TIDMBSIF
RNS Number : 0174R
Bluefield Solar Income Fund Limited
08 September 2014
8 September 2014
BLUEFIELD SOLAR INCOME FUND LIMITED
Full Year results
Annual Report and Consolidated Financial Statements for the
period from incorporation on 29 May 2013 to 30 June 2014
Operational Highlights
-- The Company was listed on the Premium Segment of the London
Stock Exchange on 12 July 2013 raising GBP130m;
-- The objective of the Company is to deliver long-term, stable
dividends growing in-line with the Retail Price Index ("RPI");
-- The Company raised a further GBP13m on 21 February 2014,
through a placing under the authority granted at launch;
-- Between listing and 30 June, 2014, the Company announced ten
acquisitions from total commitments of GBP147 million with an
estimated combined energy capacity of 128 Megawatts Peak
("MWp");
-- Of the ten acquisitions made up to 30 June 2014, nine assets
are operational with a consideration of GBP125 million and a
capacity of 111 MWp. The remaining asset, committed to in June,
2014, is under construction and is expected to be grid connected in
Quarter 4, 2014;
-- The Company funded the acquisitions using the proceeds of the
Initial Public Offering ("IPO") and the oversubscribed placing, and
will subsequently utilise a GBP50 million revolving credit facility
("Facility") arranged with The Royal Bank of Scotland plc
("RBS");
-- Since 30 June, 2014, a further two acquisitions have been
made thus bringing the total acquisitions to date to twelve taking
the total commitments to GBP162 million and a combined energy
capacity of 143 MWp;
-- The Company has committed to a diversified portfolio of
assets using five different contractors;
-- Attractively priced acquisitions and strong contractual
protections give the Directors comfort that the portfolio will
achieve the target return of 7 pence per share annually, rising
with RPI.
-- The Company will seek to increase annual distributions after
the successful execution of management strategies including driving
technical and operational efficiencies across the portfolio and the
strategic use of appropriate levels of leverage;
-- Total dividends of 4 pence per share were declared in respect
of the period ended 30 June 2014.
Financial Highlights
As at 30 June 2014
Number of Ordinary Shares in Issue 143,426,684
Market Capitalisation/Share Price GBP147,184,463/102.62p
Net Asset Value ("NAV")/NAV per GBP147,676,019/102.96p
share
Total dividend per share for period 4.0 pence
Chairman John Rennocks said: "The Board is confident that the
portfolio will deliver the target returns to our shareholders and,
importantly, will provide the Company with a solid platform from
which to grow its asset base. We are pleased to meet our first year
target for dividends and remain confident that we can deliver our
projected returns in the coming years".
A copy of the Annual Report and Audited Financial Statements has
been submitted to the National Storage Mechanism and will shortly
be available for inspection at www.morningstar.co.uk/uk/NSM. The
Annual Report and Audited Financial Statements will also shortly be
available on the Company's website at www.bluefieldsif.com where
further information on the Company can also be found.
A conference call for analysts will be held at 10.00am today
(Monday, 8 September 2014). To register for the call please contact
Tom Karim at Capital MSL tom.karim@capitalmsl.com or call him on
020 3219 8820 or 07923 293399
Enquiries:
James Armstrong / Mike Rand / Giovanni Terranova
Bluefield Partners LLP - Company Investment Adviser
Tel: +44 (0)2070780020
Tod Davis / David Benda
Numis Securities Limited - Company Broker
Tel: +44 (0)2072601000
Kevin Smith
Heritage International Fund Managers Limited - Company Secretary
& Administrator
Tel: +44 (0)1481716000
Note to editors:
About Bluefield Solar Income Fund Limited (the "Company" or
"BSIF")
BSIF is a Guernsey-registered investment company focusing on
large scale agricultural and industrial solar assets. The Company
raised gross proceeds of GBP130m in July 2013 through an initial
public offering ("IPO") of shares on the main market of the London
Stock Exchange. It raised a further GBP13m capital via a tap issue
in February 2014.
The Company seeks to provide shareholders with an attractive
return, principally in the form of semi-annual income
distributions, by investing in a diversified portfolio of solar
energy assets, each located within the UK, with a focus on utility
scale assets and portfolios on greenfield, industrial and/or
commercial sites. The Company delivered on its target dividend of 4
pence per share in relation to the first financial year ending 30
June 2014. It is seeking to deliver 7 pence per share in respect of
the Company's second financial year, rising with RPI
thereafter.
About Bluefield Partners LLP ("Bluefield")
Bluefield was established in 2009 and is an investment adviser
to companies and funds investing in solar energy infrastructure.
The Investment Adviser's team has a proven record in the selection,
acquisition and supervision of large scale energy and
infrastructure assets in the UK and Europe. The team has been
involved in over GBP500m of solar photovoltaic ("PV") funds and/or
transactions in both the UK and Europe since 2008, including over
GBP235m in the UK since December 2011.
Bluefield has led the acquisitions, and currently advises on
over 50 UK based solar assets that are agriculturally, commercially
or industrially situated. Based in its London office, Bluefield's
partners are supported by a dedicated and highly experienced team
of investment, legal and portfolio executives.
Bluefield was appointed Investment Adviser to the Company in
June 2013.
Chairman's Statement
Introduction
It gives me great pleasure to introduce the Company's inaugural
annual report, which details how our initial business plan has been
successfully executed. The investment strategy adopted by the
Company has enabled rapid deployment of the proceeds of the 2013
IPO and a subsequent 10% share placing into a high quality asset
base acquired at attractive prices. The Board is confident that the
portfolio will deliver the target returns to our shareholders and,
importantly, will provide the Company with a solid platform from
which to grow its asset base. We are pleased to meet our first year
target for dividends and remain confident that we can deliver our
projected returns in the coming years.
Investment Strategy
The Company has a diversified, high quality, operational
portfolio acquired at a significant discount to the prices being
paid by other solar investors. We believe this derives from the
Company's adoption of an intelligent and appropriate investment
strategy for the period to 30 June 2014; being able to fund assets
through the construction phase, as the Report will show, has
created a significant pricing benefit to our shareholders over our
peer group.
The reasoning for the strategy is simple. The UK solar market
has seen its primary asset base expand rapidly via developers and
contractors who, in the vast majority of cases, were unable to fund
construction on their own balance sheets. Making protected
milestone payments during the short and straightforward
construction phase has given the Company access to the widest pool
of potential assets whilst removing a layer of external financing
cost.
Market Growth
The Company is well placed to take advantage of the growth in
the solar power market. The sector that has driven the increase in
installed capacity has been the large scale, ground based
installations, a market that is continuing to see high levels of
activity. In the period since our listing, installed capacity
across the UK has grown from c.700MWp to an estimated 2.2GWp(1) .
It is a big success story for the renewable energy industry and the
sector continues to have very high public approval ratings. I
expect the Company to continue to invest in both the primary and
the growing secondary sectors of the market.
We also expect to see growth in other sectors of the UK solar
market, which should create attractive opportunities. For example,
the UK government is looking to encourage significant investment
into the commercial and industrial market. In July 2014, the
Department of Energy and Climate Change ("DECC") offered
significant insight into its ambition for this sector by targeting
growth in installed capacity from below 3GWp in March 2014 to
11-12GWp by 2020. It is estimated that this step change in capacity
would require investments of GBP12-13 billion, double what has been
invested in the previous three years. The majority of this should
come from commercial and industrial installations and the Company
and its advisers will be working with DECC as this market develops.
The Company's Investment Adviser pioneered acquisitions in the
commercial and industrial market, including projects with companies
such as Thames Water, and is working closely with government as it
seeks to unlock this huge potential.
Regulation
The Company, supported by the Investment Adviser, has been
consistently supportive of the government's desire to create
balanced growth across the different solar sectors. The move to
Contracts for Difference ("CfD") is one example where, by seeking
to drive cost efficiencies in the support mechanism via an auction
process, the outcome should be a more sustainable, long term
market. That said, the Company is aware that there is concern in
certain parts of government about the growth in agriculturally
situated solar farms and we believe the Company is well positioned
to take advantage of different opportunities as they arise. The
very significant government ambition for commercial and industrial
rooftop installations gives our Company the potential to be
involved in a new investment market over the coming years, one that
should be attractive to our shareholders. Regulated markets are
always subject to change and on most measures the investment
conditions that the UK government has established keep the UK solar
market an attractive one for institutional investors looking for
long term yield.
__________
(1) SolarBuzz who provide an industry database has a figure of
2.2GWp as at July, 2014 of installations of >50kWp, DECC's
published installed capacity is lower however their figures tend to
lag actual installations.
Portfolio performance
It is too early to sensibly review the portfolio performance as
the majority of the assets became operational only in the first
quarter of 2014. It is, however, encouraging that in our first full
quarter of operations our projects achieved our base case
projections through a combination of higher irradiation and
effective contract management with our suppliers in the early
phases of building and operating our portfolio of projects. It
should be noted that this achievement was in the context of a drop
in power prices during the period which had some impact on the
short term power purchase agreements entered into by the
investments.
Valuation
The valuation, which has been undertaken on a prudent basis,
gives a modest uplift to the NAV and the methodology and
assumptions underpinning this are detailed in the Report of the
Investment Adviser. I would like to highlight a couple of areas in
advance of this section:
1. Moving from cost based valuation to discounted cash-flow:
during the deployment phase, the majority of the assets were
pre-operational at the time of commitment. As the valued portfolio
is now operational it seems appropriate to move to a discounted
cash-flow model;
2. The valuation is based on a discount rate of 7.8%, which we
believe to be appropriate to reflect both the business risks we
face and the financial climate in which we operate. We believe the
assumptions we have used, which are set out in detail are in line
with or more conservative than those being adopted by others in our
sector.
We also firmly believe in full transparency in the presentation
of our financial and operating performance and in this, our first
year of activity, we have sought to provide shareholders with
detailed and clear analysis of our projects and how we have
approached valuation at the period end. In the coming years we
expect to continue this policy of full transparency.
The Investment Adviser
In the run up to our listing in July 2013 and in our first busy
year of investing in and commissioning our portfolio of projects we
have worked very closely with our Investment Adviser, and I wish to
record our recognition of the excellent support we have received
from their team, ably led by James Armstrong, Mike Rand and
Giovanni Terranova; their Investment Committee, led by Bill
Doughty, which carries out a thorough review of all our projects
before they are put forward to our Board for consideration; and
their Valuation Committee led by Dr. Anthony Williams. They have
given us excellent understandings and analysis of the sector and
the projects in which we have invested.
The Board
I would like to make particular reference to my Board of
Directors.
John Scott, the senior independent director, has brought a
wealth of financial and commercial experience to the board. Paul Le
Page, the chairman of the Audit Committee, and Laurence McNairn,
our Guernsey based directors, have brought great experience and
insight, especially in their respective key areas of audit and fund
administration. All my colleagues are a pleasure to work with and
would be an asset to any company and I look forward to continuing
to work with them all as we grow the Company in the years
ahead.
Outlook
The Company and its Investment Adviser have worked hard to
deliver a high quality, operational portfolio to our shareholders
and create a clear competitive advantage over our peer group. I
expect the Company to use this advantage in the coming months as we
seek to achieve disciplined growth of the portfolio through the use
of our short term acquisition facility and further equity
issuance.
There are challenges ahead for future investments as the market
moves to different pricing mechanisms through CfD and targets a
wider range of projects including commercial and industrial sites.
We believe this will lead to new and exciting projects in which to
invest and that we are well placed as the leading solar specialist
investor to continue to give our shareholders access to a market
leading dividend yield from a growing and diverse solar operating
base.
John Rennocks
Chairman
5 September 2014
Strategic Report
Introduction
The Strategic report sets out:
1. Company's Objectives and Strategy
2. Company's Operating Model
3. Investment Policy
4. Operational & Financial Review for the period (including
Key Performance Indicators "KPI")
5. Directors Valuation of Group's Portfolio
6. Principal Risks and Uncertainties
7. Policies, approach and achievements adopted in respect of
Corporate Social Responsibility
References in this report to the Company mean Bluefield Solar
Income Fund Limited (and together with its wholly owned subsidiary,
Bluefield SIF Investments Limited, "the Group").
1. Company's Objectives and Strategy
The Company seeks to provide shareholders with an attractive
return, principally in the form of semi-annual income
distributions, by investing in a portfolio of large scale UK based
solar energy infrastructure assets. The Company targeted a dividend
of 4 pence per Ordinary Share in relation to the financial period
ending 30 June 2014 and targets a dividend of 7 pence per Ordinary
Share in respect of the Company's second financial year, with the
intention of this rising annually thereafter with the RPI. Subject
to maintaining a prudent level of reserves, the Company aims to
achieve this through optimisation of asset performance, future
acquisitions and use of gearing. The first interim dividend for the
period ended 31 December 2013 of 2 pence per Ordinary Share was
declared and paid in April 2014. For the period to 30 June 2014,
the Company achieved its targeted dividend of 4 pence per Ordinary
Share with the second interim dividend to be paid on 31 October
2014. The Operational and Financial Review section in the Strategic
Review provides further information relating to performance during
the period.
2. Company's Operating Model
Structure
The Company holds and manages its investments through a UK
limited company, BSIFIL, in which it is the sole shareholder.
Management
Board and Committees
The Board is responsible to shareholders for the overall
management of the Company. The Board has adopted a Schedule of
Matters Reserved for the Board which sets out the particular duties
of the Board. Such reserved powers include decisions relating to
the determination of investment policy, approval of new
investments, oversight of the Investment Adviser, approval of
changes in strategy, risk assessment, Board composition, capital
structure, statutory obligations and public disclosure, financial
reporting and entering into any material contracts by the
Company.
Through the Committees and the use of external independent
advisers, the Board manages risk and governance of the Company. The
Board consists of four independent non-executive Directors. See the
Corporate Governance Report for further details.
Investment Adviser
The Company has entered into an Investment Advisory Agreement
with the Investment Adviser. This sets out the Investment Adviser's
key responsibilities, which include identifying and recommending
suitable investments for the Company to enter into and negotiating
on behalf of the Company the terms on which such investments will
be made.
Through a Technical Services Agreement with BSIFIL the
Investment Adviser is also responsible for all issues relating to
the supervision and monitoring of existing investments (included
within the fee cap under the Investment Advisory Agreement). A
summary of the fees paid to the Investment Adviser is given in Note
5 of the consolidated financial statements.
Administrator
The Board has also delegated administration and company
secretarial services to the Administrator.
Further details on the responsibilities assigned to the
Investment Adviser and the Administrator can be found in the
Corporate Governance Report.
Employees and Officers of the Company
The Company does not have any employees and therefore policies
for employees are not required. The Directors of the Company are
listed under the Board of Directors section.
Investment Process
Through its record of investment in the UK solar energy market,
the Investment Adviser has developed a rigorous approach to
investment selection, appraisal and commitment. This investment
process is based upon repeat transaction experience with specialist
advisers; application of standardised terms which have been
developed and refined based upon direct experience of operating
solar assets; and through a rigorous internal approval process
prior to issuing investment recommendations. All investment
recommendations and divestments by the Investment Adviser are
subject to review and approval by the Company's experienced Board
of Directors. The Board is aware of the overall pipeline of
potential new investments and possible disposal of existing ones,
and the status of each. Board approval is also required before
significant due diligence and transaction costs are incurred, and
where material variations to the agreed terms of the final
transaction are required before execution of that transaction.
Repeat transaction experience with specialist advisers
The Investment Adviser has worked with legal, technical,
insurance and accounting advisers in each of the transactions it
has executed in the UK market. This direct experience has enabled
it to develop an understanding of key areas of competence to
address specific issues; for example, identifying specific
individuals who are expert in advising in specific detailed
technical aspects of a project. Through this direct specialist
experience, the Investment Adviser is able to source relevant
expertise to address project issues both during and following a
transaction.
Application of standardised terms developed based upon direct
experience
The Investment Adviser has developed standardised terms which
have been specifically tested by reference to real transaction and
project operational experience. Whilst contract terms are
specifically negotiated and tailored for each individual project,
solar project contracts applied by the Investment Adviser typically
have specific protections from the construction contracts regarding
recovery of revenue losses for underperformance and obligations for
correction of defects. Both such provisions have been specifically
exercised by the Investment Adviser giving it direct experience in
activating contractual protections.
Rigorous internal approval process
All investment recommendations issued to the Company, and all
investment recommendations made in relation to previous
transactions of the Investment Adviser are made following the
formalised review process described below:
(1) Investment origination and review by Managing Partners
Before incurring costs in relation to the preparation of a
transaction, a project is concept reviewed by the Investment
Adviser's Managing Partners, following which a letter of interest
or memorandum of understanding is issued and project exclusivity is
secured.
(2) Director Concept Approval
In the event that material costs are to be incurred in pursuing
a transaction a concept paper is issued by the Investment Adviser
for review by the Directors of the Company. This concept review
fixes a project budget as well as confirming the project proposal
is in line with the Company's investment policy and strategy.
(3) Due diligence
In addition to applying its direct commercial experience in
executing solar photovoltaic ("PV") project acquisitions and
managing operational solar plants, the Investment Adviser engages
legal, technical and, where required, insurance and accounting
advisers to undertake independent due diligence in respect of a
project. Where specialist expertise is required due to project
specificities, the Investment Adviser has experience in identifying
relevant experts.
(4) Bluefield Partners LLP Investment Committee
Investment recommendations issued by the Investment Adviser are
made following the submission of a detailed investment paper to the
Investment Committee. The Investment Committee operates on the
basis of unanimous consent and has a track record of making
detailed evaluation of project risks. The investment paper
submitted to the Investment Committee discloses all interests which
the Investment Adviser and any of its affiliates may have in the
proposed transaction.
(5) Group Board approval
Following approval by the Investment Adviser Investment
Committee, investment recommendations are issued by the Investment
Adviser to the Group for review by the boards of the Company and
BSIFIL. Both the Company and the BSIFIL board undertake detailed
review meetings with the Investment Adviser to assess the project
prior to determining any approval. Both board approvals are
required in order for a transaction to be approved. If the boards
of the Company and BSIFIL approve the relevant transaction, the
Investment Adviser is authorised to execute the transaction in
accordance with the Investment Adviser's recommendation and any
condition stipulated in the boards' approval.
(6) Closing memorandum
Prior to executing the transaction the Investment Adviser
completes a closing memorandum confirming that the final
transaction is in accordance with the terms presented in the
investment paper to the Investment Committee, detailing any
material variations and outlining how any conditions to the
approval of the Investment Committee and/or Board approval have
been addressed. This closing memorandum is countersigned by an
appointed member of the Investment Committee prior to closing the
transaction.
Managing conflicts of interest
The Investment Adviser and any of its members, directors,
officers, employees, agents and connected persons, and any person
or company with whom they are affiliated or by whom they are
employed may be involved in other financial, investment or other
professional activities which may cause potential conflicts of
interest with the Company and its investments.
The Directors have noted that the Investment Adviser has other
clients and have satisfied themselves that the Investment Adviser
has procedures in place to address potential conflicts of interest.
The potential conflicts of interest are disclosed in the investment
recommendation for each investment.
3. Investment Policy
The Group invests in a diversified portfolio of solar energy
assets, each located within the UK, with a focus on utility scale
assets and portfolios on greenfield, industrial and/or commercial
sites. The Group targets long life solar energy infrastructure,
expected to generate stable renewable energy output over a 25 year
asset life.
Individual solar assets or portfolios of solar assets are held
within Special Purpose Vehicles ("SPV") into which the Group
invests through equity and/or debt instruments. The Group seeks to
obtain legal and operational control through direct or indirect
stakes of up to 100% in such SPVs, but may participate in joint
ventures or minority interests where this approach enables the
Group to gain exposure to assets within the Company's investment
policy which the Group would not otherwise be able to acquire on a
wholly-owned basis.
The Group may make use of non-recourse finance at the SPV level
to provide leverage for specific solar energy infrastructure assets
and portfolios provided at the time of entering into (or acquiring)
any new financing, total non-recourse financing within the
portfolio will not exceed 50% of the prevailing Gross Asset Value.
In addition, the Group may, at holding company level, make use of
short-term debt finance to facilitate the acquisition of
investments, but such short-term debt (when taken together with the
SPV finance noted above) will also be limited so as not to exceed
50% of the Gross Asset Value.
No single investment in a solar energy infrastructure asset
(excluding any third party funding or debt financing in such asset)
represents, on acquisition, more than 25% of the Net Asset Value
("NAV"). The portfolio provides diversified exposure through the
inclusion of not less than five individual solar energy
infrastructure assets. Diversification is achieved across various
factors such as grid connection points, individual landowners and
leases, providers of key components (such as PV panels and
inverters) and assets being located across various geographical
locations within the UK.
The Group aims to derive a significant portion of its targeted
return through a combination of RPI-linked Feed-in Tariffs ("FiT")
and the sale of Renewable Obligation Certificates ("ROC") (or any
such regulatory regimes that replace them from time to time). Both
such regimes are currently underwritten by UK government regulation
providing a level of FiTs or ROCs fixed for 20 years and each
regime benefits from an annual RPI escalation. The Group also
intends, where appropriate, to enter into Power Purchase Agreements
with appropriate counterparties, such as co-located industrial
energy consumers or wholesale energy purchasers.
Investment Restrictions
The Company currently complies with the investment restrictions
set out below and will continue to do so for so long as they remain
requirements of the FCA:
-- neither the Company nor any of its subsidiaries will conduct
any trading activity which is significant in the context of the
Group as a whole;
-- the Company must, at all times, invest and manage its assets
in a way which is consistent with its object of spreading
investment risk and in accordance with the published investment
policy; and
-- not more than 10% of the Gross Asset Value at the time of
investment is made will be invested in the other closed-ended
investment funds which are listed on the Official List.
Changes to Investment Policy
The Directors do not currently intend to propose any material
changes to the Company's investment policy, save in the case of
exceptional or unforeseen circumstances. As required by the UK
Listing Authority listing rules ("Listing Rules"), any material
change to the investment policy of the Company will be made only
with the approval of shareholders.
4. Operational & Financial Review for the period
Key Performance Indicators ("KPI"s)
The Board has identified the following indicators for assessing
the Company's annual performance in meeting its objectives:
As at 30 June 2014
Market Capitalisation GBP147,184,463
Share price 102.62p
First interim dividend paid in the period GBP2,605,792
First interim dividend paid in the period
per share 2.0p
Second interim dividend per share 2.0p
NAV GBP147,676,019
NAV per share 102.96p
Total Return (based on NAV increase
and dividends) 7.0%
Total Return to shareholders (based
on share price and dividends) 4.6%
------------------------------------------ --------------
Acquisitions
During the period, the Company completed 10 acquisitions for a
total committed consideration of GBP146.8m. Each investment has
been carefully selected to ensure the portfolio is well balanced
geographically, with appropriate levels of diversification of
construction and operation contractors and key equipment.
Portfolio Performance
Of the 10 investments made during the financial period, nine
were contracted at or during the construction phase with the
remaining one purchased with a track record of operation.
All projects successfully entered operation during the year
(with the exception only of Project Hoback which was contracted in
June 2014 for completion in Quarter 4, 2014). Although a number of
projects commenced operation after the contracted construction
deadlines, contractual protection enabled the Group to benefit from
contractor delay liquidated damages which fully compensated the
applicable investment vehicle for delays in generation keeping
revenues in line with budget. All projects commenced operations in
the target ROC banding period.
While as at the financial period end it is too early to make
definitive statements regarding meaningful performance indicators
for those projects which had been in construction in the period,
(due to the majority entering operation only in late Quarter 1,
2014,) the irradiation and portfolio yield in the short period of
operation was overall ahead of expectations. The operational asset
which was acquired in October 2013 has performed in line with
budget over the nine month period. Notwithstanding the positive
initial performance it is notable that 2014 power prices declined
in the first quarter of 2014 resulting in a fall in the pricing of
Power Purchase Agreements ("PPA") between 2013 and 2014. The
Company's PPA strategy is to enter into short term contracts with
contracting periods staggered quarterly across the portfolio in
order to minimise the portfolio's sensitivity to similar short-term
price volatility.
Summary Consolidated Statement of Comprehensive Income
As at 30 June 2014
Total Income GBP12,039,100
Administrative expenses GBP2,054,320
Transaction costs GBP508,102
Finance costs GBP32,633
--------------------------- -----------------------
Total comprehensive income GBP9,444,045
before tax
Tax -
--------------------------- -----------------------
Total comprehensive income GBP9,444,045
--------------------------- -----------------------
Earnings per share 6.99p
Total Income for the period represents the return recognised in
the consolidated statement of comprehensive income from the
combined impacts of valuation movement and investment income
(derived from interest income and consultancy services fees paid by
the SPV investment companies to BSIFIL). The total comprehensive
income of GBP9.4m reflects the performance of the Group when
operating costs are included. Further detail on valuation movements
is given in the Report of the Investment Adviser.
Cost Analysis
A breakdown of the administrative expenses paid is provided
below. Further details of the administrative expenses can be found
in Note 5 of the consolidated financial statements.
Administrative expenses Period ended 30 June % of NAV as at 30
2014 June 2014
GBP
------------------------- --------------------- ------------------
Fees to Investment
Adviser (1,204,987) 0.81%
Legal and professional
fees (21,900) 0.01%
Administration fees (145,076) 0.10%
Directors' remuneration (150,986) 0.10%
Audit fees (35,000) 0.02%
Other expenses (127,485) 0.09%
------------------------- --------------------- ------------------
Total recurring (1,685,434) 1.13%
Legal and professional
fees (319,600) 0.22%
Non-audit fees (25,875) 0.02%
Listing fees (12,018) 0.01%
Other expenses (11,393) 0.01%
------------------------- --------------------- ------------------
Total non-recurring (368,886) 0.26%
Total administrative
expenses (2,054,320) 1.39%
------------------------- --------------------- ------------------
On-going charges
On-going charges is a measure of the day to day costs of
managing the Group. It is expressed in terms of a percentage
reduction in shareholder returns assuming markets remain static and
the investment portfolio is not traded.
The fees the Investment Adviser receives are based on the NAV
and are in line with the growth in the investment portfolio and do
not contain any variable fee element.
On-going charges Period ended 30 June
2014
GBP
------------------------------ ---------------------
Annualised on-going charges* (1,737,806)
------------------------------ ---------------------
Average NAV 134,673,931
------------------------------ ---------------------
On-going charges (1.29%)
------------------------------ ---------------------
*As the Group has only been in operation since 12 July 2013,
this is an annualised figure of recurring administrative expenses
from the Cost Analysis table above.
The on-going charges ratio is calculated in accordance with the
Association of Investment Companies ("AIC") recommended
methodology, which excludes non-recurring costs, i.e. legal advice
in relation to the RBS facility.
A more detailed analysis of the Group's financial performance
can be found in the consolidated financial statements.
Group debt facility
On 11 June 2014 the Group entered into an agreement with the RBS
for the provision of an acquisition facility of up to GBP50m. The
Facility has a margin of 2.25% over LIBOR and is due to expire on
10 June 2017.
As at the period end the Facility remained undrawn.
5. Directors' Valuation of Group's portfolio
The Investment Adviser is responsible for carrying out the fair
market valuation of the Company's investments.
Valuations are carried out on a six monthly basis as at 31
December and 30 June each year and the Company has committed to
procure a review of valuations by an independent expert not less
than once every three years, the first of which is expected in
2016.
As the portfolio comprises only non-market traded investments,
the Investment Adviser has adopted valuation guidelines based upon
the International Private Equity and Venture Capital Valuation
Guidelines 2012, ("IPEV Valuation Guidelines") as adopted by the
European Venture Capital Association, application of which is
considered consistent with the requirements of compliance with IAS
39 and IFRS 13.
In accordance with these guidelines the Investment Adviser has
prepared its valuations on the basis of discounted cash-flow
methodology, exercising its judgement in assessing the expected
future cash-flows, project life, financial model and discount rate.
The application of a discounted cash-flow methodology for the
valuation at 30 June 2014 is a variation from the Company's interim
financial statements dated 31 December 2013, where by applying the
same guidelines the Company valued its investments at cost on the
basis that the assets had been recently invested most remained
under construction.
Following the recommendation of the Investment Adviser, the
Directors' Valuation adopted for the portfolio as at 30 June 2014
was GBP136.1m representing a 6.9% uplift on investment cost,
derived from a combination of income generated within the
investments and revaluation uplift under discounted cash-flow
methodology.
A detailed analysis of the Directors' Valuation is presented in
the Report of the Investment Adviser.
6. Principal Risks and Uncertainties
Under the FCA's Disclosure and Transparency Rules, the Directors
are required to identify those material risks to which the Group is
exposed and take appropriate steps to mitigate those risks.
The Directors have identified the following as the key risks
faced by the Company:
Risk Description Mitigation/Approach
------------------------ -------------------------------- ------------------------------
Poor commercial This could involve missed Pipeline investments
investment decisions investment opportunities. that have been identified
were reviewed by the
Investment Adviser
and the appropriate
due diligence was carried
out. The Board relies
on the experience of
the Investment Adviser
and their expertise
to source further investment
opportunities for the
Company.
------------------------ -------------------------------- ------------------------------
The Company may acquire The Board reviews market
or dispose of an investment pricing comparisons
at a price that is not where relevant prior
in the best interest of to approving transactions.
shareholders.
------------------------ -------------------------------- ------------------------------
Over-reliance on The ability of the Company Through the investment
key personnel of to achieve its investment and advisory fee, the
the Investment Adviser objective depends heavily Investment Adviser
on the experience of the is incentivised to
management team associated achieve the Company's
with the Investment Adviser, investment objectives.
and more generally on the Additionally, the Board
Investment Adviser's ability has broad discretion
to attract and retain suitable to monitor the performance
staff. As a result, the of the Investment Adviser
success of the Company or to appoint a replacement.
will depend largely upon
the ability and continuing In the event that any
availability of the Investment one of the key persons,
Adviser. The death, incapacity as defined in the Investment
or loss of the service Advisory Agreement,
of key individuals of the is no longer a member
Investment Adviser would or employee of the
have a material adverse Investment Adviser,
impact on the business the Board can terminate
of the Company and the the Investment Advisory
investments made. Agreement. The Board
has negotiated key
man provisions in the
Investment Advisory
Agreement that permit
early termination.
------------------------ -------------------------------- ------------------------------
Risk Description Mitigation/Approach
--------------------------- ----------------------------------- -------------------------------
Poor timing of Investments This entails portfolio The timing of deals
cash management and the and the availability
ability to pay dividends. of finance is carefully
managed in order to
avoid any lost opportunities.
--------------------------- ----------------------------------- -------------------------------
Delays in the completion The Board mitigates
of the solar sites possibly the risk of not being
due to manpower, connection able to pay by ensuring
timings or missing components that all purchase/deal
could impact the Company's agreements include
income flow and its ability a "water tight" clause
to pay dividends. to ensure compensation
fees are due if the
solar sites are unfinished
by a specific date
or if the grid is not
connected by a certain
date following completion.
--------------------------- ----------------------------------- -------------------------------
This also involves the The Investment Adviser
risk of all site PPAs expiring ensures that when the
at the same time, which agreements are initially
could result in a lack put in place, the end
of income and therefore dates of the investments
a lack of funds for distribution. are staggered in order
to ensure a constant
flow of revenue.
--------------------------- ----------------------------------- -------------------------------
Loss of cash This involves the risk The Administrator has
of fraud, defalcation, procedures in place
credit risk default by designed to detect
the deposit counterparty and deter fraud such
or other instruments and as:
interest rate/capital value (i) "Four eyes" approach
risk. to all payments (six
eyes for matters that
require two "A" Signatories);
(ii) Authorisation
limits for payments;
and
(iii) Approval of invoices
by the Investment Adviser.
The Administrator also
has whistle blowing
procedures in place
and policies that comply
with the Anti-Bribery
legislation.
--------------------------- ----------------------------------- -------------------------------
Risk Description Mitigation/Approach
--------------------- -------------------------------- ----------------------------------
Valuation errors Valuations of the SPV The discount factor
investments are reliant applied to the cash-flows
on large and detailed is reviewed by the Investment
financial models based Adviser to ensure that
on discounted cash-flows. it is set at the appropriate
Significant inputs such level. All papers supporting
as the discount rate, the Gross Asset Value
rate of inflation and calculation and methodology
the amount of electricity used are presented to
the solar assets are expected the Board for approval
to produce are subjective and adoption.
and certain assumptions
or methodologies applied
may prove to be inaccurate.
This is particularly so
in periods of volatility
or when there is limited
transactional data for
solar PV generation against
which the investment valuation
can be benchmarked. Other
inputs such as the price
at which electricity and
associated benefits can
be sold are subject to
government policies and
support.
--------------------- -------------------------------- ----------------------------------
Dependence on the As a consequence of a The Administrator has
Administrator failure by the Administrator, employees with the right
monthly management information skills and resources
is not adequate and/or to perform as appropriate
not received in a timely Administrators. Moreover,
fashion and the financial the Company has entered
statements are filed late, into a detailed administration
and therefore could lead agreement with the Administrator
to damaging market reputation to manage this risk.
of the Company. The Administrator is
also regulated by the
GFSC and is subject
to periodic inspections
and regular compliance
reporting. The Administrator
maintains full Professional
Indemnity and Directors
& Officers insurance.
--------------------- -------------------------------- ----------------------------------
Counterparty failure The Company engages with The Administrator collates
various providers and information to provide
counterparties. The success a historical track record
of the business and its of the counterparties
investments will rely which give comfort to
on the appropriate parties the Board and the Investment
being engaged and their Adviser.
ability to deliver on Price comparisons are
the agreed terms. made across competitors
to ensure value for
money is obtained.
--------------------- -------------------------------- ----------------------------------
Risk Description Mitigation/Approach
---------------------- ------------------------------- ---------------------------------
Weaknesses or failings The Company ensures
by the counterparties that the selection process
could potentially have of the counterparties
adverse consequences for are carefully monitored
the Company in achieving and due regard given
its objectives. to their performance
and financial standing,
through collation of
appropriate due diligence.
Further, the Company
mitigates the risk by
diversifying the counterparties
with which it engages.
The Administrator ensures
that the counterparties
provide procedures and
control documents as
well as financial statements
in an effort to mitigate
potential for contractor
bankruptcy.
---------------------- ------------------------------- ---------------------------------
Changes in regulation The Company is authorised The Company has appointed
and regulated by the GFSC the Administrator to
in Guernsey. The GFSC act as Compliance Officer.
may determine that the The Company also liaises
Company's activities should with its Administrator
be subject to increased to ensure compliance
regulation or compliance with the latest GFSC
requirements. requirements.
---------------------- ------------------------------- ---------------------------------
The Company's activities After seeking professional
in the UK are subject regulatory and legal
to regulation under the advice, the Company
Alternative Investment was established in Guernsey
Fund Management Directive as self-managed Alternative
("AIFMD"). Investment Fund. The
Company continues to
monitor developments
under AIFMD and its
impact on the Company.
---------------------- ------------------------------- ---------------------------------
The Company must comply The Company liaises
with the full handbook with its Broker, Administrator
of the Main Market of and other advisers,
the London Stock Exchange. as required to ensure
compliance with the
latest full handbook
requirements.
---------------------- ------------------------------- ---------------------------------
A change in tax legislation The Investment Adviser
applicable to engages external tax
any member of the Group advisers to determine
or the underlying investments the impact on returns.
could result in increased
tax liabilities for the
Group and a consequential
reduction in yield or
capital to investors.
---------------------- ------------------------------- ---------------------------------
Risk Description Mitigation/Approach
--------------------- ------------------------------ ---------------------------------
Insider Dealing Individuals working on The risk of unauthorised
behalf of the Company insider trading is mitigated
and employees of its service by the Company through
providers potentially the maintenance of an
have access to sensitive, insider trading list.
non-public information The Investment Adviser
about the Company which and the Administrator
may be used for personal review this list and
benefit. confirm that the counterparties
are aware of their obligations.
--------------------- ------------------------------ ---------------------------------
Unfavourable weather Annual income generation The Company uses on
conditions of the Company is sensitive site measurement of
to weather conditions irradiation in order
and in particular to the to measure performance
level of irradiation across against budget, and
the investment locations. its portfolio is relatively
Variability in weather dispersed across the
could result in greater south of the United
than 10% variability in Kingdom. The use of
revenue generation year solar photovoltaic technology
on year. at the sites means generation
is not dependent only
on direct irradiation
but also on predictable
daylight limiting short
term volatility when
compared to other weather
dependent electricity
generation.
--------------------- ------------------------------ ---------------------------------
These inherent risks associated with investments in the solar
energy sector could result in a material adverse effect on the
Company's performance and value of Ordinary Shares.
The above risks are mitigated and managed by the Board through
continual review, policy setting and half-yearly review of the
Company's risk matrix by the Audit Committee to ensure that
procedures are in place with the intention of minimising the impact
of the above mentioned risks. The Board carried out its first
formal review of the risk matrix at the Audit Committee meeting
held on 26 February 2014. The Board relies on periodic reports
provided by the Investment Adviser and Administrator regarding
risks that the Company faces. When required, experts will be
employed to gather information, including tax advisers, legal
advisers, and environmental advisers.
7. Policies, approach and achievements adopted in respect of
Corporate Social Responsibility ("CSR")
The Directors and the Investment Adviser are focused on the
corporate objective of providing investors with an ethical,
socially responsible and transparently managed Company. The best
standards of governance and CSR are central to the Company's ethics
and important in ensuring the continued attractiveness of the
Company to the broad group of stakeholders with which it interacts.
Beyond the production of sustainable energy from the Company's
portfolio that is expected to save on the emission of millions of
tonnes of CO2 throughout the life of the assets, the Company will
seek to increase biodiversity at the sites by appropriate planting
and landscaping of the land it manages.
Paul Le Page Laurence McNairn
Director Director
5 September 2014 5 September 2014
Report of the Investment Adviser
1. About Bluefield Partners LLP("Bluefield" / "Investment
Adviser")
Bluefield was established in 2009 and is an investment adviser
to companies and funds investing in solar energy infrastructure.
The Investment Adviser's team has a proven record in the selection,
acquisition and supervision of large scale energy and
infrastructure assets in the UK and Europe. The team has been
involved in over GBP500m of solar PV funds and/or transactions in
both the UK and Europe since 2008, including over GBP235m in the UK
since December 2011.
Bluefield has led the acquisitions, and currently advises on
over 50 UK based solar assets that are agriculturally, commercially
or industrially situated. Bluefield was appointed Investment
Adviser to the Company in June 2013. Based in its London office,
Bluefield's partners are supported by a dedicated and highly
experienced team of investment, legal and portfolio executives.
Bluefield's Investment Committee has collective experience of
over GBP7 billion of energy and infrastructure transactions.
2. Investment Strategy
The Company's investment policy has the flexibility to commit to
assets during the construction phase or operational phase. During
the period under review, the Investment Adviser made the strategic
decision to invest primarily in assets during the construction
phase in order to:
1. Maximise quality and scale of dealflow: the strategy
maximised the pool of assets available to the Company. The majority
of developers and contractors in the UK solar market were (and are)
unable to fund on their own balance sheets therefore construction
funders such as Bluefield were able to select their construction
partners and assets from the widest possible pool;
2. Minimise acquisition costs: funding through the construction
phase removes a layer of financing cost provided by third party
construction funders, typically passed on to the end acquirer;
3. Minimise risk via appropriate contractual agreements:
construction funding of solar assets is low risk in nature due to
the simple and quick construction process. Risk can be further
minimised by appropriate contractual agreements. These include
making milestone payments backed, typically, by bonds, security
plant and equipment and significant cash hold backs. For example,
subsidy risk can be largely mitigated during construction in the
event that there was a delay to grid connection. Should a
contractor secure a 1.4 ROC banding as opposed to the 1.6 ROC
level, the Company had contractual protections that would have
resulted in the contract price stepping down to compensate for the
lower revenues, enabling the Company to achieve the same hurdle
return from the asset; and
4. Acquire assets using conservative assumptions: Deployment of
the proceeds of the IPO saw the Company acquire assets with
acquisition prices that are expected to enable the delivery of a 7
pence annual distribution, rising with RPI, based upon a cautious
set of assumptions. Key amongst these was a zero real energy price
inflation assumption and low levels of leverage.
3. Portfolio Highlights
At 30 June 2014, the Company had made ten investments committing
GBP146.8 million(2) and delivering an expected energy capacity of
128.5MWp. The operational portfolio consists of 111MWp across nine
of the assets at a total commitment of GBP127.8 million(3) .
Located across the south of England and Wales, the investments are
geographically diverse, have been contracted from five experienced
solar contractors and contain a diverse range of proven solar
technologies and infrastructure.
__________ (2) Total Commitment of GBP146.8m includes GBP50k of
transaction costs per project excluded from Investment Cost of
GBP127.3m.
(3) This excludes Project Hoback which is under construction.
The nine assets that are operational were acquired with the
proceeds of the IPO and Placing. Project Hoback, the only asset
under construction at the period end, will be funded with our new
three year revolving credit facility. It is expected to be grid
connected in Quarter 4, 2014.
4. Portfolio Pricing
The acquisition pricing also compares favourably to pricing
disclosed by other funds investing into solar assets in the public
markets:
2 ROC Assets: North Beer is the only operational plant bought so
far by the Company. It is contracted into the 2 ROC asset regime
and was acquired for a consideration of GBP1.34 million per MWp
compared to a market average of GBP1.34 million per MWp(4) .
1.6 ROC Assets: The Company funded seven acquisitions under the
1.6 ROC regime (all now operational) for an average consideration
of GBP1.12 million per MWp compared to a market average of GBP1.27
million per MWp(4) .
1.4 ROC Assets: The Company has also funded two assets under the
1.4 ROC regime. These were acquired for an average consideration of
GBP1.06 million per MWp compared to a market average of GBP1.17
million per MWp(4) .
Portfolio as at 30 June 2014:
Acquisition Deal costs Acquisition
ROC & Construction & Reserves Total Commitment & Construction Total Commitment
Project Band MWp (GBPm) (GBPm) (GBPm) (GBPm/MWp) (GBPm/MWp)
------------- ------ ------ ---------------- ------------ ----------------- ---------------- -----------------
North Beer 2 6.9 9.2 0.1 9.4 1.34 1.36
============= ====== ====== ================ ============ ================= ================ =================
Goosewillow 1.6 16.9 18.7 0.4 19.1 1.10 1.13
============= ====== ====== ================ ============ ================= ================ =================
Hardingham 1.6 14.8 16.7 0.3 17.0 1.13 1.15
============= ====== ====== ================ ============ ================= ================ =================
Hill Farm 1.6 15.2 17.0 0.3 17.3 1.12 1.14
============= ====== ====== ================ ============ ================= ================ =================
Hall Farm 1.6 11.5 13.1 0.3 13.4 1.14 1.16
============= ====== ====== ================ ============ ================= ================ =================
Saxley 1.6 5.9 6.7 0.3 7.1 1.14 1.20
============= ====== ====== ================ ============ ================= ================ =================
Betingau 1.6 9.9 10.9 0.3 11.2 1.10 1.13
============= ====== ====== ================ ============ ================= ================ =================
Pentylands 1.6 19.2 21.2 0.2 21.4 1.10 1.11
============= ====== ====== ================ ============ ================= ================ =================
Sheppey 1.4 10.6 11.5 0.5 12.0 1.08 1.13
============= ====== ====== ================ ============ ================= ================ =================
Hoback 1.4 17.5 18.4 0.6 19.0 1.05 1.08
------------- ------ ------ ---------------- ------------ ----------------- ---------------- -----------------
Total 128.5 143.4 3.4 146.8
------------- ------ ------ ---------------- ------------ ----------------- ---------------- -----------------
Total 2
ROC 2 6.9 9.2 0.1 9.4 1.34 1.36
============= ====== ====== ================ ============ ================= ================ =================
Total 1.6
ROC 1.6 93.5 104.3 2.1 106.4 1.12 1.14
============= ====== ====== ================ ============ ================= ================ =================
Total 1.4
ROC 1.4 28.2 29.9 1.1 31.0 1.06 1.10
============= ====== ====== ================ ============ ================= ================ =================
5. Acquisitions
The ten assets in the portfolio are described below. Typically,
the performance of each plant is warranted for two years.
__________ (4) Market average is defined as the publicly
available disclosures from the Foresight Solar Energy Fund (LSE:
FSFL), Next Energy (LSE: NESF) and the Renewables Infrastructure
Group (LSE: TRIG) the listed renewable energy companies that invest
in solar PV in the UK.
Goosewillow, Oxfordshire
The acquisition of the 16.9 MWp plant was agreed in two phases,
between August and December, 2013 and resulted in a total
commitment of GBP19.1 million. The contractor was Belgium based
Ikaros Solar and the project was grid connected in the 1.6 ROC
regulatory period. The plant uses modules from Trina and Yingli and
inverters from SMA. The Company owns 100% of the plant via its
subsidiary BSIFIL and the investment was funded utilising the
proceeds of the IPO.
Hardingham, Norfolk
The acquisition of the 14.8MWp plant was agreed in September,
2013 and resulted in a total commitment of GBP17.0 million. The
contractor was British based Solar Century and the project was grid
connected in the 1.6 ROC regulatory period. The plant uses modules
from Hanwha and inverters from Power One. The Company owns 100% of
the plant via its subsidiary BSIFIL and the investment was funded
utilising the proceeds of the IPO.
North Beer, Cornwall
The acquisition of the 6.9 MWp plant was agreed in October 2013
and resulted in a total commitment of GBP9.4 million. The
contractor was German based Parabel AG and the project was grid
connected in the 2 ROC regulatory period. The plant uses modules
from Hareon and inverters from Refusol and Siemens. The Company
owns 100% of the plant via its subsidiary BSIFIL and the investment
was funded utilising the proceeds of the IPO.
Hill Farm, Oxfordshire
The acquisition of the 15.2 MWp plant was agreed in October 2013
and resulted in a total commitment of GBP17.3 million. The
contractor was Solar Century and the project was grid connected in
the 1.6 ROC regulatory period. The plant uses modules from Yingli
and inverters from SolarMax. The Company owns 100% of the plant via
its subsidiary BSIFIL and the investment was funded utilising the
proceeds of the IPO.
Hall Farm, Norfolk
The acquisition of the 11.5 MWp plant was agreed in December
2013 and resulted in a total commitment of GBP13.4 million. The
contractor was Ikaros Solar and the project was grid connected in
the 1.6 ROC regulatory period. The plant uses modules from Hanwha
Solar One and inverters from Danfoss. The Company owns 100% of the
plant via its subsidiary BSIFIL and the investment was funded
utilising the proceeds of the IPO.
Saxley, Hampshire
The acquisition of the 5.9MWp plant was agreed in December 2013
and resulted in a total commitment of GBP7.1 million. The
contractor was Solar Century and the project was grid connected in
the 1.6 ROC regulatory period. The plant uses modules from Hanwha
Q-Cells and inverters from Power One. The Company owns 100% of the
plant via its subsidiary BSIFIL and the investment was funded
utilising the proceeds of the IPO.
Betingau, Glamorgan
The acquisition of the 9.9 MWp plant was agreed in December 2013
and resulted in a total commitment of GBP11.2 million. The
contractor was Spanish based Prosolia and the project was grid
connected in the 1.6 ROC regulatory period. The plant uses modules
from Sharp, REC and Trina and inverters from Gamesa. The Company
owns 100% of the plant via its subsidiary BSIFIL and the investment
was funded utilising the proceeds of the IPO.
Sheppey, Kent
The acquisition of the 10.6 MWp plant was agreed in January 2014
and resulted in a total commitment of GBP12.0 million. The
contractor was Solar Century and the project was grid connected in
the 1.4 ROC regulatory period. The plant uses modules from Yingli
and inverters from SolarMax. The Company owns 100% of the plant via
its subsidiary BSIFIL and the investment was funded utilising the
proceeds of the IPO.
Pentylands, Wiltshire
The acquisition of the 19.2 MWp plant was agreed in February
2014 and resulted in a total commitment of GBP21.4 million. The
contractor was British contractor Wirsol, now rebranded Conergy UK
and the project was grid connected in the 1.6 ROC regulatory
period. The plant uses modules from Astroenergy and inverters from
Power One The Company owns 100% of the plant via its subsidiary
BSIFIL and the investment was funded utilising the proceeds of the
IPO and Placement.
Hoback, Hertfordshire
The acquisition of the 17.5 MWp plant was agreed in June 2014
and resulted in a total commitment of GBP19.0 million. The
contractor was Solar Century and the plant is expected to be grid
connected in Quarter 4, 2014, within the 1.4 ROC regulatory period.
The plant will use modules from Jinko Solar and inverters from
Solarmax. The Company owns 100% of the plant via its subsidiary
BSIFIL and the investment is being funded utilising the proceeds of
the Placement and the RBS facility.
6. Valuation of the Portfolio
The Investment Adviser makes its valuation recommendation
through its Valuation Committee chaired by Dr. Anthony Williams,
the former chair of Goldman Sachs Global Risk Committee for fixed
income, currencies and commodities. Following approval by the
Investment Adviser's Valuation Committee, the valuations are
submitted to the Directors of the Company for their review and
approval based upon a detailed presentation by the Investment
Adviser.
As at 30 June 2014 nine of the Company's ten assets had
commenced operation, meanwhile it was considered that the solar
market had developed sufficiently since the investments were made
to justify a revaluation to ensure the valuation represented an up
to date 'willing buyer-willing seller' valuation.
The Directors' Valuation as at 31 December 2013 was GBP93.6m and
the valuation as at 30 June 2014 is GBP136.1m. A comparison of
valuation at cost and based upon the Directors' Valuation is
presented in the table below:
Project Investment Investment Valuation uplift
at Cost (GBPm) at Value (GBPm) on Cost (GBPm)
------------- ---------------- ----------------- -----------------
North Beer 9.3 9.9 0.6
Goosewillow 19 19.9 0.9
Hardingham 16.9 18.8 1.9
Hill Farm 17.2 18.8 1.6
Hall Farm 13.4 14.1 0.7
Saxley 7 7.4 0.4
Betingau 11.2 11.8 0.6
Sheppey 11.9 12.6 0.7
Pentylands 21.4 22.8 1.4
Total 127.3 136.1 8.8
------------- ---------------- ----------------- -----------------
Of the Directors' Valuation presented in the table, GBP4.3m is
attributable to income generated by within the investment SPV but
not paid up to the Company within the accounting period, whilst
GBP4.5m is attributable to the revaluation of the investments under
the discounted cash-flow methodology. During the financial year the
investment cost of Betingau and Goosewillow were reduced by an
aggregate amount of GBP0.765m due to a nominal reduction in their
final capacity versus contract resulting in a contract price
reduction, such amounts being returned to the Group's cash
reserves.
It is noted that prior to the end of the financial period the
Company closed a further GBP19.0m investment into Hoback Solar
Limited, but this asset has not been included in the Directors'
Valuation because the investment remained undrawn at the financial
year end.
It is notable that in addition to the change in valuation and
retained income within the investments, GBP2.8m of income was paid
to the Group in the period.
A breakdown in the growth in the NAV since the IPO in July 2013,
including the input of the Directors' Valuation, is presented below
(see the Company's Annual Report and Consolidated Financial
Statements on the website).
Valuation movement during the period to 30 June 2014
(GBPm)
Proceeds raised at IPO 130.3
-------------------------------------------------- ----- --------
Further Tap issue of shares 13.2
Raising costs for IPO and Tap issue -2.7
-------------------------------------------------- ----- --------
Opening valuation position 140.8
-------------------------------------------------- ----- --------
DCF Valuation uplift 4.5
Investment income released to Group 2.8
Retained income within SPV investment
companies 4.3
Net Operational costs -2.1
Cash distributions in the period -2.6
Closing Valuation before second interim dividend 147.7
-------------------------------------------------- ----- --------
The valuation at the end of the period can be analysed as having
two key components: (i) change in capital; and (ii) change in
income, from which dividends are paid.
Analysis of valuation movement from 'capital'
In respect of the capital valuation, shares in the Company were
issued at IPO in July 2013 at a cost of 100 pence per share, and a
further 10% tap issuance was made in February 2014 at 101 pence per
share. In line with budget, the total raising costs were GBP2.7m
resulting in a net opening value of 98.2 pence per share in the
period. The revaluation of investments based upon discounted
cash-flow methodology (excluding any working capital uplifts) of
GBP4.5m has more than offset the raising costs resulting in a
revaluation before investment income of 100 pence per share, being
a net uplift in capital valuation in the period of 3.1 pence per
share.
The Investment Adviser considers that this capital valuation
uplift when compared to investment cost is in line with
expectations on the basis that of the nine investments included
within the Directors' Valuation, only one was already operational
and generating electricity at the time of investment, while at the
end of the period all nine were operational and income
generating.
While the Investment Adviser notes that its investment
structures and contracts provide significant protection during
construction, it is observed that operational investments are
typically transacted at higher valuation multiples than projects
that are not grid connected, which the Investment Adviser considers
to be due to the relatively smaller number of assets available for
sale at operational stage, the larger number of investors competing
only for operational phase assets (due to their investment policy
limitations), and the relative attraction of income generating
assets. It is also noted that during the period since IPO a number
of further IPOs have taken place for companies with a focus on
investment in UK solar PV projects. In addition to the developments
in the wider investment market, where the Investment Adviser has
also observed a number of unlisted new entrants, the competitive
investment environment is considered to be creating upward
valuation pressure specifically for operational assets where most
investors are focused.
A full analysis of discounted cash-flow valuation assumptions
and the key sensitivities are explored further below.
Analysis of valuation movement from 'income'
During the reporting period, income generated by the investments
comprised cash paid up from the investments to the Group of GBP2.8
million (2.0 pence per share) and GBP4.3 million (3.0 pence per
share) income generated within the investment SPV's but not paid up
to the Group within the accounting period. The resulting GBP7.1
million (5.0 pence per share) has been partially offset in the
period by GBP2.1 million (1.5 pence per share) of net Group
operational expenses, in line with budget. The net income result is
a generation of GBP5.0 million (3.5 pence per share), before
accounting for valuation changes derived from the discounted
cash-flow valuation, which is considered to be in line with the
Investment Adviser's objective to support the stated 4 pence year
one target dividend with income generation.
The combination of capital and income elements to the
revaluation has resulted in an overall net change in valuation,
before dividends, of GBP11.6m in the period (8.1 pence per share)
against IPO share price of 100 pence. When Group set up and costs
of GBP4.9m (3.4 pence per share) are considered as well as the
distribution of 2 pence per share in February 2014 the total return
in the period to 30 June 2014 is 7.0%, ahead of the Investment
Adviser targets.
The following diagram (see the Company's Annual Report and
Consolidated Financial Statements on the website) reviews the
sensitivity of the closing valuation to the key assumptions
underlying the discounted cash-flow valuation.
NAV Sensitivities - Impact on portfolio value from variances of
key assumptions
Discount Rate
All of the portfolio investments have been valued with
discounted cash-flow methodology on the basis of a discount rate of
7.8%. All investments in the portfolio are located in the UK and
derive revenue from the sale of power and renewable obligation
certificates, with c.50-60% of revenue expected to be derived from
regulatory revenues linked to RPI.
While investments with different proportions of regulatory
income, or different capital structures, may justify differentials
in discount rates to reflect different cash-flow certainty, the
assets currently held by the Group were considered to be
substantially similar in revenue profile and capital structure
therefore not meriting any differential in discount rate. The
discount rate has been determined based on a risk free rate of
2.75% (10 year UK gilts as at 30 June 2014) plus a market risk
premium of 5.05% calculated by the Investment Adviser based upon
its judgement of market pricing within the UK solar photovoltaic
sector. The Investment Advisor prepared a detailed analysis of
precedent transactions as well as capital asset pricing theory,
which was presented to the Board alongside a recommended discount
rate of 7.8%. After reviewing the analysis and the proposed
discount, the Board confirmed and adopted the discount rate of
7.8%.
The principal factors taken into consideration in determining a
discount rate of 7.8% were: (i) comparative analysis of transaction
pricing for pre- and post-construction solar assets; (ii) review of
published return targets of the listed renewable energy funds;
(iii) review of the conclusions of independent valuations of solar
assets; and (iv) the Investment Adviser's market experience in
bidding for UK solar assets under tender. In accordance with the
capital asset pricing model, the discount rate has been applied to
discount the unleveraged project cash-flows net of taxation
(exclusive of any tax shield). As noted below, it is also important
to note that this discount rate has been applied on the basis of
the Investment Adviser's long term inflation assumption of
2.5%.
Inflation Rate
Consistent with the Investment Adviser's financial analysis
presented to investors at IPO, the Company has assumed an RPI
inflation rate of 2.5% per annum flat for the full 25 year life of
the discounted cash-flow. This inflation assumption was central to
the Company's stated objective to deliver to investors a 7 pence
dividend per annum from year commencing July 2014 resulting in a 7%
target lifetime return to investors.
It is notable that a number of competing infrastructure and
renewable energy funds apply a higher inflation assumption
(typically 2.75%). A like-for-like analysis with a higher inflation
rate assumption should be expected to be made on the basis of a
higher discount rate, offsetting the valuation impact of the
inflation assumption. If the Company had applied an inflation rate
of 2.75% as commonly adopted, the resulting valuation of the
Company would be GBP150.3m or 105 pence per share, 1.8% over its
current valuation.
Taxation
The discounted cash-flow has been calculated on the basis that
each investment is subject to full UK corporate taxation at the
prevailing rate with tax shielding being limited to applicable
capital allowances from the company's fixed asset investments. No
tax shielding from leverage or from Group level costs is taken into
account in the discounted cash-flow. In the event that taxation
impact was reduced by 25% resulting from tax shield, (which since
the Company closed a debt financing facility with RBS in June 2014,
and as a material proportion of Group costs are incurred and as
such tax deductible in the UK, may be considered reasonable), the
resulting valuation of the Company would be GBP151.8m or 106 pence
per share, 2.9% over its current valuation.
Power Price
The discounted capital valuation is based upon a power price
forecast prepared by a leading forecaster. The Investment Adviser
reviewed a number of power price forecast options including valuing
on the basis of zero real energy price inflation or applying
forecasts provided by alternative forecast providers.
In applying the IPEV Valuation Guidelines it is required that
valuations are carried out on a 'willing buyer-willing seller'
basis, and as such the Investment Adviser has taken consideration
of the forecast assumptions used by solar market participants.
Notwithstanding the adoption of the independent power price
forecasts, the Investment Adviser has applied additional caution to
the forecasts in order to ensure that they accurately reflect its
current experience of solar PPA power price capture. On this basis
the Investment Adviser has applied the power price forecast with a
5% discount to reflect its experience of current market PPA
prices.
It is notable that the forecast builds in a 'solar capture' rate
reflecting the higher proportion of solar generation in peak hours,
as well as a balancing cost discount which rises over the life of
the forecast. The power price forecast used in the Directors'
Valuation implies an annualised 2.68% real energy price inflation
over the 25 year life of the cash-flow model.
If the Directors' Valuation of the Company had assumed zero real
energy price inflation the resulting valuation of the Company would
be GBP129.6m.
If the Company had applied the solar capture forecast
independently prepared by the leading forecaster, the resulting
valuation of the Company would be GBP151.5m or 106 pence per share,
2.6% over its current valuation.
Energy Yield
The energy yield of a solar PV asset is derived from three
factors: (i) the irradiation captured by the power plant; (ii) the
ratio at which the power plant converts irradiation to energy, the
so called 'Performance Ratio'; and (iii) the availability of the
power plant (% days per year).
The Investment Adviser has relied upon independent technical
advice provided by one of the leading solar PV technical advisers
in the UK market as a basis for its assumptions, or where
applicable, the Performance Ratio warranted by the contractor
(against which the Contractor has penalty obligations and make good
obligations if the plant does not perform).
The technical adviser determines its irradiation forecasts on
the basis of a number of long term irradiation databases utilising
both ground and satellite based measurements. These sources are
applied on a weighted average basis according to the quality of the
dataset and outliers are excluded.
In addition to analysing the base case energy yield, the
technical adviser provides an energy yield estimate based upon a
90% probability of exceedance, the so called "P90", or in other
words, the energy yield which there is a 10% probability of not
being reached.
It is notable that solar energy yields have relatively low
energy yield probability variance compared to other sectors, such
as wind, due to the proportionately lower volatility of irradiation
which is based on largely predictable daylight hours, rather than
variable weather patterns.
Other Assumptions
A number of other assumptions while not separately analysed here
should be taken into consideration:
- Costs are assumed to rise with RPI over the life of the
investments and no cost efficiencies, such as reduction in
operation & maintenance or insurance costs resulting from
economies of scale, are assumed;
- Investment cash-flows are for 25 years with a zero terminal
value. Planning permission for projects is typically granted for an
initial 25 years subject to re-application at the end of the
period, but leases typically benefit from extension options, giving
rise to the potential for a longer operational life, which has not
been taken into account in the Directors' Valuation; and
- Although in June 2014 the Company secured debt financing to
fund further build out of the Group's portfolio, the Investment
Adviser has not taken into account any potential valuation benefits
which may be derived from financial structuring in the future of
the Company.
The assumptions set out in this section will remain subject to
review by the Investment Adviser and the Directors and may give
rise to a revision of valuation approach in future reports.
7. Regulatory environment
The regulatory outlook for the industry remains positive. The UK
government is seeking to grow the installed capacity of solar over
the next few years from a low base of sub-5GWp across all
installations to a medium range expectation of 12GWp by 2020,
resulting in a multi-billion pound investment market.
Since the Company completed its IPO the UK solar market has
experienced major inflows of funds from institutional investors
into publicly traded companies, indicating a market view of low
regulatory and country risk. It also reflects the growing base of
primary and secondary assets which, in turn, is attracting
institutional investors.
The UK solar market is unique in relation to established solar
markets in that the UK government has explicitly outlined an
ambitious plan for growth in the sector, through the publication of
the Solar PV Strategy: Part 2 (the "Strategy"). In tandem with the
Strategy, the direction of the intended growth has been proposed in
the consultation on large scale solar announced in May, 2014, (the
"Consultation").
The Consultation is seeking to achieve a market that has
balanced growth across all the major investment sectors, domestic,
commercial and industrial and agriculturally situated. The
Consultation is clearly looking to see an increase in investment
activity in the commercial and industrial sector whilst driving
efficiency in the large scale market (>5MWp) via the CfD auction
process.
Since listing, investment into solar infrastructure in the UK
has given the Company the option to use either the Renewables
Obligations Scheme (the "RO Scheme") or Feed-in Tariffs Scheme (the
"FiT Scheme") to provide long-term, regulated revenues. The Company
has exclusively used the RO Scheme due to all the assets being in
excess of 5MWp (FiT support is only available to assets that are
5MWp capacity or less). The RO Scheme enables investors to access a
20 year support mechanism with revenues that are linked to RPI. The
RO Scheme is the main support for renewable energy investment in
the UK in terms of installed capacity and has been the basis of the
growth in the UK offshore and onshore wind industry and the recent
growth in the UK large-scale solar market.
Under the Consultation, the RO Scheme for solar is due to close
for installations that are greater than 5MWp in capacity and are
grid connected after the 31 March, 2015. It is proposed to be
replaced by the new support, the CfD, which is proposed to give
fully-indexed revenues for 15 years. For the installations less
than 5MWp in capacity, both the RO and FiT Schemes remain in
place.
The Company and the Investment Adviser have been active in
working with the UK government and DECC during this
Consultation.
Historic Trends
The development and installation of large scale solar in the UK
has experienced a significant growth phase during the period since
IPO. The graph below (see the Company's Annual Report and
Consolidated Financial Statements on the website) shows the growth
in the capacity of UK solar projects greater than 50kWp since the
UK government introduced support for the technology in April 2010.
Other than the officially published DECC numbers the SolarBuzz
Industry Database is the main reference point for the industry's
market data; however Investment Adviser believes that the DECC
numbers slightly lag the actual MWp installed in each quarter.
The growth trend is strong irrespective of the reductions in
subsidy support as solar reduces in installation cost. In the
period between February 2010 and 31 March, 2012, DECC's figures
show installed capacity of solar assets of 50kWp or greater of
309MWp. Between April 2012 and 31 March, 2013, installed capacity
grew to in excess of 700MWp with an average size of installation of
4MWp. Since the IPO and up to 31 March, 2014, cumulative
installations grew to just in excess of 1.5GWp according to DECC
although the figure from SolarBuzz stands at 2.2GWp. SolarBuzz also
estimates the average size of installation growing close to
8MWp.
Future Trends
Indications are that the second half of 2014 will see continued
growth in the primary market for agriculturally situated,
large-scale sites albeit, as the 31 March, 2015 ROC deadline
approaches, less activity is expected for sites that are
significantly bigger than 5MWp. Continued investment activity is
expected for sites around the 5MWp size as the subsidy drop is a
manageable event should the installation get grid connected post-31
March, 2015.
The Consultation currently being undertaken indicates that the
current government would like to see significant growth in the
installed capacity of solar on and around commercial and industrial
buildings. As part of this Consultation, the government is talking
to industry to look to further incentivise investment in the sector
and has regularly articulated ambitious installation targets.
Outlook
The growth in primary and secondary assets for large ground
based solar assets is expected to continue, a trend that the
Investment Adviser is well placed to take advantage of. The pricing
discipline shown in the first annual period combined with an
increasingly lower cost base should give the Company a competitive
advantage when bidding for assets against a peer group with
identical return targets but a more expensive portfolio and higher
fee base.
As currently proposed in the government's Consultation and as
the March 31, 2015 ROC deadline approaches, the Investment Adviser
is aware of increased risk in funding assets through construction
if the asset is significantly bigger than 5MWp. The Company will
adapt its strategy, where necessary, to ensure the Company
continues to pursue the optimal strategy for the market conditions
it faces.
Post-June update
Since period end, the Company has made two further
commitments:
Capelands is an 8.4MWp project located in Devon and Redlands is
a 6.2MWp project located in Somerset. juwi Renewable Energies will
build the plant under an EPC contract with at least two year
warranty period during which juwi Renewable Energies will also
perform the operation and maintenance service. juwi Renewable
Energies is a subsidiary of juwi AG which is one of the world's
leading enterprises in the renewable energy sector. The plants were
both funded with the RBS facility.
Since 1996 juwi has been designing, building, financing and
operating plants that harness renewable energy. As with all other
BSIF acquisitions, strong contractual protections during the
construction phase and post commissioning have been put in place to
minimise any construction and subsidy risk. The site leases are for
25 years. Power purchase agreements will be put in place once
commissioning is achieved.
The plants are expected to be grid connected in Quarter 4,
2014.
Bluefield Partners LLP
5 September 2014
Report of the Directors
The Directors hereby submit the annual report and consolidated
financial statements of the Group for the period from incorporation
on 29 May 2013 to 30 June 2014.
General Information
The Company is a non-cellular company limited by shares
incorporated in Guernsey under the Companies (Guernsey) Law, 2008
on 29 May 2013. The Company's registration number is 56708, and it
has been registered and is regulated by the GFSC as a registered
closed-ended collective investment scheme. The Company's Ordinary
Shares were admitted to the Premium Segment of the Official List
and to trading on the Main Market of the London Stock Exchange as
part of its initial public offering which completed on 12 July
2013.
Principal Activities
The principal activity of the Group is to invest in a portfolio
of large scale UK based solar energy infrastructure assets.
The Company's objective is to target a dividend of 4 pence per
Ordinary Share for its financial period ending 30 June 2014 and 7
pence per Ordinary Share in respect of its second financial year
ending 30 June 2015, with the intention of the dividend rising
annually in line with UK RPI thereafter.
Business Review
A review of the Group's business and its likely future
development is provided in the Chairman's Statement, Strategic
Report and in the Report of the Investment Adviser.
Listing Requirements
Throughout the period since admission on 12 July 2013 to the
Official List, maintained by the FCA, the Company has complied with
the applicable Listing Rules.
Results and Dividends
The results for the period are set out in the consolidated
financial statements.
On 19 February 2014, the Directors declared a first interim
dividend in respect of the period ended 31 December 2013 of 2 pence
per Ordinary Share to shareholders on the register as at the close
of business on 28 February 2014. On 5 September 2014, the Company
declared a second interim dividend of 2 pence per Ordinary Share to
shareholders on the register as at the close of business on 19
September 2014 in respect of the six months ended 30 June 2014.
Share Capital
At incorporation on 29 May 2013, the Company issued one founding
Ordinary Share of no par value. On 12 July 2013 the Company issued
a further 130,290,000 Ordinary Shares of no par value at GBP1 per
Ordinary Share in an Initial Public Offering ("IPO"). On 21
February 2014, the Company issued a further 13,028,999 Ordinary
Shares at GBP1.01 per Ordinary Share, raising a total of GBP13.2
million.
The Company has one class of Ordinary Shares. The issued nominal
value of the Ordinary Shares represents 100% of the total issued
nominal value of all share capital. Under the Company's Articles of
Incorporation, on a show of hands, each Shareholder present in
person or by proxy has the right to one vote at general meetings.
On a poll, each Shareholder is entitled to one vote for every share
held.
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, providing the Company has satisfied all of
its liabilities, the shareholders are entitled to all of the
surplus assets of the Company. The Ordinary Shares have no right to
fixed income.
Shareholdings of the Directors
The Directors of the Company and their beneficial interests in
the shares of the Company as at 30 June 2014 are detailed
below:
Director Ordinary shares of % holding at
GBP1 each held 30 June 30 June 2014
2014
------------------ ------------------------ --------------
John Rennocks* 155,000 0.11
John Scott 201,176 0.14
Paul Le Page 70,000 0.05
Laurence McNairn 91,764 0.06
------------------ ------------------------ --------------
*held jointly with spouse and daughter
There have been no changes to the Directors' shareholdings since
30 June 2014.
Directors' Authority to Buy Back Shares
The Directors believe that the most effective means of
minimising any discount to NAV which may arise on the Company's
share price is to deliver strong, consistent performance from the
Company's investment portfolio in both absolute and relative terms.
However, the Board recognises that wider market conditions and
other considerations will affect the rating of the Ordinary Shares
in the short term and the Board may seek to limit the level and
volatility of any discount to NAV at which the Ordinary Shares may
trade. The means by which this might be done could include the
Company repurchasing Ordinary Shares. Therefore, subject to the
requirements of the Listing Rules, the Law, the Articles and other
applicable legislation, the Company may purchase Ordinary Shares in
the market in order to address any imbalance between the supply of
and demand for Ordinary Shares or to enhance the NAV of Ordinary
Shares.
In deciding whether to make any such purchases the Directors
will have regard to what they believe to be in the best interests
of shareholders and to the applicable Guernsey legal requirements
which require the Directors to be satisfied on reasonable grounds
that the Company will, immediately after any such repurchase,
satisfy a solvency test prescribed by the Law and any other
requirements in its Memorandum and Articles of Incorporation. The
making and timing of any buybacks will be at the absolute
discretion of the Board and not at the option of the shareholders.
Any such repurchases would only be made through the market for cash
at a discount to NAV.
On incorporation the Company passed a written resolution
granting the Directors' general authority to purchase in the market
up to 14.99% of the Ordinary Shares in issue immediately following
Admission at a price not exceeding the higher of (i) 5% above the
average mid-market values of Ordinary Shares for the five Business
Days before the purchase is made or (ii) the higher of the last
independent trade or the highest current independent bid for
Ordinary Shares. The Directors intend to seek renewal of this
authority from the shareholders at the Annual General Meeting
("AGM").
Pursuant to this authority, and subject to the Law and the
discretion of the Directors, the Company may purchase Ordinary
Shares in the market on an on-going basis with a view to addressing
any imbalance between the supply of and demand for Ordinary
Shares.
Ordinary Shares purchased by the Company may be cancelled or
held as treasury shares. The Company may borrow and/or realise
investments in order to finance such Ordinary Share purchases.
The Company did not purchase any Ordinary Shares for treasury or
cancellation during the period.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of directors' and
officers' liability in relation to their acts on behalf of the
Company. Insurance is in place, having been renewed on 12 July
2014.
Substantial Shareholdings
As at 23 August 2014, the Company had been notified, in
accordance with chapter 5 of the Disclosure and Transparency Rules,
of the following substantial voting rights over 3% as shareholders
of the Company.
Shareholder Shareholding % Holding
-------------------------------------- ------------- ----------
CCLA Investment Management 25,000,000 17.43
BlackRock 14,452,855 10.08
Newton Investment Management 10,784,829 7.52
Baillie Gifford 9,674,472 6.75
Investec Wealth & Investment Ireland 9,026,478 6.29
British Steel Pensions 6,000,000 4.18
Independent Investment Trust 5,000,000 3.49
JM Finn 4,744,006 3.31
Smith & Williamson 4,397,757 3.07
-------------------------------------- ------------- ----------
The Directors confirm that there are no securities in issue that
carry special rights with regards to the control of the Company.
There have been no changes that have been notified to the Company
with respect to the substantial shareholdings since 30 June
2014.
Independent Auditor
KPMG Channel Islands Limited ("KPMG" or "Auditor") has been the
Company's external Auditor since the Company's incorporation. This
is the first period of audit. A resolution will be proposed at the
forthcoming Annual General Meeting to re-appoint them as Auditor
and authorise the Directors to determine the Auditor's remuneration
for the ensuing year.
The Audit Committee will periodically review the appointment of
KPMG and the Board recommends their appointment. Further
information on the work of the Auditor is set out in the Report of
the Audit Committee.
Articles of Incorporation
The Company's Articles of Incorporation may be amended only by
special resolution of the shareholders.
Going Concern
At 30 June 2014, the Company had invested in ten solar projects
through the full commitment of the IPO proceeds and the use of the
additional GBP13.2 million raised through a subsequent share issue.
Further to this, nine of the ten solar projects were completed and
were in operation by 30 June 2014. This resulted in a cash balance
of GBP11,287,130 and net assets of GBP147,676,019 as at 30 June
2014. During the period, the Company had also entered into a GBP50
million revolving loan facility which was not drawn down as at 30
June 2014. These resources, together with the net income generated
by the acquired projects are expected to allow the Company to meet
its liquidity needs for the payment of operational expenses,
dividends and acquisition of new solar assets. The Company expects
to continue to comply with the covenants of its revolving loan
facility.
The Directors in their consideration of going concern, have
reviewed comprehensive cash-flow forecasts prepared by the
Investment Adviser, future projects in the pipeline and the
performances of the current solar plants in operation and, at the
time of approving the consolidated financial statements, have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future and do not consider there to be any threat to the going
concern status of the Group. The Directors have concluded that it
is appropriate to adopt the going concern basis of accounting in
preparing the consolidated financial statements.
Financial Risks Management Policies and Procedures
Financial Risks Management Policies and Procedures are disclosed
in Note 18.
Principal Risk and Uncertainties
Principal Risk and Uncertainties are discussed in the Strategic
Report.
Subsequent Events
On 5 September 2014, the Board declared a second interim
dividend of 2 pence per Ordinary Share which will be payable to
shareholders on the register as at 19 September 2014 with an
associated ex-dividend date of 17 September 2014.
On 28 July 2014, the Group entered into two conditional
contracts for a total commitment of GBP15 million comprising of an
8.5 MWp plant in Devon and 6 MWp in Somerset, which will be
constructed by a UK contractor. Both plants are expected to qualify
for the 1.4 ROC regime.
Since 30 June 2014, a total of GBP6.7 million was transferred
from the Group to Hoback Solar Limited on the existing loan
commitment at the period end.
Annual General Meeting
The AGM of the Company will be held on 17 October 2014 at
Lefebvre Place, Lefebvre Street, St Peter Port, Guernsey. Details
of the resolutions to be proposed at the AGM, together with
explanations, will appear in the Notice of Meeting to be
distributed to shareholders together with this Annual Report.
Members of the Board will be in attendance at the AGM and will
be available to answer shareholder questions.
By order of the Board
John Rennocks
Chairman
5 September 2014
Board of Directors
John Rennocks (Chairman)
John Rennocks is non-executive chairman of Diploma plc, a
non-executive deputy chairman of Inmarsat plc and a non-executive
director of Greenko Group plc, a developer and operator of hydro
and wind power plants in India. He has broad experience in emerging
energy sources, support services and manufacturing. Mr Rennocks
previously served as a non-executive director of Foreign &
Colonial Investment Trust plc, as well as several other public and
private companies, and as Executive Director-Finance for Smith
& Nephew plc, Powergen plc and British Steel plc/Corus Group
plc. Mr Rennocks is a Fellow of the Institute of Chartered
Accountants of England and Wales.
John Scott (Senior Independent Director)
John Scott is a former investment banker who spent 20 years with
Lazard and is currently a director of several investment trusts. Mr
Scott has been Chairman of Scottish Mortgage Investment Trust plc
since December 2009 and Chairman of Impax Environmental Markets plc
since May 2014; he has also been Chairman of Alpha Insurance
Analysts since April 2013. Until the company's sale in March 2013,
he was Deputy Chairman of Endace Ltd. of New Zealand and in
November 2012 he retired after 12 years as a non-executive director
of Miller Insurance. He has an MA in Economics from Cambridge
University and an MBA from INSEAD; he is also a Fellow of the CII
and of the CISI.
Paul Le Page (Chairman of the Audit Committee)
Paul Le Page is a director of FRM Investment Management Guernsey
Limited, a subsidiary of Man Group plc. He is responsible for
managing hedge fund portfolios, and is a director of a number of
FRM funds. Mr Le Page was formerly a Director of, and Audit
Committee Chairman for, Cazenove Absolute Equity Limited and Thames
River Multi Hedge PCC Limited. He has extensive knowledge of, and
experience in, the fund management and the hedge fund industry.
Prior to joining FRM, he was an Associate Director at Collins
Stewart Asset Management from January 1999 to July 2005, where he
was responsible for managing the firm's hedge fund portfolios and
reviewing fund managers. He joined Collins Stewart in January 1999
where he completed his MBA in July 1999. He originally qualified as
a Chartered Electrical Engineer after a 12-year career in
industrial research and development, latterly as the Research and
Development Director for Dynex Technologies (Guernsey) Limited,
having graduated from University College London in Electrical and
Electronic Engineering in 1987.
Laurence McNairn
Laurence McNairn was appointed as a non-executive director of
the Company on 1 July 2013 and is a member of The Institute of
Chartered Accountants of Scotland. He is an executive director of
Heritage International Fund Managers Limited, the Company's
Administrator and Secretary. He joined the Heritage Group in 2006
and prior to this worked for the Baring Financial Services Group in
Guernsey from 1990.
Directors' Statement of Responsibilities
The Directors are responsible for preparing the annual report
and consolidated financial statements in accordance with applicable
law and regulations.
The Law requires the Directors to prepare financial statements
for each financial year. Under the Listing Rules, the Directors are
required to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union ("EU"). Under the Law, the 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 of the profit or loss of the Group for that period. In
preparing these consolidated financial statements, the Directors
are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors confirm that they have complied with the above
requirements in preparing the consolidated financial
statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Group and enable them to ensure that the
consolidated financial statements comply with the Law. They are
also responsible for safeguarding the assets of the Group and
Company and hence for taking reasonable steps for the prevention
and detection of fraud, error and non-compliance with law and
regulations.
So far as each Director is aware, there is no relevant audit
information of which the Company's Auditor is unaware, and each
Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit
information and to establish that the Company's Auditor is aware of
that information. This confirmation is given and should be
interpreted in accordance with the provisions of section 249 of the
Law (as amended).
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
By order of the Board
Paul Le Page Laurence McNairn
Director Director
5 September 2014 5 September 2014
Responsibility Statement of the Directors in Respect of the
Annual Report
Each of the Directors, whose names are set out in the Report of
the Directors section of the annual report, confirms that to the
best of their knowledge that:
-- the consolidated financial statements, prepared in accordance
with IFRS as adopted by the EU, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and its subsidiary included in the consolidation taken as a
whole;
-- the Management Report (comprising Chairman's Statement,
Strategic Report and Report of the Investment Adviser) includes a
fair review of the development and performance of the business and
the position of the Company and its subsidiary included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties faced; and
The Directors are responsible for preparing the annual report in
accordance with applicable law and regulations. Having taken advice
from the Audit Committee, the Directors consider the annual report
and consolidated financial statements, taken as a whole, as fair,
balanced and understandable and that it provides the information
necessary for shareholders to assess the Group's performance,
business model and strategy.
By order of the Board
Paul Le Page Laurence McNairn
Director Director
5 September 2014 5 September 2014
Corporate Governance Report
The Directors recognise the importance of sound corporate
governance, particularly the requirements of the Association of
Investment Companies Code of Corporate Governance ("AIC Code").
The Company became a member of the Association of Investment
Companies ("AIC") effective 15 July 2013. The Directors have
considered the principles and recommendations of the AIC Code by
reference to the AIC Corporate Governance Guide for Investment
Companies ("AIC Guide"). The AIC Code, as explained by the AIC
Guide, provides a 'comply or explain' code of corporate governance
and addresses all the principles set out in the UK Corporate
Governance Code ("UK Code") as well as setting out additional
principles and recommendations on issues that are of specific
relevance to investment companies such as the Company. The Board
considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which
incorporates the UK Code), provides better information to
shareholders.
The GFSC issued a GFSC Finance Sector Code of Corporate
Governance ("Guernsey Code") which came into effect on 1 January
2012. The introduction to the Guernsey Code states that "Companies
which report against the UK Code or the AIC Code of Corporate
Governance are also deemed to meet this Code". Therefore, AIC
members which are Guernsey-domiciled and which report against the
AIC Code are not required to report separately against the Guernsey
Code.
The AIC Code and AIC Guide are available on the AIC's website
(www.theaic.co.uk). The UK Code is available from the FRC's website
(www.frc.org.uk).
Throughout the period ended 30 June 2014, the Company has
complied with the recommendations of the AIC Code and the
provisions of the UK Code, except to the extent highlighted
below.
Provision A.2.1 of the UK Code requires a chief executive to be
appointed, however, as an investment company, the Company has no
employees and therefore has no requirement for a chief executive.
As all the Directors including the Chairman are non-executive and
independent of the Investment Adviser, the Company has not
established a nomination committee, remuneration committee or a
management engagement committee, which is not in accordance with
provisions B.2.1 and D.2.1 of the UK Code, and Principle 5 of the
AIC Code respectively. The Board is satisfied that as a whole, any
relevant issues can be properly considered by the Board. The
absence of an internal audit function is discussed in the Report of
the Audit Committee.
The Board monitors developments in corporate governance to
ensure the Board remains aligned with best practice, especially
with respect to the increased focus on diversity. The Board
acknowledges the importance of diversity, including gender (as
stated in Principle 6 of the AIC Code), for the effective
functioning of the Board and commits to supporting diversity in the
boardroom. It is the Board's on-going aspiration to have a
well-diversified representation. The Board also values diversity of
business skills and experience because Directors with diverse
skills sets, capabilities and experience gained from different
geographical and professional backgrounds enhance the Board by
bringing a wide range of perspectives to the Company. The Board is
satisfied with the current composition and functioning of its
members.
The Board
The Directors' details are listed in the Board of Directors
section which set out the range of investment, financial and
business skills and experience represented.
John Rennocks, John Scott and Paul Le Page were appointed on 12
June 2013 and Laurence McNairn was appointed 1 July 2013. Mark
Huntley was appointed on 29 May 2013 and resigned on 1 July 2013.
The Board appointed John Scott as Senior Independent Director
effective from 10 December 2013 to fulfil any function that is
deemed inappropriate for the Chairman to perform.
All Directors shall retire and submit themselves for election at
the first AGM of the Company, due to take place on 17 October 2014.
The Company's Memorandum and Articles of Incorporation specify that
each Director shall retire and seek re-election at each subsequent
AGM of the Company at least every three years. However, in
accordance with corporate governance best practice, all Directors
are to be re-elected annually.
Any Director who is elected or re-elected at that meeting is
treated as continuing in office throughout. If he is not elected or
re-elected, he shall retain office until the end of the meeting or
(if earlier) when a resolution is passed to appoint someone in his
place or when a resolution to elect or re-elect the Director is put
to the meeting and lost.
The Board are of the opinion that members should be re-elected
because they believe that they have the right skills and experience
to continue to serve the Company. As recommended in Principle 4 of
the AIC Code, the Board has considered the need for a policy
regarding tenure of service. However, the Board believes that any
decisions regarding tenure should consider the need for maintaining
knowledge, experience and independence, and to balance this against
the need to periodically freshen the Board composition in order to
have the appropriate mix of skills, experience, age and length of
service.
The Board intends to meet at least four times a year in Guernsey
with unscheduled meetings held where required to consider
investment related issues. In addition, there is regular contact
between the Board, the Investment Adviser and the Administrator.
Furthermore, the Board requires to be supplied in a timely manner
with information by the Investment Adviser, the Company Secretary
and other advisers in a form and of a quality appropriate to enable
it to discharge its duties.
The Company has adopted a share dealing code for the Board and
will seek to ensure compliance by the Board and relevant personnel
of the Investment Adviser with the terms of the share dealing
code.
Directors' Remuneration
The Chairman is entitled to an annual remuneration of GBP50,000.
The other Directors are entitled to an annual remuneration of
GBP30,000, with Paul Le Page receiving an additional annual fee of
GBP5,000 for acting as Chairman of the Audit Committee. The Board
will review all Directors' remuneration annually.
During the period to 30 June 2014, the remuneration earned by
each Director was as follows:
Director (GBP)
------------------ -------
John Rennocks 52,603
John Scott 31,561
Paul Le Page 36,822
Laurence McNairn 30,000
------------------ -------
The above fees for the Directors are for the period from
appointment to 30 June 2014.
The Directors elected to receive their Directors' fees for the
first two years through an issue of Ordinary Shares, which were
allotted and issued at the initial issue price. The value of this
non-cash consideration is equivalent to the aggregate cash payment
that otherwise would have been made to the Directors for the
provision of their services in accordance with the terms of their
respective appointment letters.
As a result, on 12 July 2013, the Company issued a total of
290,000 Ordinary Shares as part of the IPO at the issue price of
GBP1 per Ordinary Share, to the Directors in lieu of a cash payment
for Directors' fees for the first two years. The total Directors'
fees expense for the period amounted to GBP150,986 with a prepaid
element of GBP139,014 at the period end.
All of the Directors are non-executive and each is considered
independent for the purposes of Chapter 15 of the Listing
Rules.
Duties and Responsibilities
The Board has overall responsibility for maximising the
Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of shareholders and
relevant stakeholders, while enhancing the value of the Company and
also ensuring the protection of investors. A summary of the Board's
responsibilities is as follows:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- investment strategy and management;
-- risk assessment and management including reporting, compliance, governance, monitoring and control; and
-- other matters having a material effect on the Company.
The Directors have access to the advice and services of the
Administrator, who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with Guernsey
Law and applicable rules and regulations of the GFSC and the London
Stock Exchange. Where necessary, in carrying out their duties, the
Directors may seek independent professional advice and services at
the expense of the Company. The Company maintains appropriate
Directors' and Officers' liability insurance in respect of legal
action against its Directors on an on-going basis.
The Board's responsibilities for the annual report are set out
in the Directors' Responsibilities Statement. The Board is also
responsible for issuing appropriate half-yearly financial reports,
interim management statements and other price-sensitive public
reports.
The attendance record of the Directors for the period to 30 June
2014 is set out below:
Scheduled Ad-hoc Audit Committee
Board Meetings Board Meetings Meetings
Director (max 4) (max 12) (max 4)
------------------ ----------------- ----------------- ------------------
John Rennocks 4 5 2
John Scott 4 3 2
Paul Le Page 4 12 4
Laurence McNairn 3 9 4
Mark Huntley - 3 -
------------------ ----------------- ----------------- ------------------
12 unscheduled committee meetings were held during the period to
formally review and authorise each investment made by the Company,
to discuss placing of Ordinary Shares and to consider interim
dividends, amongst other items.
The Board believes that, as a whole, it comprises an appropriate
balance of skills, experience, age, knowledge and length of
service. The Board also believes that diversity of experience and
approach, including gender diversity, amongst Board members is of
great importance and it is the Company's policy to give careful
consideration to issues of Board balance when making new
appointments. With any new Director appointment to the Board,
induction training will be provided by an independent service
provider at the expense of the Company.
Performance Evaluation
In accordance with Principle 7 of the AIC Code, the Board is
required to undertake a formal and rigorous evaluation of its
performance on an annual basis. Due to the commencement of
operations of the Company, no formal Board evaluation has been
carried out as at the date of this report. A formal evaluation of
the performance of the Board as a whole, and the Chairman will be
completed in 2014, in the form of self-appraisal questionnaires and
a detailed discussion of the outcomes which include assessing the
Directors' continued independence.
Committees of the Board
Audit Committee
On 24 June 2013, the Board established an Audit Committee which
held its first meeting on 10 December 2013. The Audit Committee is
chaired by Paul Le Page and at the date of this report comprised
all of the Directors set out in the Board of Directors section. The
report of the role and activities of this committee and its
relationship with the Auditor is contained in the Report of the
Audit Committee. The Committee operates within clearly defined
terms of reference which are available on the Company's website
(www.bluefieldsif.com).
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Group and Company's system of
internal control and reviewing its effectiveness. Internal control
systems are designed to manage rather than eliminate the failure to
achieve business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. The
Directors review all controls including operations, compliance and
risk management. The key procedures which have been established to
provide internal control are:
-- the Board has delegated the day to day operations of the
Group and Company to the Administrator and Investment Adviser;
however, it remains accountable for all of the functions it
delegates;
-- the Board clearly defines the duties and responsibilities of
the Group and Company's agents and advisers and appointments are
made by the Board after due and careful consideration. The Board
monitors the on-going performance of such agents and advisers;
-- the Board monitors the actions of the Investment Adviser at
regular Board meetings and is also given frequent updates on
developments arising from the operations and strategic direction of
the underlying investee companies; and
-- the Administrator provides administration and company
secretarial services to the Company. The Administrator maintains a
system of internal control on which it reports to the Board.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Investment Adviser, including their own internal
controls and procedures, provide sufficient assurance that a sound
system of risk management and internal control, which safeguards
shareholders' investment and the Company's assets, is maintained.
An internal audit function specific to the Company is therefore
considered unnecessary, as explained in the Audit Committee
report.
The systems of control referred to above are designed to ensure
effectiveness and efficient operation, internal control and
compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs of control.
It follows therefore that the systems of internal control can only
provide reasonable but not absolute assurance against the risk of
material misstatement or loss.
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Board at
its quarterly meetings. Each year a detailed review of performance
pursuant to their terms of engagement will be undertaken by the
Board.
Investment Advisory Agreement
In accordance with Listing Rule 15.6.2(2)R, the Directors
formally appraise the performance and resources of the Investment
Adviser.
The Investment Adviser is led by its managing partners, James
Armstrong, Mike Rand and Giovanni Terranova, who founded the
business in 2009 following their prior work together in European
solar energy. The Investment Adviser's managing partners have a
combined record, prior to Bluefield Partners LLP, of investing in
or project financing approximately GBP7 billion of renewable and
conventional energy projects. The managing partners have been
involved in over GBP500 million of solar PV deals in both the UK
and Europe since 2008, including over GBP235 million of solar PV
transactions in the UK since December 2011. The Investment
Adviser's non-executive team includes William Doughty, the founding
CEO of Semperian; Dr. Anthony Williams, the former chair of the
Risk Committee for the Fixed Income, Currencies & Commodities
Division, and Partner, at Goldman Sachs & Co; and Jon Moulton,
the current chairman of Better Capital and former managing partner
and founder of Alchemy Partners.
In view of the resources of the Investment Adviser and the
Group's investment performance for the period, in the opinion of
the Directors, the continuing appointment of the Investment Adviser
is in the interests of the shareholders as a whole.
Dealings with shareholders
The Board welcomes shareholders' views and places great
importance on communication with its shareholders. The Company's
AGM will provide a forum for shareholders to meet and discuss
issues with the Directors of the Company. Members of the Board will
also be available to meet with shareholders at other times, if
required. In addition, the Company maintains a website which
contains comprehensive information, including regulatory
announcements, share price information, financial reports,
investment objectives and strategy and information on the
Board.
Principal risks and uncertainties
Each Director is aware of the risks inherent in the Company's
business and understands the importance of identifying, evaluating
and monitoring these risks. The Board has adopted procedures and
controls that enable it to manage these risks within acceptable
limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an on-going
basis and these risks are reported and discussed at Board meetings.
It ensures that effective controls are in place to mitigate these
risks and that a satisfactory compliance regime exists to ensure
all applicable local and international laws and regulations are
upheld.
The Company's principal risks and uncertainties are discussed in
detail in the Strategic Report. The Company's financial instrument
risks are discussed in Note 18 to the consolidated financial
statements.
The Company's principal risk factors are fully discussed in the
Company's Prospectus, available on the Company's website
(www.bluefieldsif.com) and should be reviewed by shareholders.
Changes in Regulation
The Board monitors and responds to changes in regulation as it
affects the Group and its policies. A number of changes to
regulation occurred during the period.
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD, which was implemented across the EU 22 July 2013 with
the transition period ending 22 July 2014, aims to harmonise the
regulation of Alternative Investment Fund Managers ("AIFMs") and
imposes obligations on managers who manage or distribute
Alternative Investment Funds ("AIFs") in the EU or who market
shares in such funds to EU investors.
After seeking professional regulatory and legal advice, the
Company was established in Guernsey as a self-managed Non-EU AIF.
Additionally, the Company has taken advice on and implemented
sufficient and appropriate policies and procedures that enable the
Board to fulfil its role in relation to portfolio management and
the management of risk. The Company is therefore categorised as an
internally managed Non-EU AIFM for the purposes of the AIFM
Directive and as such neither it nor the Investment Adviser is
required to seek authorisation under the AIFM Directive.
The marketing of shares in AIFs that are established outside the
EU (such as the Company) to investors in that EU member state is
prohibited unless certain conditions are met. Certain of these
conditions are outside the Company's control as they are dependent
on the regulators of the relevant third country (in this case
Guernsey) and the relevant EU member state entering into regulatory
co-operation agreements with one another.
Currently, the AIFMD National Private Placement Regime (the
"NPPR") provides a mechanism to market Non-EU AIFs that are not
allowed to be marketed under the AIFMD domestic marketing regimes.
The Board intends to utilise NPPR in order to market the Company,
specifically in the UK pursuant to regulations 57, 58 and 59 of the
UK Alternative Investment Fund Managers Regulations 2013. The Board
is working with the Company's advisers to ensure the necessary
conditions are met, and all required notices and disclosures are
made under NPPR. Eligible AIFMs will be able to continue to use
NPPR until at least 2018, and until 2015 NPPR will be the sole
regime available to market in the EEA.
Any regulatory changes arising from implementation of AIFMD (or
otherwise) that limit the Company's ability to market future issues
of its shares may materially adversely affect the Company's ability
to carry out its investment policy successfully and to achieve its
investment objective, which in turn may adversely affect the
Company's business, financial condition, results of operations, NAV
and/or the market price of the Ordinary Shares.
The Board is working with the Company's advisers to ensure the
necessary conditions are met, and all required notices and
disclosures are made under NPPR.
The Board, in conjunction with the Company's advisers, will
continue to monitor the development of AIFMD and its impact on the
Company.
Foreign Account Tax Compliance Act ("FATCA")
FATCA became effective on 1 January 2013 and is being gradually
implemented internationally. The legislation is aimed at
determining the ownership of US assets in foreign accounts and
improving US Tax compliance with respect to those assets. The Board
in conjunction with the Company's service providers and advisers
have ensured the Company's compliance with the Act's requirements
to the extent relevant to the Company.
Non-Mainstream Pooled Investment ("NMPI")
On 1 January 2014 FCA rules relating to the restrictions on the
retail distribution of unregulated collective investment schemes
and close substitutes came into effect.
The Board has been advised that the Company would qualify as an
investment trust if it was resident in the UK, and therefore the
Board believes that the retail distribution of its shares should be
unaffected by the changes. It is the Board's intention that the
Company will make all reasonable efforts to conduct its affairs in
such a manner that its shares can be recommended by Independent
Financial Advisers to ordinary retail investors in accordance with
the FCA's rules relating to non-mainstream investment products.
By order of the Board
Paul Le Page Laurence McNairn
Director Director
5 September 2014 5 September 2014
Report of the Audit Committee
On 24 June 2013, the Board established the Audit Committee which
held its first meeting on 10 December 2013. The Audit Committee,
chaired by Paul Le Page and comprises all of the Directors set out
in the Board of Directors section, operates within clearly defined
terms of reference (which are available from the Company's website)
and includes all matters indicated by Disclosure and Transparency
Rule 7.1 and the AIC Code. Appointments to the Committee shall be
for a period of up to three years, extendable for one or further
three-year periods. It is also the formal forum through which the
Auditor will report to the Board of Directors.
The Audit Committee will meet no less than twice a year, and at
such other times as the Committee Chairman shall require, and will
meet the Auditor at least twice a year. Any member of the Audit
Committee may request that a meeting be convened by the Company
Secretary. The Auditor may request that a meeting be convened if
they deem it necessary. Any Director who is not a member of the
Audit Committee, the Administrator and representatives of the
Investment Adviser shall be invited to attend the meetings as the
Directors deem appropriate.
The Board has taken note of the requirement that at least one
member of the Committee should have recent and relevant financial
experience and is satisfied that the Committee is properly
constituted in that respect, with two of its members who are
chartered accountants and two members with an investment
background.
Responsibilities
The main duties of the Audit Committee are:
-- monitoring the integrity of the financial statements of the
Group and any formal announcements relating to the Company's
financial performance, reviewing significant financial reporting
judgements contained in them;
-- reporting to the Board on the appropriateness of the Board's
accounting policies and practices including critical judgement
areas;
-- reviewing the valuation of the Group's investments prepared
by the Investment Adviser, and making a recommendation to the Board
on the valuation of the Group's investments;
-- meeting regularly with the Auditor to review their proposed
audit plan and the subsequent audit report and assess the
effectiveness of the audit process and the levels of fees paid in
respect of both audit and non-audit work;
-- making recommendations to the Board in relation to the
appointment, re-appointment or removal of the Auditor and approving
their remuneration and the terms of their engagement;
-- monitoring and reviewing annually the Auditor's independence,
objectivity, expertise, resources, qualification and non-audit
work;
-- considering annually whether there is a need for the Company
to have its own internal audit function;
-- keeping under review the effectiveness of the accounting and
internal control systems of the Company;
-- reviewing and considering the UK Code, the AIC Code, the FRC
Guidance on Audit Committees and the Company's institutional
investors' commitment to the UK Stewardship code; and
-- reviewing the risks facing the Company and monitoring the risk matrix.
The Audit Committee is required to report formally to the Board
on its findings after each meeting on all matters within its duties
and responsibilities.
The Auditor is invited to attend the Audit Committee meetings as
the Directors deem appropriate and at which they have the
opportunity to meet with the Committee without representatives of
the Investment Adviser or the Administrator being present at least
once per year.
Financial Reporting
The primary role of the Audit Committee in relation to the
financial reporting is to review with the Administrator, Investment
Adviser and the Auditor the appropriateness of the interim and
annual consolidated financial statements, concentrating on, amongst
other matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or there has been discussion with the Auditor;
-- whether the annual report and consolidated financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group's performance, business model and strategy; and
-- any correspondence from regulators in relation to the Group's financial reporting.
To aid its review, the Audit Committee considers reports from
the Administrator and Investment Adviser and also reports from the
Auditor on the outcomes of their half-year review and annual audit.
Like the Auditor, the Audit Committee seeks to display the
necessary professional scepticism their role requires.
Meetings
The Committee has met formally on four occasions since inception
to the date of this report. The matters discussed at those meetings
were:
-- consideration and agreement of the terms of reference of the
Audit Committee for approval by the Board ;
-- review of the Group's risk matrix;
-- review of the accounting policies and format of the financial statements;
-- review and approval of the audit plan of the Auditor and
timetable for the interim and annual consolidated financial
statements;
-- review the valuation policy and methodology of the Group's
investments applied in the interim and annual consolidated
financial statements;
-- detailed review of the interim and annual report and
consolidated financial statements; and
-- assessment of the effectiveness of the external audit process as described below.
During the year, the Audit Committee also held informal meetings
and discussions with the Company's corporate finance advisers to
ensure that the Company obtained maximum value for money for these
services.
The Audit Committee Chairman or other members of the Audit
Committee appointed for the purpose, shall attend each AGM of the
Company, prepared to respond to any shareholder questions on the
Audit Committee's activities.
Primary Area of Judgement
The Audit Committee determined that the key risk of misstatement
of the Group's consolidated financial statements is the fair value
of the SPV investments, in the context of the high degree of
judgement involved in the assumptions and estimates underlying the
discounted cash-flow calculations.
As outlined in Note 10 of the consolidated financial statements,
the fair value of investments as at 30 June 2014 was
GBP136,120,317. Market quotations are not available for these
investments as their valuation is undertaken using a discounted
cash-flow methodology. Significant inputs such as the discount
rate, rate of inflation and the amount of electricity the solar
assets are expected to produce are subjective and include certain
assumptions. As a result, this requires a series of judgements to
be made as explained in Note 3 in the consolidated financial
statements.
The valuation process and methodology were discussed with the
Investment Adviser regularly during the period and with the Auditor
as part of the period end audit planning and interim review
processes. The Audit Committee also challenged the Investment
Adviser on the period end fair value of investments as part of its
consideration of the consolidated financial statements.
For the interim financial statements as at 31 December 2013, the
Committee determined that the valuation methodology applied would
be a 'cost less impairment' approach as the majority of the
Company's solar plants held within the SPV investments were under
construction. The issue of cost apportionment between revenue and
capital was discussed and it was agreed to include transaction
costs that were intrinsically linked to the value of the investment
in the carrying value of each investment, but to expense any
transaction costs arising from an acquisition as these are
recurring in nature and would be suffered by the next
purchaser.
For the annual audited consolidated financial statements, the
Committee decided to value the operational solar plants within the
SPV investments on a discounted cash-flow basis. This policy was
adopted as the majority of the Company's portfolio of solar plants
were operational and a significant number of market comparative
valuations were available against which the Company's portfolio
could be benchmarked. This valuation methodology would also reflect
the value of the portfolio if the assets were to be purchased by a
third party in a 'willing buyer-willing seller' scenario. The Audit
Committee reviewed and agreed with the Investment Adviser's
analysis for determining the discount rate that was applied in the
discounted cash-flow calculations. This rate was based on the
Investment Adviser's knowledge of the market, taking into account
pricing levels applied on recent bidding activity on operational
assets and third party valuations of the Investment Adviser's other
unlisted funds.
The Audit Committee also reviewed and suggested factors that
could impact the Company's portfolio valuation and its related
sensitivities to the carrying value of the investments as required
in accordance with IPEV Valuation Guidelines.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS
27)
The Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS
27) standard is a recently issued standard and the Committee
discussed in detail at a meeting during the period on whether the
Company satisfied the criteria as set out in the amendments to be
regarded as an investment entity, and the appropriateness of early
adopting these amendments. Before reaching our conclusions we
considered papers prepared by the Investment Adviser and the
Administrator which compared the contractual, operational and
commercial arrangements in place against the criteria in the
standard. The Board has reconsidered the on-going appropriateness
of this accounting policy following the Company's acquisition of
two additional wholly owned assets in early 2014 and concluded that
the Company continues to meet the definition of an investment
entity.
The amendments require investment entities to account for
subsidiaries at fair value rather than consolidate their results.
Notwithstanding this, IFRS 10 requires subsidiaries that provide
investment related services to be consolidated. The significant
assumptions and judgements used in evaluating whether the Company
meets the definition of an investment entity are described in Note
3 to the consolidated financial statements. Adoption of this
standard ensures consistent treatment of the SPV investments held
in the portfolio, and we are of the opinion that it will provide
more meaningful, relevant and understandable information to
shareholders.
There is also some degree of uncertainty with regards to the
future of accounting for subsidiaries that provide investment
related services which also hold a portfolio of investments (such
as BSIFIL) as the IFRS Interpretations Committee are currently
discussing these issues. An Exposure Draft on Investment Entities:
Applying the Consolidation Exception was published for comment by
the IASB during the reported period of the Group's consolidated
financial statements. The proposed amendment requires all
subsidiaries to be held at fair value rather than being
consolidated except where the subsidiary itself does not qualify as
an investment entity. The Group currently consolidates its only
direct subsidiary, BSIFIL, and holds all SPV investments at fair
value. The net assets of BSIFIL, which at 30 June 2014 principally
comprise cash and working capital balances in addition to the SPV
investments, would be required to be included in the carrying value
of the financial assets held at fair value through profit or loss.
This change would not materially affect the Group's net assets. At
30 June 2014, BSIFIL's cash and working capital balances are not
included in the fair value of the financial assets held at fair
value through profit or loss and are consolidated within the
Group's net assets. As it is uncertain as to whether the accounting
standard will be amended, the Board will continue to monitor these
discussions.
Risk Management
The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Committee. The work of the Audit Committee is driven primarily
by the Group's assessment of its principal risks and uncertainties
as set out in the Strategic Report, and it receives reports from
the Investment Adviser and Administrator on the Group's risk
evaluation process and reviews changes to significant risks
identified.
Internal audit
The Audit Committee considers at least once a year whether or
not there is a need for an internal audit function. Currently it
does not consider there to be a need for an internal audit
function, given that there are no employees in the Company and all
outsourced functions are with parties who have their own internal
controls and procedures.
External Audit
KPMG has been the Company's external Auditor since the Company's
inception. This is the first period of audit.
The Auditor is required to rotate the audit partner every five
years. The current partner is in his first year of tenure. There
are no contractual obligations restricting the choice of external
auditor and the Company will put the audit services contract out to
tender at least every ten years. In line with the FRC's
recommendations on audit tendering, this will be considered further
when the audit partner rotates every five years. Under Guernsey
Company law the reappointment of the external Auditor is subject to
shareholder approval at the AGM.
The objectivity of the Auditor is reviewed by the Audit
Committee which also reviews the terms under which the external
Auditor may be appointed to perform non-audit services. The Audit
Committee reviews the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the Auditor,
with particular regard to any non-audit work that the Auditor may
undertake. In order to safeguard Auditor independence and
objectivity, the Audit Committee ensures that any other advisory
and/or consulting services provided by the external Auditor does
not conflict with its statutory audit responsibilities. Advisory
and/or consulting services will generally only cover reviews of
interim financial statements, tax compliance and capital raising
work. Any non-audit services conducted by the Auditor outside of
these areas will require the consent of the Audit Committee before
being initiated.
The external Auditor may not undertake any work for the Group in
respect of the following matters - preparation of the financial
statements, provision of investment advice, taking management
decisions or advocacy work in adversarial situations.
The Committee reviews the scope and results of the audit, its
cost effectiveness and the independence and objectivity of the
Auditor, with particular regard to the level of non-audit fees.
During the period, KPMG was engaged to provide Reporting Accountant
services in relation to the IPO and a review of the Group's first
quarterly NAV calculation. Total fees paid amounted to GBP100,875
for the period ended 30 June 2014 of which GBP35,000 related to
audit and audit related services to the Group and GBP65,875 in
respect of non-audit services.
Notwithstanding such services, most of which have arose in
connection with the Company's IPO and subsequent share placing, the
Audit Committee considers KPMG to be independent of the Company and
that the provision of such non-audit services is not a threat to
the objectivity and independence of the conduct of the audit as
appropriate safeguards are in place.
To fulfil its responsibility regarding the independence of the
Auditor, the Audit Committee has considered:
-- discussions with or reports from the Auditor describing its
arrangements to identify, report and manage any conflicts of
interest; and
-- the extent of non-audit services provided by the Auditor and
arrangements for ensuring the independence and objectivity and
robustness and perceptiveness of the Auditor and their handling of
key accounting and audit judgements.
To assess the effectiveness of the Auditor, the Committee has
reviewed:
-- the Auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit;
-- feedback from other service providers evaluating the performance of the audit team;
-- arrangements for ensuring independence and objectivity; and
-- robustness of the Auditor in handling key accounting and audit judgements.
The Audit Committee is satisfied with KPMG's effectiveness and
independence as Auditor having considered the degree of diligence
and professional scepticism demonstrated by them. Having carried
out the review described above and having satisfied itself that the
Auditor remains independent and effective, the Audit Committee has
recommended to the Board that KPMG be reappointed as Auditor for
the year ending 30 June 2015.
The Chairman of the Audit Committee will be available at the AGM
to answer any questions about the work of the Committee.
On behalf of the Audit Committee
Paul Le Page
Chairman of the Audit Committee
5 September 2014
Independent Auditor's Report
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BLUEFIELD SOLAR
INCOME FUND LIMITED
Opinions and conclusions arising from our audit
Opinion on financial statements
We have audited the consolidated financial statements (the
"financial statements") of Bluefield Solar Income Fund Limited (the
"Company") and its subsidiary (together, the 'Group') for the
period from incorporation on 29 May 2013 (date of incorporation) to
30 June 2014 which comprise the consolidated statement of financial
position, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity, the consolidated
statement of cash-flows and the related notes. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards as
adopted by the European Union ('EU'). In our opinion, the financial
statements:
-- give a true and fair view of the state of the Group's affairs
as at 30 June 2014 and of its total comprehensive income for the
period from 29 May 2013 (date of incorporation) to 30 June
2014;
-- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the EU; and
-- comply with the Companies (Guernsey) Law, 2008.
Our assessment of risks of material misstatement
The risks of material misstatement detailed in this section of
this report are those risks that we have deemed, in our
professional judgment, to have had the greatest effect on: the
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team. Our audit
procedures relating to these risks were designed in the context of
our audit of the financial statements as a whole. Our opinion on
the financial statements is not modified with respect to any of
these risks, and we do not express an opinion on these individual
risks.
In arriving at our audit opinion above on the financial
statements, the risks of material misstatements that had the
greatest effect on our audit were as follows:
Accounting treatment for subsidiaries arising from the adoption
of Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
(the "Investment Entities Amendments").
Refer to the Report of the Audit Committee, Note 2(c) of the
accounting policies and Note 3 disclosures
-- The risk -The Group has early adopted IFRS 10 to 12 including
the Investment Entities Amendments which are subject to further
potential changes in the future. The Directors have concluded that
the Company meets the definition of an Investment Entity as
prescribed in IFRS 10 and, as a result, the Company does not
consolidate its controlled subsidiaries except for those that
provide services relating to its investment activities. Whether the
Company is an Investment Entity is a key judgement made by the
Directors as those controlled subsidiaries which are not
consolidated are held at fair value. The Directors have also made a
judgement as to which entities in the Group provide investment
related services and are consolidated within the financial
statements. The risk addressed is that the Directors have made
appropriate judgments in applying the Investment Entities
Amendments notwithstanding that new interpretations may be issued
to the Investment Entities Amendments that may result in a change
in the Directors' conclusions and therefore the accounting
treatment.
-- Our response - Our audit procedures with respect to the above
judgement included, but were not limited to, forming an independent
evaluation of the relevant facts and circumstances, the purpose and
the design of the Group and of the documentation supporting the
Directors' assessment that the Company meets the definition of an
Investment Entity. Specifically, we challenged the Directors'
assessment that the Company's business purpose is to invest for
returns solely from capital appreciation and/or investment income
and that the Company measures and evaluates the performance of the
investments on a fair value basis. We used our knowledge of the
Group to challenge the Directors' assessment that a subsidiary,
Bluefield SIF Investments Limited, provided investment related
services and so is consolidated in the financial statements. We
have considered the adequacy of the Group's disclosures in respect
of the application of the Investment Entities Amendments (Notes 2c
and 3).
Valuation of the Special Purpose Vehicle ("SPV") Investments
(GBP136,120,317 (or 92% of NAV)
Refer to the Report of the Audit Committee, Note 2(i) accounting
policies and Note 10 disclosures
-- The risk -The Group measures its SPV investments at fair
value based on discounted cash-flows of the underlying solar
projects in addition to the other assets and liabilities of the SPV
investments. The Investment Advisor performs a valuation of each
SPV investment. The Directors consider the valuations performed by
the Investment Advisor and decide on the appropriate valuation to
include in the financial statements.
The Investment Advisor performs the valuations using forecast
cash-flows generated by each project over a long-term period and
selects key assumptions such as the discount rates, base energy
yield assumptions, electricity price forecasts and macroeconomic
assumptions such as inflation and tax rates. The valuations are
adjusted for other specific assets and liabilities of the SPVs. The
assessment of long-term term forecasts and the selection of
appropriate assumptions surrounding uncertain future events, as set
out in the key judgments and estimates section of the financial
statements, are key judgements made by the Directors. There is a
risk that changes to forecast cash-flows and the selection of
different assumptions may result in a materially different
valuation.
-- Our response - Our audit procedures with respect to the
valuation of the SPV investments included but were not limited to,
meeting with the Investment Advisor and Directors of the Company to
identify circumstances which would impact the cash-flows and
challenging the underlying assumptions with reference to source
data. We challenged the key assumptions for discount rates, base
energy yield assumptions, electricity price forecasts, inflation
and tax rates using our own valuation specialists which included
reviewing macroeconomic data and observable market data to perform
benchmarking and sensitivity tests. We have also challenged the
other specific assets or liabilities of the SPVs that are included
in the valuation exercise by the Investment Advisor. We have
considered the adequacy of the Group's disclosures in accordance
with IFRS 13 (see Note 10) including the use of estimates and
judgements in arriving at fair value and sensitivities. Further, we
performed a review of the Group's valuation policy disclosures as
presented in the Annual Report.
Our application of materiality and an overview of the scope of
our audit
Materiality is a term used to describe the acceptable level of
precision in financial statements. Auditing standards describe a
misstatement or an omission as "material" if it could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements. The auditor has to apply
judgment in identifying whether a misstatement or omission is
material and to do so the auditor identifies a monetary amount as
"materiality for the financial statements as a whole".
The materiality for the financial statements as a whole was set
at GBP3,800,000. This has been calculated using a benchmark of the
Group's net asset value (of which it represents approximately 2.6%)
which we believe is the most appropriate benchmark as net asset
value is considered to be one of the principal considerations for
members of the Company in assessing the financial performance of
the group.
We agreed with the audit committee to report to it all corrected
and uncorrected misstatements we identified through our audit with
a value in excess of GBP190,000, in addition to other audit
misstatements below that threshold that we believe warranted
reporting on qualitative grounds.
The Group audit team performed the audit of the Group as if it
was a single operating entity based on the aggregated set of
financial information for the Group. The audit was performed using
the materiality levels set out above and covered 100% of total
Group operating income, Group total comprehensive income before tax
and total Group assets.
Our assessment of materiality has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Whilst the audit process is designed to provide reasonable
assurance of identifying material misstatements or omissions it is
not guaranteed to do so. Rather we plan the audit to determine the
extent of testing needed to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements does not exceed materiality for the financial
statements as a whole. This testing requires us to conduct
significant depth of work on a broad range of assets, liabilities,
income and expense as well as devoting significant time of the most
experienced members of the audit team, in particular the
Responsible Individual, to subjective areas of the accounting and
reporting process.
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Board of Directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Matters on which we are required to report by exception
Under International Standards on Auditing [ISAs] (UK and
Ireland) we are required to report to you if, based on the
knowledge we acquired during our audit, we have identified other
information in the Annual Report that contains a material
inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise
misleading.
In particular, we are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors' statement
that they consider that the Annual Report and financial statements
taken as a whole is fair, balanced and understandable and provides
the information necessary for members to assess the Group's
performance, business model and strategy; or
-- the Report of the Audit Committee does not appropriately
address matters communicated by us to the audit committee.
Under the Companies (Guernsey) Law, 2008, we are required to
report to you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Report relating to the Company's
compliance with the nine provisions of the UK Corporate Governance
Code specified for our review.
We have nothing to report in respect of the above
responsibilities.
Scope of report and responsibilities
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008 and, in respect of any further matters on which we have agreed
to report, on terms we have agreed with the Company. Our audit work
has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company and the Company's members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Statement of
Responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit, and express
an opinion on, the financial statements in accordance with
applicable law and ISAs (UK and Ireland). Those standards require
us to comply with the UK Ethical Standards for Auditors.
Neale D Jehan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
5 September 2014
Consolidated Statement of Financial Position
As at 30 June 2014
30 June 2014
Note GBP
------------------------------------------------------------ ----- -------------
ASSETS
Non-current assets
Financial assets held at fair value through profit or loss 10 136,120,317
Trade and other receivables 12 511,111
Total non-current assets 136,631,428
------------------------------------------------------------ ----- -------------
Current assets
Trade and other receivables 12 608,530
Cash and cash equivalents 13 11,287,130
Total current assets 11,895,660
------------------------------------------------------------ ----- -------------
TOTAL ASSETS 148,527,088
------------------------------------------------------------ ----- -------------
LIABILITIES
Current liabilities
Other payables and accrued expenses 14 851,069
Total current liabilities 851,069
------------------------------------------------------------ ----- -------------
TOTAL LIABILITIES 851,069
------------------------------------------------------------ ----- -------------
NET ASSETS 147,676,019
------------------------------------------------------------ ----- -------------
EQUITY
Share capital 16 140,837,766
Retained reserves 16 6,838,253
TOTAL EQUITY 147,676,019
------------------------------------------------------------ -----
Number of Ordinary Shares in issue at period end 16 143,426,684
------------------------------------------------------------ ----- -------------
Net Asset Value per Ordinary Share (pence) 9 102.96
------------------------------------------------------------ ----- -------------
These consolidated financial statements were approved and
authorised for issue by the Board of Directors on 5 September 2014
and signed on their behalf by:
Paul Le Page Laurence McNairn
Director Director
5 September 2014
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated Statement of Comprehensive Income
For the period from incorporation on 29 May 2013 to 30 June
2014
29 May 2013 to
30 June 2014
Note GBP
------------------------------------------------------------------------- ----- ------------------------------
Income
Investment income 4 1,142,237
Interest income from cash and cash equivalents 418,838
------------------------------------------------------------------------- ----- ------------------------------
1,561,075
Net gains on financial assets held at fair value through profit or loss 10 10,478,025
Operating income 12,039,100
------------------------------------------------------------------------- ----- ------------------------------
Expenses
Administrative expenses 5 2,054,320
Transaction costs 6 508,102
------------------------------
Operating expenses 2,562,422
------------------------------------------------------------------------- ----- ------------------------------
Operating profit 9,476,678
------------------------------------------------------------------------- ----- ------------------------------
Finance costs 7 32,633
------------------------------------------------------------------------- ----- ------------------------------
Total comprehensive income before tax 9,444,045
Taxation 8 -
Total comprehensive income for the period 9,444,045
------------------------------------------------------------------------- ----- ------------------------------
Attributable to:
Owners of the Company 9,444,045
Earnings per share:
Basic and diluted (pence) 15 6.99
------------------------------------------------------------------------- ----- ------------------------------
All items within the above statement have been derived from
continuing activities.
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated Statement of Changes in Equity
For the period from incorporation on 29 May 2013 to 30 June
2014
Number of
Note Ordinary Shares Share capital Retained earnings Total equity
GBP GBP GBP
----------------------------------------- ------ ---------------- -------------- ------------------ -------------
Shareholders' equity at 29 May 2013 - - - -
----------------------------------------- ------ ---------------- -------------- ------------------ -------------
Shares issued during the period:
130,000,000 Ordinary Shares issued at
IPO 16 130,000,000 130,000,000 - 130,000,000
290,000 Ordinary Shares issued at IPO in
lieu of Directors' fees 16,19 290,000 290,000 - 290,000
13,028,999 Ordinary Shares issued via
placing 16 13,028,999 13,159,289 - 13,159,289
107,685 Ordinary Shares issued via scrip
dividend 16 107,685 109,812 - 109,812
Share issue costs 16 - (2,721,335) - (2,721,335)
Dividends paid 16,17 - (2,605,792) (2,605,792)
Total comprehensive income for the
period - - 9,444,045 9,444,045
Shareholders' equity at 30 June 2014 143,426,684 140,837,766 6,838,253 147,676,019
----------------------------------------- ------ ---------------- -------------- ------------------ -------------
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated Statement of Cash Flows
For the period from incorporation on 29 May 2013 to 30 June
2014
29 May 2013 to
30 June 2014
Note GBP
------------------------------------------------------------------------- ------ ---------------
Cash flows from operating activities
Total comprehensive income for the period 9,444,045
Adjustments:
Increase in trade and other receivables (829,641)
Increase in other payables and accrued expenses 851,069
Net gains on financial assets held at fair value through profit or loss 10 (10,478,025)
Net cash inflow generated from operating activities (1,012,552)
--------------------------------------------------------------------------------- ---------------
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss (127,313,722)
Receipts from SPV investments held at fair value through profit or loss 1,671,430
Net cash used in investing activities (125,642,292)
------------------------------------------------------------------------- ------ ---------------
Cash flow from financing activities
Proceeds from issue of Ordinary Shares 16 143,159,289
Issue costs paid 16 (2,721,335)
Dividends paid 16,17 (2,495,980)
Net cash generated from financing activities 137,941,974
------------------------------------------------------------------------- ------ ---------------
Net increase in cash and cash equivalents 11,287,130
Cash and cash equivalents at the start of the period -
Cash and cash equivalents at the end of the period 13 11,287,130
------------------------------------------------------------------------- ------ ---------------
The accompanying notes form an integral part of these
consolidated financial statements.
Notes to the Consolidated Financial Statements for the period
from incorporation on 29 May 2103 to 30 June 2014
1. General information
Bluefield Solar Income Fund Limited (the "Company") is a
non-cellular company limited by shares and was incorporated in
Guernsey under the Companies (Guernsey) Law, 2008 (the "Law") on 29
May 2013 with registered number 56708 as a closed-ended investment
company. It is regulated by the Guernsey Financial Services
Commission.
The consolidated financial statements for the period from 29 May
2013 to 30 June 2014 comprise the financial statements of the
Company and its wholly owned subsidiary, Bluefield SIF Investments
Limited ("BSIFIL"), (together the "Group") as at 30 June 2014.
The investment objective of the Group is to provide shareholders
with an attractive return, principally in the form of semi-annual
income distributions, by investing via Special Purpose Vehicles
("SPV") into a portfolio of large scale United Kingdom ("UK") based
solar energy infrastructure assets.
On 11 July 2013, the Company completed its Initial Public
Offering ("IPO"), which raised gross proceeds of GBP130,290,000.
The Company's shares were admitted to trading on the Main Market of
the London Stock Exchange on 12 July 2013.
The Group has appointed Bluefield Partners LLP as its Investment
Adviser ("Investment Adviser").
2. Accounting policies
a) Basis of preparation
The consolidated financial statements, included in this annual
report, have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union ("EU") and the Disclosure and Transparency Rules of the
Financial Conduct Authority.
These consolidated financial statements have been prepared under
the historical cost convention with the exception of financial
assets measured at fair value through profit or loss, and in
accordance with the provisions of the Law.
The principal accounting policies adopted are set out below.
Standards and Interpretations in issue and not yet
effective:
New Standards Effective
date
-------------- ----------------------------------------------- -----------
IFRS 9 Financial Instruments No stated
effective
date*
IFRS 10 Consolidated Financial Statements 1 January
2014
IFRS 12 Disclosure of Interests in Other Entities 1 January
2014
Revised and amended standards
--------------------------------------------------------------- -----------
IAS 27 Consolidated and Separate Financial 1 January
Statements 2014
IFRS 10, IFRS Amendments relating to investment entities 1 January
12, IAS 27 2014
IAS 32 Financial Instruments: Presentation 1 January
- Amendments relating to the offsetting 2014
of financial assets and financial liabilities
IAS 36 Impairment of Assets - Amendments relating 1 January
to the recoverable amount disclosures 2014
for non-financial assets
IAS 39 Financial Instruments: Recognition and 1 January
Measurement - Amendments for novations 2014
of derivatives and continuation of hedge
accounting
* At the February 2014 meeting, the International Accounting
Standards Board (IASB) tentatively decided that the mandatory
effective date will be no earlier than for annual periods beginning
on or after 1 January 2018. This is to be endorsed by the EU.
The Group has not early adopted these standards and
interpretations with the exception of IFRS 10, IFRS 12 and IAS 27
and the Amendments to these standards relating to investment
entities (see 2 (c) below).
b) Going concern
At 30 June 2014, the Company had invested in ten solar projects
through the full commitment of the IPO proceeds and the use of the
additional GBP13.2 million raised through a subsequent share issue.
Further to this, nine of the ten solar projects were completed and
were in operation by 30 June 2014. This resulted in a cash balance
of GBP11,287,130 and net assets of GBP147,676,019 as at 30 June
2014. During the period, the Company had also entered into a GBP50
million revolving loan facility which was not drawn down as at 30
June 2014. These resources, together with the net income generated
by the acquired projects are expected to allow the Company to meet
its liquidity needs for the payment of operational expenses,
dividends and acquisition of new solar assets. The Company expects
to continue to comply with the covenants of its revolving loan
facility.
The Directors in their consideration of going concern, have
reviewed comprehensive cash-flow forecasts prepared by the
Investment Adviser, future projects in the pipeline and the
performances of the current solar plants in operation and, at the
time of approving the consolidated financial statements, have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future and do not consider there to be any threat to the going
concern status of the Group. The Directors have concluded that it
is appropriate to adopt the going concern basis of accounting in
preparing the consolidated financial statements.
c) Accounting for subsidiaries
The Board has determined that the Company has all the elements
of control as prescribed by IFRS 10 in relation to all its
subsidiaries as the Company is effectively the sole shareholder in
all the subsidiaries, is exposed and has rights to the returns of
all subsidiaries and has the ability either directly or through the
Investment Adviser to affect the amount of its returns from all
subsidiaries.
The Investment Entities Amendments (the "Amendments") to IFRS
10, IFRS 12 and IAS 27 were endorsed by the EU on 20 November 2013,
and have an effective date of 1 January 2014 with early adoption
permitted. The Amendments introduced an exception to the principle
that controlled subsidiaries should be consolidated. It defined an
investment entity and required a parent that is an investment
entity to measure its subsidiaries at fair value through profit or
loss in accordance with IAS 39 'Financial Instruments: Recognition
and Measurement', rather than consolidate the results of the
subsidiaries on a line by line basis.
The Directors have reassessed the position of the Group since 31
December 2013 and are of the opinion that the Group has all the
typical characteristics of an investment entity and the three
essential criteria specified in the standard.
The three essential criteria are such that the entity must:
-- obtain funds from one or more investors for the purpose of
providing these investors with professional investment management
services;
-- commit to its investors that its business purpose is to
invest its funds solely for returns from capital appreciation,
investment income or both; and
-- measure and evaluate the performance of substantially all of
its investments on a fair value basis.
In respect of the first essential criterion, typically an
investment entity would have several investors who pool their funds
to gain access to investment management services and investment
opportunities that they might not have had access to individually.
In accordance with the Company's Prospectus, typical investors of
the Company are generally institutional and sophisticated investors
due to the high capital costs, potential risk of capital loss,
limited liquidity of the underlying solar assets, long-term nature
of these assets and regulatory issues. The Company, being listed on
the London Stock Exchange Main Market, attracts investment from a
diverse group of external shareholders.
In respect of the second criterion, consideration is also given
to the time frame of an investment. An investment entity should not
hold its investments indefinitely but should have an exit strategy
for their realisation. As the Group invests in underlying solar
assets that have an expected life of 25 years and as the solar
assets are expected to have no residual value after their 25 year
life, the Directors consider that this demonstrates a clear exit
strategy from these investments.
In respect of the third criterion, the Group measures and
evaluates the performance of all of its investments as one
portfolio. Subsidiaries are consolidated into the consolidated
financial statements when they provide investment management
services to the Company while all other subsidiaries and
investments are held at fair value through profit or loss (see Note
2 (k)(i)).
As such, the Directors have concluded that the Group satisfies
the criteria as defined in the Amendments to be regarded as an
investment entity for the period ended 30 June 2014.
Consolidated subsidiary
The Company makes its investments in the SPVs through its
subsidiary, BSIFIL in which it is the sole shareholder. The
Amendments require a subsidiary of an investment entity that
provides services that relate to the investment entity's activities
to be consolidated. The Board reassessed the function of the
Company's subsidiary, BSIFIL, and maintains that it provides
investment related services because such services are an extension
of the operations of the Company. As such at 30 June 2014, the
Company consolidates the results of BSIFIL which leads to BSIFIL's
investments in the SPVs being represented as financial assets held
at fair value through profit or loss on the consolidated statement
of financial position date.
Where necessary, adjustments have been made to the financial
statements of BSIFIL to bring the accounting policies used into
line with those used by the Group. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
The results of BSIFIL incorporated during the period are
included in the consolidated statement of comprehensive income from
the effective date of incorporation up to the end of the period.
BSIFIL results for the period ended 30 June 2014 have been included
by reference to management accounts drawn in line with the Group's
reporting period.
Unconsolidated subsidiaries
The Group has not consolidated its equity interests in the SPVs
that invest in the solar projects. Accordingly, the Group's equity
interests in the SPVs are held for investment purposes and not as
operating vehicles and therefore it is the Group's interest in the
SPVs which constitute its investment assets, rather than each SPV's
investment in the solar project itself.
Note 11 discloses the financial support provided by the Group to
the unconsolidated SPV investments.
d) Functional and presentation currency
These consolidated financial statements are presented in pounds
sterling ("Sterling"), which is the functional currency of the
Company as well as the presentation currency. The Group's funding,
investments and transactions are all denominated in Sterling.
e) Income
Consultancy services fee income is recognised on an accruals
basis.
Interest income on cash and cash equivalents is recognised on an
accruals basis using the effective interest rate method.
f) Expenses
Operating expenses are the Group's costs incurred in connection
with the on-going administrative costs and management of the
Group's investments. Operating expenses are accounted for on an
accruals basis.
Transaction costs arising from the acquisition of the Group's
investments that are recurring in nature and that would not be
recovered on the subsequent sale of the investment in an orderly
transaction (such as legal fees relating to due diligence and
technical reviews of the solar farms) are expensed in the
consolidated statement of comprehensive income. Transaction costs
that are intrinsically linked to the value of the investments (such
as legal fees relating to the contracts on the construction and
maintenance of solar assets, stamp duty fees relating to the leases
on the solar farms, insurance during construction and technical due
diligence on construction) are included in the cost of the
financial assets held at fair value through profit or loss at the
period end. All transaction costs relating to uncompleted
investment projects are expensed to the consolidated statement of
comprehensive income.
g) Finance costs
Borrowing costs are recognised in the consolidated statement of
comprehensive income in the period to which they relate on an
accruals basis using the effective interest rate method.
h) Dividends
Dividends paid are disclosed in equity. Dividends approved by
the Board prior to a period-end are disclosed as a liability.
Dividends declared but not approved will be disclosed in the notes
to the consolidated financial statements.
i) Segmental reporting
IFRS 8 'Operating Segments' requires a 'management approach',
under which segment information is presented on the same basis as
that used for internal reporting purposes.
The Board has considered the requirements of IFRS 8 'Operating
Segments', and is of the view that the Group is engaged in a single
segment of business, being investment mainly in UK solar energy
infrastructure assets via SPVs, and mainly in one geographical
area, the UK, and therefore the Group has only a single operating
segment.
The Board, as a whole, has been determined as constituting the
chief operating decision maker of the Group. The key measure of
performance used by the Board to assess the Group's performance and
to allocate resources is the total return on the Group's Net Asset
Value ("NAV"), as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in these consolidated
financial statements.
The Board of Directors has overall management and control of the
Group and will always act in accordance with the investment policy
and investment restrictions set out in the Company's latest
Prospectus which cannot be radically changed without the approval
of shareholders. The Board of Directors has delegated the day to
day implementation of the investment strategy to its Investment
Adviser but retains responsibility to ensure that adequate
resources of the Group are directed in accordance with their
decisions. Although the Board obtains advice from the Investment
Adviser, it remains responsible for making final decisions in line
with the Company's policies and the Board's legal
responsibilities.
j) Taxation
Current tax is the expected tax payable on the taxable income
for the period, using tax rates that have been enacted or
substantively enacted by the date of the consolidated statement of
financial position.
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements except
for deferred income tax assets which are recognised only to the
extent that it is probable that taxable profit will be available
against which the deductible temporary differences, carried forward
tax credit or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an
undiscounted "in use" basis at the tax rates that are expected to
apply when the related asset is realised or liability is settled,
based on tax rates and laws enacted or substantively enacted at the
reporting date and the tax system elected by the Company.
BSIFIL is registered for UK Value Added Tax ("VAT") purposes
with HM Revenue & Customs. Recoverable VAT is included within
receivables at period end.
k) Financial instruments
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.
The Group offsets financial assets and financial liabilities if the
Group has a legally enforceable legal right to offset the
recognised amounts and interests and intends to settle on a net
basis or realise the asset and liability simultaneously.
Financial assets
The classification of financial assets depends on the nature and
purpose of the financial assets and is determined at the time of
initial recognition. All financial assets are initially measured at
fair value.
The Group has not classified any of its financial assets as
'held to maturity' or as 'available for sale'. The Group's
financial assets comprise of only financial assets held at fair
value through profit or loss and cash and receivables.
i) Financial assets held at fair value through profit or loss
-- Classification
The Group has been classified as an investment entity and as
such its investments in the SPVs are held at fair value through
profit or loss and measured in accordance with the requirements of
IAS 39 (see Note 2 (c)).
-- Recognition
Investments made by the Group in the SPVs are initially
recognised at transaction price on the day the loan commitment is
drawn down. Transaction costs arising from the acquisition of the
investments in the SPVs that are recurring in nature and that would
not be expected to be recovered on a subsequent sale of the
investment are expensed to the consolidated statement of
comprehensive income. However, 'one-off' transaction costs that are
incurred by or on behalf of the SPVs in order to create future
cash-flows are intrinsically linked to the value of the investments
and as such are included in the cost of the financial assets held
at fair value through profit or loss (see Note 2 (f)).
-- Measurement
Subsequent to initial recognition, the investments in the SPVs
are measured at each subsequent reporting date at fair value. Gains
and losses resulting from the revaluation of investments in the
SPVs are recognised in the consolidated statement of comprehensive
income (see Note 10). The Group has elected to recognise all gains
and losses from financial assets held at fair value through profit
or loss as a single line in the consolidated statement of
comprehensive income. Fair value is determined on an unleveraged,
discounted cash-flow basis in accordance with the International
Private Equity and Venture Capital Valuation Guidelines, 2012
("IPEV Valuation Guidelines") recognising any other assets and
liabilities of the SPV.
ii) Derecognition of financial assets
A financial asset (in whole or in part) is derecognised
either:
-- when the Group has transferred substantially all the risks and rewards of ownership; or
-- when it has neither transferred nor retained substantially
all the risks and rewards and when it no longer has control over
the assets or a portion of the asset; or
-- when the contractual right to receive cash-flow has expired.
iii) Cash and cash equivalents and other receivables
Cash and cash equivalents comprise cash on hand and short-term
deposits with an original maturity of three months or less that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value. Other receivables including
VAT recoverable are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
These financial assets are included in current assets, except for
maturities greater than twelve months after the reporting date,
which are classified as non-current assets. They are initially
recognised at fair value plus transaction costs that are directly
attributable to the acquisition, and subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment.
Financial liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value
net of transaction costs incurred. All purchases of financial
liabilities are recorded on trade date, being the date on which the
Group becomes party to the contractual requirements of the
financial liability. Unless otherwise indicated the carrying
amounts of the Group's financial liabilities approximate to their
fair values.
The Group's financial liabilities consist of only financial
liabilities measured at amortised cost.
i) Financial liabilities measured at amortised cost
These include trade payables, borrowings and other short-term
monetary liabilities, which are initially recognised at fair value
and subsequently carried at amortised cost less impairment using
the effective interest rate method.
ii) Derecognition of financial liabilities
A financial liability (in whole or in part) is derecognised when
the Group has extinguished its contractual obligations, it expires
or is cancelled. Any gain or loss on derecognition is taken to the
consolidated statement of comprehensive income.
l) Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are
recognised as the proceeds received, net of direct issue costs.
Direct issue costs include those incurred in connection with the
placing and admission which include fees payable under the Placing
Agreement, legal costs and any other applicable expenses.
m) Share based payments
Directors' fees
The Group recognises services received in a share-based payment
transaction as the services are received on an accruals basis. A
corresponding increase in equity is recognised when payment for the
services received is due in an equity settled share based payment
transaction based on the fair value of the equity instruments
granted. If the contractual arrangements require the delivery of
the shares in advance, the corresponding increase in equity is
recognised when the shares are issued with a corresponding
prepayment being recognised and expensed over the period in which
the services will be provided.
Investment Adviser's variable fee
The Group recognises the variable fee for the services received
in a share-based payment transaction as the Group becomes liable to
the variable fee on an accruals basis. The variable fee will be
accrued in the accounting period in which the Company exceeds its
target distribution as per the Investment Advisory Agreement (see
Note 5). A corresponding increase in equity is recognised when
payment for the variable fee is made in an equity settled share
based payment transaction based on the fair value of the services
provided. The variable fee is not applicable in the Company's first
financial period.
3. Critical accounting judgements, estimates and assumptions in
applying the Group's accounting policies
The preparation of the consolidated financial statements under
IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of
making judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates.
The area involving a high degree of judgement or complexity or
area where assumptions and estimates are significant to the
consolidated financial statements has been identified as the risk
of misstatement of the valuation of the SPV investments (see Note
10). Revisions to accounting estimates are recognised in the period
in which the estimate is revised and in any future period
affected.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future period
if the revision affects both current and future periods.
Following the adoption of the Amendments, the Board has
determined that the Company satisfies the criteria to be regarded
as an investment entity and that the Company, together with its
subsidiary, BSIFIL which also serves as a holding company for the
Group's investments in the SPVs, provides investment related
services. This determination involves a degree of judgement due to
the complexity within the wider structure of the Group and the
investments in the SPVs (see Note 2 (c)). As disclosed in Note 2
(c), the Board has determined the unit of account to be the Group's
interest in the SPV rather than the SPV's investments in the solar
projects. Additionally, as the investments in the SPVs consist of
both debt and equity investments, judgement has been applied to the
unit of account for the measurement of these investments.
There is also some degree of uncertainty with regard to the
future of accounting for subsidiaries that provide investment
related services which also hold a portfolio of investments (such
as BSIFIL) as the IFRS Interpretations Committee are currently
discussing these issues. An Exposure Draft on Investment Entities:
Applying the Consolidation Exception was published for comment by
the IASB during the reported period of the Group's consolidated
financial statements. The proposed amendment requires all
subsidiaries to be held at fair value rather than being
consolidated except where the subsidiary itself does not qualify as
an investment entity. The Group currently consolidates its only
direct subsidiary, BSIFIL, and holds all SPV investments at fair
value. The net assets of BSIFIL, which at 30 June 2014 principally
comprise cash and working capital balances in addition to the SPV
investments, would be required to be included in the carrying value
of the financial assets held at fair value through profit or loss.
This change would not materially affect the Group's net assets. At
30 June 2014, BSIFIL's cash and working capital balances are not
included in the fair value of the financial assets held at fair
value through profit or loss and are presented within the Group's
net assets. As it is uncertain as to whether the accounting
standard will be amended, the Board will continue to monitor these
discussions.
4. Investment income
29 May 2013 to
30 June 2014
GBP
Consultancy services fee income 1,142,237
1,142,237
===============
During the year, BSIFIL entered into consultancy agreements with
each SPV for the provision of on-going ad-hoc advisory services in
the management, administration and operation of each SPV. The
consultancy services fee income is charged according to hourly
rates and agreed from time to time between BSIFIL and each SPV.
5. Administrative expenses
29 May 2013 to
30 June 2014
GBP
Investment advisory fees (including technical services fee) 1,204,987
Legal and professional fees 341,500
Administration fees 145,076
Directors' remuneration 150,986
Audit fees 35,000
Non-audit fees* 25,875
Broker fees 48,453
Regulatory Fees 9,589
Registrar fees 11,812
Insurance 9,214
Listing fees 26,849
Other expenses 44,979
2,054,320
===============
*excludes GBP40,000 of non-audit fees in relation to the IPO
which were deducted from the IPO proceeds.
Investment Advisory Agreement
The Group and the Investment Adviser have entered into an
Investment Advisory Agreement, dated 24 June 2013, pursuant to
which the Investment Adviser has been given overall responsibility
for the non-discretionary management of the Group's (and any of the
Group's SPVs) assets (including uninvested cash) in accordance with
the Group's investment policies, restrictions and guidelines. Under
the terms of the Investment Advisory Agreement, the Investment
Adviser is entitled to a combination of a base fee and variable
fee. The base fee is payable quarterly in arrears in cash, at a
rate equivalent to 1% per annum of
the NAV up to and including GBP100 million, 0.80% per annum of
the NAV above GBP100 million and up to and including GBP200 million
and 0.60% per annum of the NAV above GBP200 million. The base fee
will be calculated on the NAV reported in the most recent quarterly
NAV calculation as at the date of payment.
The variable fee is based on the following:
(i) if in any year (excluding the Company's first financial
year), the Company exceeds its distribution target of 7 pence per
Ordinary Share per year which will rise with the annual Retail
Price Index ("RPI") in the third year, the Investment Adviser will
be entitled to a variable fee equal to 30% of the excess, subject
to a maximum variable fee in any year equal to 1% of the NAV as at
the end of the relevant financial year. The variable fee shall be
satisfied either by the issue of Ordinary Shares to the Investment
Adviser at an issue price equal to the prevailing NAV per Ordinary
Share; acquisition of Ordinary Shares held in treasury; or purchase
of Ordinary Shares in the market. The Ordinary Shares issued to the
Investment Adviser will be subject to a three year lock-up period,
with one-third of the relevant shares becoming free from the
lock-up on each anniversary of their issue.
(ii) if in any year (excluding the Company's first financial
year), the Company fails to achieve its distribution target of 7
pence per Ordinary Share per year which will rise with the annual
RPI in the third year, the Investment Adviser will repay its base
fee in proportion by which the actual annual distribution per
Ordinary Share is less than the target distribution, subject to a
maximum repayment in any year equal to 35% of the base fee
calculated prior to any deduction being made. The repayment will be
split equally across the four quarters in the following financial
year and will be set off against the quarterly management fees
payable to the Investment Adviser in that following financial
year.
On 11 June 2014, BSIFIL entered into a Technical Services
Agreement with the Investment Adviser, with a retrospective
effective date of 25 June 2013 in order to delegate the provision
of the consultancy services to the Investment Adviser in its
capacity as technical adviser to the SPVs. On the same date, the
Group entered into a base fee offset arrangement agreement dated 11
June 2014, whereby the aggregate technical services fee and base
fee payable (under the Investment Advisory Agreement) shall not
exceed the base fee that would otherwise have been payable to the
Investment Adviser in accordance with the Investment Advisory
Agreement had no fees been payable under Technical Services
Agreement.
In the event that the Investment Adviser becomes liable to pay
the variable fee repayment amount, the Investment Adviser shall be
liable to pay such amount regardless of whether or not the base fee
previously paid to it under the Investment Advisory Agreement had
been reduced by virtue of the application of the set off
arrangements as outlined on the base fee offset arrangement
agreement dated 11 June 2014.
The fees incurred for the period and the amount outstanding at
the period end have been disclosed in Note 19.
Administration Agreement
The Administrator has been appointed to provide day to day
administration and company secretarial services to the Company, as
set out in the Administration Agreement dated 24 June 2013.
Under the terms of the Administration Agreement, the
Administrator is entitled to an annual fee, at a rate equivalent to
10 basis points of NAV up to and including GBP100 million, 7.5
basis points of NAV above GBP100 million and up to and including
GBP200 million and 5 basis points of the NAV above GBP200 million,
subject to a minimum fee of GBP100,000 per annum. The fees are for
the administration, accounting, corporate secretarial services,
corporate governance, regulatory compliance and Stock Exchange
continuing obligations provided to the Company. In addition, the
Administrator will receive an annual fee of GBP5,000 and GBP2,500
for the provision of a compliance officer and Money Laundering
Reporting Officer respectively.
The Administrator will also be entitled to an investment related
transaction fee charged on a time spent basis which is capped at a
total of GBP5,000 per investment related transaction. All
reasonable costs and expenses incurred by the Administrator in
accordance with this agreement are reimbursed to the Administrator
quarterly in arrears.
The fees incurred for the period and the amount outstanding at
the period end have been disclosed in Note 19.
6. Transaction costs
29 May 2013 to
30 June 2014
GBP
Completed investment acquisitions 465,132
Other investment acquisitions 42,970
508,102
===============
7. Finance costs
29 May 2013 to
30 June 2014
GBP
Arrangement fees 22,222
Loan facility fees 10,411
32,633
===============
On 11 June 2014, the Group entered into a three-year revolving
acquisition facility for up to GBP50 million with The Royal Bank of
Scotland plc which expires on 10 June 2017. This facility has been
secured against the Group's assets through a debenture agreement
entered into as part of the facility. This facility includes a
working capital element and will provide the Group with a flexible
source of funding to make additional acquisitions of solar energy
assets in the UK. The facility is subject to an interest rate of
margin over LIBOR of 2.25% and arrangement fee of 1.6% over the
total commitment, secured against the Group's existing assets (see
Note 10). The arrangement fee is to be amortised over the three
year term of the loan facility. The Group is required to meet
certain financial covenants, the most significant of which is
maintaining a Forecast and Historic Interest Cover Ratio above
3.5:1 and a Leverage Ratio of not greater than 0.35:1. At 30 June
2014, the Group had not drawn down any amounts from the revolving
loan facility.
8. Taxation
The Company has obtained exempt status under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance 1989 for which it pays an
annual fee of GBP600 (included within regulatory fees).
The income from the Company's investments is not subject to any
further tax in Guernsey although the subsidiary and underlying
SPVs, as UK based entities, are subject to the current prevailing
UK corporation tax rate. The standard rate of UK corporation tax to
31 March 2014 is 23% and 21% from 1 April 2014.
At the period end, BSIFIL had taxable profits of GBP5,056,147
which are expected to be offset against the taxable losses of the
underlying SPVs through group relief. As a result, the tax charge
for the period shown in the consolidated statement of comprehensive
income is nil.
9. Net Asset Value per Ordinary Share
The calculation of NAV per Ordinary Share is based on NAV of
GBP147,676,019 and the number of shares in issue at 30 June 2014 of
143,426,684 Ordinary Shares.
10. Financial assets held at fair value through profit or
loss
The Group's accounting policy on the measurement of these
financial assets is discussed in Note 2 (k) and below.
30 June 2014
Total
GBP
Opening balance (Level 3) -
Additions 127,313,722
Change in fair value of financial assets held at fair value through profit or loss 8,806,595
Closing balance (Level 3) 136,120,317
==================
Analysis of net gains on financial assets held at fair value through profit or loss
(per consolidated statement of comprehensive income)
Change in fair value of financial assets held at fair value through profit or loss 8,806,595
Receipts from SPV investments held at fair value through profit or loss 1,671,430
10,478,025
==================
At 30 June 2014, GBP111.8 million of the Group's assets have
been pledged as security against the Group's revolving loan
facility (see Note 7).
Fair value measurements
IFRS 13 'Fair Value Measurement' 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 three
levels.
The fair value hierarchy has the following levels:
-- Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices);
-- Level 3 - inputs for assets or liabilities that are not based
on observable market data (unobservable inputs).
The determination of what constitutes 'observable' requires
significant judgement by the Group. The Group considers observable
data to be market data that is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in
the relevant market.
The only financial instruments carried at fair value are the SPV
investments held by the Group, which are fair valued at each
reporting date. The Group's investments have been classified within
Level 3 as the SPV investments are not traded and contain
unobservable inputs (see Note 2 (k)).
Transfers during the period
There have been no transfers between levels during the period
ended 30 June 2014. Any transfers between the levels will be
accounted for on the last day of each financial period. Due to the
nature of the investments, these are always expected to be
classified as Level 3.
Valuation methodology and process
The Directors base the fair value of the investments in the SPVs
held by the Group on information received from the Investment
Adviser. Fair value is calculated on an unleveraged, discounted
cash-flow basis in accordance with the IPEV Valuation Guidelines.
The Investment Adviser produces fair value calculations on a
semi-annual basis as at 30 June and 31 December each year. However,
in every third year (commencing not later than the year ended 30
June 2016), the Board will have an external valuation performed by
an experienced independent third party.
The Board reviews and considers the fair value arrived at by the
Investment Adviser before incorporating into the fair value of the
investments adopted by the Group. As all the underlying solar
plants are fully operational, the discounted cash-flow technique
was applied in appraising each SPV's solar project. This method
identifies the inputs that have the most significant impact on the
carrying value of the investments which include the discount rate,
electricity price forecasts, the amount of electricity the solar
assets are expected to produce and inflation rate on related
costs.
The Directors have satisfied themselves as to the Group's
valuation policy, valuation methodology, discount rates and key
assumptions applied.
The key inputs to the valuation are the discount rate, power
price forecasts and inflation rate. Original discount rates applied
when the solar assets were first purchased could change due to
factors such as a material change in long term inflation
expectations or risk-free rates; a change in risk perception of
solar assets or the regulation supporting solar assets; or a change
in the nature of capital available within the industry (for
example, large scale institutional investors with a low cost of
capital may drive the reduction in the cost of capital for solar
assets). As a result, the discount rates are subjective and an
alternative assumption may result in a different rate. Judgement is
used by the Investment Adviser in arriving at the appropriate
discount rate used by the Group which has been determined at 7.8%.
This is based on the Investment Adviser's knowledge of the market,
taking into account pricing levels applied on recent bidding
activity on operational assets and third party valuations of the
Investment Adviser's other unlisted funds.
Long term power price forecasts are obtained from a leading
power forecaster, which are reviewed and adjusted by the Investment
Adviser by applying a 5% discount on the leading forecaster's price
power curve in order to align these with the fixed power prices
which would currently be achieved on the power purchasing
agreements that the SPVs have entered into. This curve as reduced
by 5% equates to an increase in power prices from the 2014/2015
financial year at an average nominal rate of 2.68% compared with
our assumption on inflation of 2.5% per annum.
Related revenue (for associated Feed-in Tariffs ("FiT") and
Renewable Obligation Certificates ("ROC") benefits) and costs (for
the construction and maintenance of the solar assets) may not stay
constant in real terms over the life of the solar assets due to
inflation rates. The Group assumes an inflation rate of 2.5%.
Long term irradiation forecasts based on a number of long term
irradiation databases utilising both ground and satellite based
measurements have been provided by a leading solar PV technical
adviser in the UK market. The Investment Adviser has relied on this
data and where applicable, the performance ratio warranted by the
contractors. Base energy yield assumptions are P50 (50% probability
of exceedence).
Each investment is subject to full UK corporate taxation at the
prevailing rate with the tax shield being limited to the applicable
capital allowances from the Group's SPV investments.
Sensitivity analysis
The table below analyses the sensitivity of the fair value of
investments to an individual input, while all other variables
remain constant. The Board considers the changes in inputs to be
within a reasonable expected range based on their understanding of
market transactions. This is not intended to imply that the
likelihood of change or that possible changes in value would be
restricted to this range.
Input Change in input Change in fair value Change in NAV
of investments per share
GBP (pence)
Discount rate + 0.5% (5,248,224) (3.55)
- 0.5% 5,602,764 3.79
Power prices +10% 7,362,428 4.99
-10% (7,363,074) (4.99)
Inflation rate + 0.25% 2,626,043 1.78
- 0.25% (2,548,372) (1.73)
Energy yield 10 year P90 (11,572,695) (7.84)
10 year P10 11,560,789 7.83
Taxation + 25% (4,227,338) (2.86)
- 25% 4,227,338 2.86
Operational costs +10% (3,040,785) (2.06)
-10% 3,040,408 2.06
11. Financial support to unconsolidated SPV investments
The following table shows the SPV investments of the Group which
have not been consolidated in the preparation of these consolidated
financial statements as the Group has adopted the investment entity
exemption referred to Note 2 (c):
Ownership
Project SPV Investments Date of investment Site location Interest
Hill Farm HF Solar Limited 21 October 2013 Oxfordshire 100%
Hardingham Hardingham Solar Limited 30 August 2013 Norfolk 100%
Betingau Betingau Solar Limited 23 December 2013 Glamorgan 100%
Goosewillow ISP (UK) 1 Limited 5 August 2013 Oxfordshire 100%
Hall Farm Hall Solar Limited 24 December 2013 Norfolk 100%
North Beer North Beer Solar Limited 10 October 2013 Cornwall 100%
Saxley Saxley Solar Limited 19 December 2013 Hampshire 100%
Sheppey Sheppey Solar Limited 18 February 2014 Kent 100%
Pentylands Solar Power Surge Limited 4 March 2014 Wiltshire 100%
Hoback Hoback Solar Limited 17 June 2014 Hertfordshire 100%
The Group has advanced the following shareholder loans to the
SPVs, the loans are subject to an interest rate of 7% per annum,
are unsecured and repayable no later than 25 years from the date
the respective loan agreements were entered into:
Project SPV Total Drawn down Outstanding
loan by SPVs at commitment
commitment 30 June 2014 30 June 2014
GBP GBP GBP
HF Solar
Hill Farm Limited 17,250,000 17,241,285 8,715
Hardingham
Solar
Hardingham Limited 16,950,000 16,943,714 6,286
Betingau
Solar
Betingau Limited 11,155,000 11,148,912 6,088
ISP (UK) 1
Goosewillow Limited 18,910,000 18,978,969 -
Hall Solar
Hall Farm Limited 13,320,071 13,408,976 -
North Beer
Solar
North Beer Limited 9,300,000 9,292,206 7,794
Saxley
Solar
Saxley Limited 6,950,000 6,996,734 -
Sheppey
Solar
Sheppey Limited 11,950,000 11,943,508 6,492
Solar Power
Surge
Pentylands Limited 21,350,000 21,359,418 -
Hoback
Solar
Hoback Limited 18,950,000 - 18,950,000
As at 30 June 2014 146,085,071 127,313,722 18,985,375
======================= ================================= ===============================
The Group's SPVs are committed to pay amounts equal to the loan
commitment to meet working capital requirements and payments for
the turn-key engineering, procurement and construction ("EPC")
contracts entered into with the contractors for the design and
construction of the solar plants. At 30 June 2014, the amounts
drawn down by the SPVs are not equal to the loan commitment due to
timing differences which will be settled in due course.
12. Trade and other receivables
30 June 2014
GBP
Non-current assets
Prepayments:
- Arrangement fees (Note 7) 511,111
511,111
=============
Current assets
Income receivable from consultancy services fee (see Note 4) 148,243
VAT receivable 16,728
Interest receivable 5,274
Other receivables 23,887
Prepayments:
- Arrangement fees (Note 7) 266,667
- Directors' remuneration (see Note 19) 139,014
- Other 8,717
-------------
608,530
=============
There are no material past due or impaired receivable balances
outstanding at the period end.
The Directors' remuneration prepayment totalling GBP139,014
relates to the cost of 290,000 Ordinary Shares that were issued to
the Directors on 12 July 2013 in lieu of a cash payment for
Directors' fees for the first two years (see Note 19).
The Directors consider that the carrying amount of all
receivables approximates to their fair value.
13. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group and
short-term bank deposits held with maturities of up to three
months. The carrying amounts of these assets approximate their fair
value.
30 June 2014
Cash and cash equivalent: GBP
- Committed 5,035,375
- Uncommitted 6,251,755
-------------
11,287,130
=============
Committed cash and cash equivalents consist of amounts expected
to be utilised to meet the Group's commitments.
14. Other payables and accrued expenses
30 June 2014
GBP
Investment advisory fees 322,758
Legal and professional fees 313,164
Administration fees 33,688
Audit fees 35,000
Other payables 146,459
851,069
=============
The Group has financial risk management policies in place to
ensure that all payables are paid within the agreed credit period.
The Board of Directors considers that the carrying amount of all
payables approximates to their fair value.
15. Earnings per share
For the period 29 May 2013
to 30 June 2014
Profit attributable to shareholders of the Company GBP 9,444,045
Weighted average number of Ordinary shares in issue 135,075,710
Basic and diluted earnings from continuing operations and profit
for the period (pence) 6.99
=================================================
There was no income earned or shares issued between 29 May 2013
and 11 July 2013, therefore this period has not been included for
the purpose of calculating the weighted average number of shares
above.
There are no potentially dilutive shares in issue.
16. Share capital
The authorised share capital of the Company is represented by an
unlimited number of Ordinary Shares of no par value which, upon
issue, the Directors may designate into such classes and
denominated in such currencies as they may determine.
Number of
Ordinary Shares
Opening balance at 29 May 2013 -
Shares issued for cash 143,028,999
Shares issued in lieu of Directors' fees 290,000
Share issued as a scrip dividend alternative 107,685
Closing balance at 30 June 2014 143,426,684
================
Shareholder's equity
GBP
Opening balance at 29 May 2013 -
Shares issued for cash 143,159,289
Shares issued in lieu of Directors' fees 290,000
Share issued as a scrip dividend alternative 109,812
Share issue costs (2,721,335)
Dividends paid (2,605,792)
Retained earnings 9,444,045
Closing balance at 30 June 2014 147,676,019
=====================
On 12 July 2013, the Company issued 130,290,000 fully paid
Ordinary Shares with a par value of GBP1 each raising total
proceeds of GBP130,290,000 (see Note 19) of which GBP130,000,000
was received in cash. The proceeds net of issue costs of
GBP2,539,406 (1.9% of gross proceeds), amounted to
GBP127,750,594.
On 21 February 2014, the Company issued 13,028,999 new Ordinary
Shares following a placing under the authority granted at launch.
These shares were issued at a price of GBP1.01 per Ordinary Share,
raising gross proceeds of GBP13,159,289. The proceeds net of issue
costs of GBP181,929 (1.4% of gross proceeds), amounted to
GBP12,977,360, thus bringing the total proceeds since inception to
GBP140,727,954.
On 19 February 2014, the Board declared a first interim dividend
of GBP2,605,792 equating to 2 pence per Ordinary Share, which was
paid on 8 April 2014 to shareholders on the register on 28 February
2014. As a result of the scrip dividend alternative offered to
shareholders, on 11 April 2014, 107,685 new Ordinary Shares at a
price of 101.975 pence per Ordinary Share totalling GBP109,812 were
admitted to the London Stock Exchange.
Rights attaching to shares
The Company has a single class of Ordinary Shares which are
entitled to dividends declared by the Company. At any General
Meeting of the Company each ordinary Shareholder is entitled to
have one vote for each share held. The Ordinary Shares also have
the right to receive all income attributable to those shares and
participate in distributions made and such income shall be divided
pari passu among the holders of Ordinary Shares in proportion to
the number of Ordinary Shares held by them.
Retained reserves
Retained reserves comprise of retained earnings as detailed in
the consolidated statement of changes in equity.
17. Dividends
On 19 February 2014, the Board declared a first interim dividend
of GBP2,605,792 equating to 2 pence per Ordinary Share, which was
paid on 8 April 2014 to shareholders on the register on 28 February
2014.
Subsequent to the period end, on 5 September 2014, the Board
declared a second interim dividend of 2 pence per Ordinary Share,
which will be paid on 31 October 2014 to shareholders on the
register on 19 September 2014.
18. Risk Management Policies and Procedures
The Group is exposed to a variety of financial risks, including
market risk (including price risk, currency risk and interest rate
risk), credit risk and liquidity risk. The Investment Adviser and
the Administrator report to the Board on a quarterly basis and
provide information to the Group which allows it to monitor and
manage financial risks relating to its operations.
The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance.
The Board of Directors is ultimately responsible for the overall
risk management approach within the Group. The Board of Directors
has established procedures for monitoring and controlling risk. The
Group has investment guidelines that set out its overall business
strategies, its tolerance for risk and its general risk management
philosophy.
In addition, the Investment Adviser monitors and measures the
overall risk bearing capacity in relation to the aggregate risk
exposure across all risk types and activities. Further details
regarding these policies are set out below:
Market price risk
Market price risk is defined as the risk that the fair value of
future cash-flows of a financial instrument held by the Group will
fluctuate because of changes in market prices.
Market price risk will arise from changes in the inflation rate
as the electricity prices generated by the Group although fixed
through the FiTs and ROC regimes, will be subject to annual
inflationary changes.
The Group's future SPV investments are subject to fluctuations
in the price of new solar photovoltaic ("PV") equipment. The price
of solar equipment can be influenced by a number of factors,
including the price and availability of raw materials, demand for
PV equipment and any import duties that may be imposed on PV
equipment. Changes in the cost of solar PV equipment could have a
material adverse effect on the Group's ability to source projects
that meet its investment criteria and consequently its business,
financial position, results of operations and business
prospects.
The valuation of future investments will be subject to the risk
that these will not achieve the expected ROC banding if a new
accreditation comes into effect in future. In order to mitigate
this risk, if the expected ROC banding is not achieved, the EPC
contract price will be reduced in order for the Company to maintain
the same internal rate of return on each project.
The Group's overall market position is monitored by the
Investment Adviser and is reviewed by the Board of Directors on an
on-going basis.
Currency risk
The Group does not have any direct currency risk exposure as all
its investments and transactions are in Sterling. The Group is
however indirectly exposed to currency risk on future investments
that will require importation of equipment.
Interest rate risk
Interest rate risk is the risk that the value of financial
instruments, related income from the cash and cash equivalents and
interest income from the loan commitments to the SPVs will
fluctuate due to changes in market interest rates. The Company is
also exposed to interest rate risk via its floating rate credit
facility. This facility was undrawn at period end.
The Group's interest bearing financial assets consist of cash
and cash equivalents and the loan commitments to the SPVs. The
Group's interest rate risk is limited to interest earned on cash
balances and from the loan commitments to the SPVs. The interest
rates on the short term bank deposits are fixed and do not
fluctuate significantly with changes in market interest rates. The
interest rate of 7% per annum applied to the shareholder loans to
the SPVs is also fixed in nature and is therefore not expected to
fluctuate significantly with changes in market interest rates (see
Note 11). Accordingly, the fair value of the financial assets held
at fair value through profit or loss as determined on an
unleveraged, discounted cash-flow basis is not expected to
fluctuate significantly with changes in market interest rates.
The following table shows the portfolio profile of the financial
assets at 30 June 2014:
Interest rate Total as at 30 June 2014
GBP
Floating rate
Royal Bank of Scotland International Limited 0.10% 94,990
The Royal Bank of Scotland plc 0.10% 4,080,925
Fixed rate
Lloyds Bank International Limited 0.50% 22,939
Lloyds Bank Group plc 1.00% 7,088,276
11,287,130
===========================
The valuation of the SPV investments is subject to variation in
the discount rate which are themselves subject to changes in
interest rate risk due to the discount rates applied to the
discounted cash-flow technique when valuing the investments. The
Investment Adviser reviews the discount rates bi-annually and takes
into consideration market activity to ensure appropriate discount
rates are recommended to the Board. Total exposure to interest rate
risk on the financial assets held at fair value through profit or
loss at the period end is GBP136,120,317 (see Note 10).
Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full when due. The Group's SPVs have entered into
turn-key EPC contracts with contractors for the design and
construction of the solar plants. Payments advanced to the
contractors in accordance with the terms of the EPC contracts are
protected through performance bonds or titles to assets for amounts
greater than any payment made. At the reporting date the Group's
SPVs held performance bonds totalling GBP10,969,303 with banks that
have a Fitch group credit rating of A- or higher and an insurance
company with an A.M. Best group credit rating of BBB.
The Group's credit risk exposure is due to a portion of the
Group's assets being held as cash and cash equivalents and accrued
interest. The Group maintains its cash and cash equivalents and
borrowings across two different banking groups to diversify credit
risk which have all been group rated A by Fitch and this is subject
to the Group's credit risk monitoring policies, as mentioned above.
The total exposure to credit risk arises from default of the
counterparty and the carrying amounts of financial assets best
represent the maximum credit risk exposure at the period end date.
As at 30 June 2014, the maximum credit risk exposure in relation to
cash and cash equivalents was GBP11,292,404.
Interest
Fitch's Rating Cash Fixed deposit accrued Total as at 30 June 2014
GBP GBP GBP GBP
The Royal Bank
of Scotland plc A 4,175,915 - - 4,175,915
Lloyds Bank
Group plc A - 7,111,215 5,274 7,116,489
4,175,915 7,111,215 5,274 11,292,404
=============== =================== ================ =========================
The carrying amount of these assets approximates their fair
value.
The Group also faces credit risk with the construction of solar
PV assets as it is likely to result in reliance upon services being
delivered by one or more contractors. Whilst the performance of
contractor services will usually be guaranteed with penalties
linked to underperformance, and potentially in some cases backed by
guarantees, any such guarantees are expected to be limited in their
scope and quantum and may not always cover the full loss of profit
incurred by a project. Failure of a contractor or a change in a
contractor's financial circumstances may among other things result
in the relevant asset underperforming or becoming impaired in value
and there can be no assurance that such underperformance or
impairment will be fully or partially compensated by any contractor
warranty or bank guarantee.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its liabilities as they fall due. The Investment Adviser and
the Board continuously monitor forecasted and actual cash-flows
from operating, financing and investing activities.
As the Group's investments are in the SPVs which are private
companies that are not publicly listed, the return from these
investments is dependent on the income generated or the disposal of
solar assets by the SPVs and will take time to realise.
The following table details the Group's expected maturity for
its financials assets and liabilities. These are undiscounted
contractual cash-flows:
Between one and five
Less than one year years After five years Total as at 30 June 2014
GBP GBP GBP GBP
Assets
Financial
assets held
at fair
value
through
profit or
loss 11,017,412 26,273,820 127,028,117 164,319,349
Trade and
other
receivables* 194,133 - - 194,133
Cash and cash
equivalents 11,287,130 - - 11,287,130
Liabilities
Other
payables and
accrued
expenses (851,069) - - (851,069)
21,647,606 26,273,820 127,028,117 174,949,543
================================== ========================== =========================== ===========================
* excluding
prepayments
At 30 June 2014, there is sufficient liquidity in the form of
cash and cash equivalents to satisfy the Group's obligations.
Capital management policies and procedures
The Group's capital management objectives are to ensure that the
Group will be able to continue as a going concern while maximising
the capital return to equity shareholders.
In accordance with the Group's investment policy, the Group's
principal use of cash (including the proceeds of the IPO and the
loan facility when drawn down) is to fund the Group's projects, as
well as initial expenses related to the issue, on-going operational
expenses and payment of dividends and other distributions to
shareholders in accordance with the Company's dividend policy.
The Board, with the assistance of the Investment Adviser,
monitors and reviews the broad structure of the Company's capital
on an on-going basis.
The Company has no imposed capital requirements except for the
financial covenants as disclosed in Note 7.
The capital structure of the Company consists of issued share
capital and retained earnings.
19. Related Party Transactions and Directors' Remuneration
In the opinion of the Directors, the Company has no immediate or
ultimate controlling party.
Laurence McNairn, Director of the Company, is also a Director of
the Company's Administrator, Heritage International Fund Managers
Limited. From the total administration fees incurred during the
period, GBP145,076 relates to the fees of the Administrator, of
which GBP33,688 was outstanding at the period end.
The Directors are remunerated for their services with annual
fees of GBP30,000 each, with Paul Le Page receiving an additional
annual fee of GBP5,000 for acting as chairman of the audit
committee. The Chairman receives fees of GBP50,000 per annum.
The Directors elected to receive their Directors' fees for the
first two years through an issue of Ordinary Shares, which were
allotted and issued at the initial issue price. The value of this
non-cash consideration is equivalent to the aggregate cash payment
that otherwise would have been made to the Directors for the
provision of their services in accordance with the terms of their
respective appointment letters.
As a result, on 12 July 2013, the Company issued a total of
290,000 Ordinary Shares as part of the IPO at the issue price of
GBP1 per Ordinary Share, to the Directors in lieu of a cash payment
for Directors' fees for the first two years (see Note 16).
The total Directors' fees expense for the period amounted to
GBP150,986; therefore, at 30 June 2014, the prepaid element of the
shares issued is GBP139,014. Of this, Laurence McNairn received a
Director's fee of GBP30,000 with GBP30,000 prepaid at the period
end.
At 30 June 2014, the number of Ordinary Shares held by each
Director is as follows:
John Rennocks 155,000
Paul Le Page 70,000
Laurence McNairn 91,764
John Scott 201,176
517,940
==============
John Scott and John Rennocks are Directors of BSIFIL. Mike Rand
and James Armstrong, who are partners of the Investment Adviser,
are also Directors of BSIFIL. None of these Directors receives any
fees for their services as Directors of this wholly owned
subsidiary.
The Group's investment advisory fees for the period amounted to
GBP1,204,987 of which GBP322,758 was outstanding at the period
end.
The Group's consultancy services fee income for the period
amounted to GBP1,142,237 of which GBP148,243 was outstanding at the
period end.
20. Guarantees and other commitments
As at 30 June 2014, the Group had provided guarantees amounting
to GBP125.04 million to the SPVs in relation to the funding of EPC
contracts entered into by the SPVs, of which GBP100.83 million was
paid during the period and GBP24.21 million held by the SPVs in
escrow.
As at 30 June 2014, the Company had provided guarantees
amounting to GBP111.8 million to the BSIFIL in relation to the
revolving loan facility entered into by the Group (see Note
10).
At the reporting date, the Group had loan commitments of
GBP18,985,375 relating to the shareholder loans extended to its
SPVs (see Note 11).
21. Subsequent events
On 5 September 2014, the Board declared a second interim
dividend of 2 pence per Ordinary Share which will be payable to
shareholders on the register as at 19 September 2014 with an
associated ex-dividend date of 17 September 2014.
On 28 July 2014, the Group entered into two conditional
contracts for a total commitment of GBP15 million comprising of an
8.5 MWp plant in Devon and 6 MWp in Somerset, which will be
constructed by a UK contractor. Both plants are expected to qualify
for the 1.4 ROC regime.
Since 30 June 2014, a total of GBP6.7 million was transferred
from the Group to Hoback Solar Limited on the existing loan
commitment at the period end.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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