and
retained earnings. The Company is not subject to any externally
imposed capital requirements.
The Company's primary capital
management objectives are to ensure the sustainability of its
capital to support continuing operations, meet its financial
obligations and allow for growth opportunities. Generally,
acquisitions are anticipated to be funded by a combination of
current cash and equity.
17.
RELATED PARTY TRANSACTIONS
Fees payable to the Investment
Adviser are shown in the Consolidated Statement of Profit or Loss
and Comprehensive Income. As at 31 December 2023, the fee
outstanding to the Investment Adviser was £361,000 (2022:
£463,000).
Total Directors' fees paid during
the year are as follows:
|
Date
of appointment to
the Board
|
Fees for
the year
ended 31
December 20231
(£)
|
Fees for
the year
ended 31
December 20221
(£)
|
Miriam Greenwood
|
19 April
2021
|
92,852
|
57,585
|
Nicholas Bliss
|
9 April
2021
|
59,794
|
42,226
|
Lisa Arnold2
|
9 April
2021
|
n/a
|
3,231
|
Laura Sandys2
|
9 April
2021
|
n/a
|
3,231
|
David Fletcher
|
29 April
2022
|
71,861
|
30,557
|
Janine Freeman
|
2 November
2022
|
56,512
|
6,642
|
Total
|
|
281,019
|
143,472
|
There are no outstanding Directors'
fees at year end.
1
Including fees in respect
of directorships in AHL.
2
Resigned on 28 January
2022.
Directors' holdings
At 31 December 2023 and at the date
of this report the Directors had the following holdings in the
Company. There is no requirement for Directors to hold shares in
the Company. All holdings were beneficially owned.
|
As at 31 December
2023
|
As at 31 December
2022
|
|
Shares
|
Connected
person
|
Total
|
Shares
|
Connected
person
|
Total
|
Miriam Greenwood
|
24,000
|
-
|
24,000
|
24,000
|
-
|
24,000
|
David Fletcher
|
42,425
|
14,181
|
56,606
|
41,785
|
13,951
|
55,736
|
Nicholas Bliss
|
20,000
|
-
|
20,000
|
20,000
|
-
|
20,000
|
Janine Freeman
|
-
|
-
|
-
|
-
|
-
|
-
|
The following table shows the
subsidiaries of the Company. Please refer to Note 2; these
subsidiaries have been consolidated in the preparation of the
financial statements.
Subsidiary entity name and registered
address
|
Effective ownership
|
Investment
|
Country of incorporation
|
Attika Holdings Limited
Leaf B, 20th Floor,
Tower 42,
Old Broad Street, London,
England, EC2N 1HQ
|
100%
|
HoldCo subsidiary entity,
owns underlying investments
|
United Kingdom
|
SPV Project 2013 S.r.l.
Via Vittorio
Betteloni, 2 20131,
Milan, Italy
|
100% of the notes of one
compartment
|
Special purpose entity,
owns underlying investments
|
Italy
|
Company related party transactions
As at 31 December 2023, the Company
has an intercompany receivable from AHL in the amount of £nil
(2022: £32,966,000). The amount is non-interest bearing and payable
on demand.
As at 31 December 2023, the Company
has a shareholder loan receivable from AHL in the amount of
£27,293,000 (2022: £nil). The initial interest rate was 7.90% per
annum which is then being adjusted every fourth quarter of the
financial year in order for the Company not to have a gross margin
of less than 50bps from its financing activities. The loan is
repayable in full on 31 December 2046.
As at 31 December 2023, the Company
has a total of £35,683,000 (2022: £31,220,000) notes at fair value
through profit or loss in the Italian SPV.
As at 31 December 2023, the Company
has a total of £9,971,000 (2022: £1.00) equity investment held at
cost less impairment in AHL.
18.
DISTRIBUTABLE RESERVES
The Company's distributable reserves
consist of the special reserve and revenue reserve. Capital reserve
represents unrealised investments and as such is not
distributable.
The revenue reserve is
distributable. The amount of the revenue reserve that is
distributable is not necessarily the full amount of the reserve as
disclosed within these financial statements. As at 31 December
2023, the Company has no distributable revenue reserves as the
Company is in a loss position of £2,547,000 (2022: loss of
£1,866,000).
The Company's special reserve, which
is also distributable, was £93,500,000 as at 31 December 2023
(2022: £94,750,000).
19.
SUBSEQUENT EVENTS
On 19 April 2024, the Company
published a circular in respect of proposals that up to 18,561,732
Ordinary Shares may be purchased under the Tender Offer for a
maximum aggregate cash consideration of £17.5 million at a fixed
price of 94.28 pence per Ordinary Share. The Company is convening a
General Meeting for 11.30 a.m. on 13 May 2024 to consider and, if
thought fit, pass the Tender Offer Resolution to authorise and to
approve the terms under which the Tender Offer will be
effected.
ALTERNATIVE PERFORMANCE MEASURES OF THE
GROUP
OTHER INFORMATION (UNAUDITED)
In reporting financial information,
the Company presents alternative performance measures ("APMs")
which are not defined or specified under the requirements of IFRS.
The Company believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance
of the Company. There have been no changes in these APMs from the
prior year. The APMs presented in this report are shown
below:
(Discount)/premium
The amount, expressed as a
percentage, by which the share price is more than the Net Asset
Value per Ordinary Share.
|
|
|
As at
|
As at
|
|
|
|
31 December
|
31 December
|
|
|
|
2023
|
2022
|
NAV per Ordinary Share
(pence)
|
a
|
|
94.28
|
95.23
|
Share price (pence)
|
b
|
|
57.25
|
71.00
|
Discount
|
(b÷a)-1
|
|
(39.3%)
|
(25.4%)
|
Ongoing charges
A measure, expressed as a percentage
of average net assets, of the regular, recurring annual costs of
running an investment company. The average net assets has been
computed as the average of the published NAV for 31 December 2022,
30 June 2023 and 31 December 2023.
|
|
|
As at
|
As at
|
|
|
|
31 December
|
31 December
|
|
|
|
2023
|
2022
|
Average NAV
|
a
|
|
94,349
|
96,835
|
Annualised expenses
|
b
|
|
3,300
|
2,5371
|
Ongoing charges
|
(b÷a)
|
|
3.5%
|
2.6%
|
1
Figure includes investment advisory fees and other
expenses as disclosed in the Consolidated Statement of Profit or
Loss and Comprehensive Income.
Total return
A measure of performance that
includes both income and capital returns. This takes into account
capital gains and reinvestment of dividends paid out by the Company
into the Ordinary Shares of the Company on the ex- dividend
date.
31
December 2023
|
|
|
Share price
|
NAV
|
Opening at 1 January 2023
(pence)
|
a
|
|
71.00
|
95.23
|
Dividend adjustment
|
b
|
|
1.25
|
1.25
|
Closing at 31 December 2023
(pence)
|
c
|
|
57.25
|
94.28
|
Total return
|
((c+b)÷a)-1
|
|
(17.6%)
|
0.3%
|
|
|
|
|
|
31
December 2022
|
|
|
Share price
|
NAV
|
Opening at 1 January 2022
(pence)
|
a
|
|
95.75
|
97.38
|
Dividend adjustment
|
b
|
|
2.25
|
2.25
|
Closing at 31 December 2022
(pence)
|
c
|
|
71.00
|
95.23
|
Total return
|
((c+b)÷a)-1
|
|
(25.8%)
|
(2.2%)
|
n/a = not applicable
FINANCIAL INFORMATION
Year ended 31 December 2023
The figures and financial information
for the year ended 31 December 2023 are extracted from the
Company's Annual Financial Statements for that year and do not
constitute statutory financial statements for that year. The
Company's Annual Financial Statements for the year ended 31
December 2023 have been audited but have not yet been delivered to
the Registrar of Companies. The Independent Auditor's Report on the
2023 Financial Statements was unqualified, did not include a
reference to any matter to which the Auditors drew attention
without qualifying the report, and did not contain any statements
under sections 498(2) and 498(3) of the Companies Act
2006.
Year ended 31 December 2022
The figures and financial information
for the year ended 31 December 2022 are extracted from the
Company's Financial Statements for that year and do not constitute
statutory financial statements for that year. The Company's Annual
Financial Statements for the year ended 31 December 2022 have been
audited and delivered to the Registrar of Companies. The
Independent Auditor's Report on the 2022 Financial Statements was
unqualified, did not include a reference to any matter to which the
Auditors drew attention without qualifying the report, and did not
contain any statements under sections 498(2) and 498(3) of the
Companies Act 2006.
ANNUAL REPORT
The Annual Report for the year ended
31 December 2023 was approved on 30 April 2024. The Company's
AGM will be held on 12 June 2024 at 2.00pm at the offices
of CMS Cameron McKenna
Nabarro Olswang LLP located at Cannon Place, 78 Cannon Street,
London EC4N 6AF. The Company will publish an announcement to
confirm when the full Annual Report and the AGM notice are
available to access via the Company's website
at: https://www.aquila-energy-efficiency-trust.com/
and via the National
Storage Mechanism at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
This announcement contains regulated
information under the Disclosure Guidance and Transparency Rules of
the FCA.
30 April 2024
For further information
contact:
Company Secretary and registered
office:
Apex Listed Companies Services (UK)
Limited
6th Floor, 125 London Wall, London,
EC2Y 5AS
END