TIDMNESF
RNS Number : 5388C
NextEnergy Solar Fund Limited
18 June 2019
18 June 2019
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Final results for the year ended 31 March 2019
NextEnergy Solar Fund announces its results for the year ended
31 March 2019.
Highlights for year ended 31 March 2019
-- Net asset value per ordinary share of 110.9p (2018: 105.1p)
-- Ordinary shareholder total return 11.8% (2018:6.2%)
-- Dividends per ordinary share of 6.65p (target dividend of
6.87p per share for the 2019/20 financial year)
-- Cash dividend cover before scrip of 1.3x (2018: 1.1x)
-- Ordinary shareholders' NAV of GBP645m (2018: GBP605m)
-- Gearing of 36% as at 31 March 2019 (2018: 31%)
-- Asset Management Alpha of 0.1% (2018: 1.8%)
-- Gross asset value of GBP1,014m (2018: GBP875m)
-- Total capacity installed of 691MW (2018: 569MW)
-- Total electricity generation of 693GWh (2018: 451GWh)
-- 87 operating solar assets as at 31 March 2019 (2018: 63)
-- Generation above budget of +9.1% (2018: +0.9%)
-- 195,600 tonnes of CO2 emissions avoided per annum (2018: 124,000)
Kevin Lyon, Chairman of NESF, commented:
"We have experienced strong generation throughout the year
driven by high levels of solar irradiation, with periods last
summer and this February being particularly significant.
Over the course of the last twelve months, as we head into the
subsidy free era, we have focused on optimising our portfolio of
assets, which continues to outperform budget. Our simultaneous
programme of lease extensions and re-structuring across these
assets has added significant value to the NAV.
We continue to be on track in building our first free
subsidy-free plant with plans to build more in the future.
One of our strengths in the sector is our financial innovation.
This year we issued preference shares, which have increased
cashflow and have significantly enhanced returns for ordinary
shareholders and provided financial stability for the future."
Annual Report
A copy of the Annual report has been submitted to the National
Storage Mechanism and will shortly be available at
www.morningstar.co.uk/uk/NSM. The annual report will also be
available on the Company's website at www.nextenergysolarfund.com
where further information on the Company can also be found.
There will be an analyst presentation and conference call at
10.00am this morning for analysts. To register for the call, please
contact nextenergy@mhpc.com.
For further information:
NextEnergy Capital Limited
Michael Bonte-Friedheim 020 3893 1500
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Aldo Beolchini
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Cantor Fitzgerald Europe 020 7894 7667
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Robert Peel
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Fidante Capital 020 7832 0900
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John Armstrong-Denby
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Shore Capital 020 7408 4090
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Anita Ghanekar
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Macquarie Capital (Europe)
Limited 020 3037 2000
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Nick Stamp
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MHP Communications 020 3128 8100
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Oliver Hughes
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Apex Fund and Corporate Services
(Guernsey) Limited 01481 713 843
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Nicholas Robilliard
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Notes to Editors:
NESF is a specialist investment company that invests primarily
in operating solar power plants in the UK. It is able to invest up
to 15% of its Gross Asset Value in operating solar power plants in
OECD countries outside the UK. The Company's objective is to secure
attractive shareholder returns through RPI-linked dividends and
long-term capital growth. The Company achieves this by acquiring
solar power plants on agricultural, industrial and commercial
sites.
As at 31 December 2018, NESF has raised equity proceeds of
GBP692m (including GBP100m of preference shares) since its initial
public offering on the main market of the London Stock Exchange in
April 2014. It also has credit facilities outstanding of c.GBP296m
in place (GBP148m from a syndicate including MIDIS, NAB and CBA;
MIDIS: GBP52m; Santander GBP40m; and Bayerische Landesbank
GBP56m).
NESF is differentiated by its access to NextEnergy Capital Group
(NEC Group), its Investment Manager, which has a strong track
record in sourcing, acquiring and managing operating solar assets.
WiseEnergy is NEC Group's specialist operating asset management
division and over the course of its activities has provided
operating asset management, monitoring, technical due diligence and
other services to over 1,300 utility-scale solar power plants with
an installed capacity in excess of 1.9 GW.
Further information on NESF, NEC Group and WiseEnergy is
available at www.nextenergysolarfund.com, www.nextenergycapital.com
and www.wise-energy.eu.
Key Performance Indicators ("KPIs")
The Company sets out below its KPIs which it utilises to track
its performance over time against its objectives. Alternative
Performance Measures used by the Company are defined on page
102.
Year ended Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March 31 March
Financial KPI 2019 2018 2017 2016 2015
Ordinary shares in issue 581.7m 575.7m 456.4m 278.0m 240.3m
Ordinary share price 117.5p 111.0p 110.5p 97.75p 103.75p
Market capitalisation of ordinary shares GBP683m GBP639m GBP504m GBP272m GBP249m
NAV per ordinary share* 110.9p 105.1p 104.9p 98.5p 103.3p
Total ordinary NAV* GBP645m GBP605m GBP479m GBP274m GBP248m
Premium/(discount) to NAV* 6.0% 5.6% 5.3% (0.8%) 0.4%
Earnings per ordinary share 12.37p 5.88p 13.81p 0.78p 9.13p
Dividend per ordinary share 6.65p 6.42p 6.31p 6.25p 5.25p
Dividend yield* 5.66% 5.78% 5.71% 6.39% 5.06%
Cash dividend cover - pre-scrip dividends* 1.3x 1.1x 1.1x 1.2x 1.8x
Preference shares in issue 100m - - - -
Debt outstanding at subsidiaries level GBP269m GBP270m GBP270m GBP217m GBP0m
Gearing level (debt + preference shares/GAV)* 36% 31% 36% 44% 0%
GAV GBP1,014m GBP875m GBP749m GBP489m GBP248m
Weighted average cost of capital 5.4% 5.8% 5.9% 5.8% 7.5%
Weighted average lease life 25.2 years 23.3 years 24.6 years 25.7 years 26.2 years
Ordinary shareholder total return - cumulative since IPO 46.7% 33.6% 26.7% 6.1% 5.9%
Ordinary shareholder total return - annualised since IPO 9.5% 8.5% 9.1% 3.2% 6.3%
Ordinary shareholder total return 11.8% 6.2% 21.1% 0.2% 5.9%
FTSE All-Share total return 8.8% 1.4% 20.9% (3.6%) 5.5%
Ordinary NAV total return* 11.8% 6.3% 14.4% 3.7% 3.3%
Ordinary NAV total return - annualised since IPO* 8.1% 7.0% 4.9% 1.9% 4.0%
Invested capital* GBP896m GBP734m GBP522m GBP481m GBP252m
Ongoing charges ratio* 1.1% 1.1% 1.2% 1.2% 1.5%
Weighted average discount rate 7.0% 7.3% 7.9% 7.7% 7.5%
Operational KPI
Number of assets 87 63 41 33 16
Total installed capacity 691 MW 569 MW 454 MW 414 MW 217 MW
Annual generation 693 GWh 451 GWh 394 GWh 225 GWh 23 GWh
% increase (year-on-year) 54% 14% 75% 878% -
Generation since IPO 1.8 TWh 1.1 TWh 0.6 TWh 0.2 TWh 0.0 TWh
Irradiation (delta vs. budget) +9.0% (0.9%) (0.3%) +0.4% (0.4%)
Generation (delta vs. budget) +9.1% +0.9% +3.3% +4.1% +4.8%
Asset Management Alpha* +0.1% +1.8% +3.6% +3.7% +5.2%
* Alternative Performance Measures
Chairman's Statement
I am pleased to present, on behalf of the Board, the Annual
Report and Audited Financial Statements for NextEnergy Solar Fund
Limited for the year ended 31 March 2019.
One of our key focus areas during the year has been the
continued optimisation of our 87 assets. Our efforts have focused
on generating incremental value via technical, operating and debt
financing improvements across the portfolio. As a result, we have
continued to deliver significant electricity generation
outperformance and higher cash flows when compared to acquisition
budgets. Over the past year, we have acquired fewer operating solar
plants as asset prices have increased to levels we deem
unattractive. Due to the current demand for operating solar plants,
we expect that prices will remain elevated for the foreseeable
future.
We started work on the construction of our first subsidy-free
asset in the UK. Construction commenced in February on Hall Farm
II, a 5.5MW plant adjacent to our existing Hall Farm 5MW plant.
Hall Farm II is expected to be commissioned and start exporting
electricity to the grid in the third quarter of 2019. Immediately
thereafter, we expect to begin constructing our Staughton plant, a
50MW plant located in Bedfordshire. It will be the largest plant in
our portfolio and will be subsidy-free. These achievements are
notable as they demonstrate the economic case for new solar PV
assets in the UK compared to other energy generation technologies,
many of which still require extensive and expensive subsidies.
Our subsidy-free strategy envisages adding between 100 and 150MW
in subsidy-free capacity to the portfolio. This amounts to an
estimated investment of between GBP55m and GBP80m (5% - 8% of GAV).
Assuming 125MW of subsidy-free capacity and average generation
levels, our subsidy-free portfolio would be equivalent to c.15% of
2018/19 generation. We are working on strategies for the sale of
electricity from these subsidy-free plants.
We have continued to work on optimising the returns from the
portfolio, including:
-- extending the useful life of more of our assets;
-- reducing operating costs through re-negotiating contractual
terms and entering into new agreements;
-- deploying excess cashflows in acquiring smaller assets,
principally commercial and industrial rooftop plants with
attractive risk-weighted financial returns; and
-- making technical improvements.
Further details on these four areas can be found in the
Investment Manager's Report.
During the year, electricity generation was significantly above
expectations at 9.1% above budget. This was primarily due to higher
irradiation across our portfolio amounting to 9.0% over
projections. Normally, electricity generation levels would not
necessarily increase correspondingly during periods of high
irradiation as performance of the panels is reduced by high
temperatures and grid curtailment occurs when capacity is reached.
Nonetheless, we secured an Asset Management Alpha result of 0.1%,
achieving an electricity generation output higher than the increase
in irradiation. This result is due to the performance of our asset
manager, WiseEnergy, and this is the fifth continuous year of
positive Asset Management Alpha.
Our Italian Solis portfolio acquired in December 2017, performed
well during the year with 5.4% extra generation over budget and an
Asset Management Alpha of 2.5%. The portfolio was acquired with
long-term debt of EUR76.9m (GBP68.1m) which was fully repaid
following the issuance of the preference shares in November
2018.
We have also leveraged our asset manager's expansion of its
expertise in power sales. WiseEnergy has driven a focus on refining
the way we sell electricity and identifying opportunities to
maximise revenues. Over the course of the year we optimised a
number of our power sales agreements. Going forward we also plan to
look into long-term corporate Power Purchase Agreements ("PPA");
building 15-year contracts at fixed prices with commercial or
industrial companies requiring large amounts of electricity for
their premises.
This past year also saw us advance our innovative approach to
the financing of our portfolio. In November we raised GBP100m
through an issue of preference shares. The preference shares have a
fixed 4.75% p.a. coupon, resulting in significantly lower all-in
cash costs to the Company over the regulatory regime period of our
assets when compared to ordinary shares and existing or new
financial debt products. More details on the issue can be found
below and in the Investment Manager's report.
Our financial performance continues to be strong. Over the five
years since IPO, NESF has achieved an annualised ordinary
shareholder total return of 9.5% and an annualised NAV total return
of 8.1%, in line with or in excess of the target range of 7% - 9%
equity return for investors based on the IPO price.
Financial Results
Profit before tax was GBP70.6m (2018: GBP32.2m) with earnings
per ordinary share of 12.37p (2018: 5.88p). Cash dividend cover
pre-scrip dividends was 1.3x (2018: 1.1x).
Portfolio Performance
Energy generated was 693 GWh (2018: 451GWh), 9.1% above budget,
resulting in the fifth continuous year of outperformance.
During the year, solar irradiation across the portfolio was 9.0%
above expectation (2018: 0.9% below expectation).
Asset Management Alpha for the year was 0.1% (2018: 1.8%), which
would have been 1.1% (2018: 2.7%) if we excluded distributor
network outages.
The electricity generated by our portfolio is equivalent to a
saving of 195,600 tonnes of CO(2) emissions per annum and
sufficient to power some 184,000 UK homes for a year. This is
roughly equivalent to powering a city with 442,000 inhabitants
(e.g. Northampton and Portsmouth combined) for an entire year.
Net Asset Value
At the year end, the Company's ordinary NAV was GBP645m,
equivalent to 110.9p per ordinary share (2018: NAV of GBP605m,
105.1p per ordinary share).
During the year, the unlevered discount rate was reduced by
0.25% to 6.50% which reflected the observed increase in market
value for operating solar PV assets. The discount rate employed for
levered asset portfolios in the UK was between 7.2% and 7.5% (2018:
between 7.75% and 8.25%). The weighted average discount rate moved
from 7.3% to 7.0%.
Portfolio Growth
During the year, the portfolio's installed capacity increased by
122MW. The Investment Adviser is in negotiations on further
pipeline assets, most of which are subsidy-free. This reflects the
difficulty of acquiring operating solar plants at attractive prices
in the current market.
Capital Raising and Debt Financing
In November 2018, the Company issued the first tranche of
GBP100m of preference shares. The Company deployed the proceeds
from the first tranche of preference shares to repay certain debt
facilities, resulting in significantly reduced annual cash costs to
NESF. The Company is considering an issue of a second tranche of
GBP100m of preference shares which would be deployed to repay the
Company's short-term credit facility of GBP70m, with the balance
available for investment.
At the year end, the Company's subsidiaries had financial debt
outstanding of GBP269m (2018: GBP270m), on a look-through basis
including project level debt. Of the financial debt, GBP199m was
long-term fully amortising debt, and GBP70m was drawn under a
short-term credit facility. The total financial debt, together with
the preference shares, represented a gearing level of 36% (2018:
31%), which is below the stated maximum debt-to-GAV level of
50%.
Dividends
The Company continues to achieve all its dividend objectives.
For the year 2018/19, the Company will have paid out a total
dividend of 6.65p per ordinary share (2017/18: 6.42p).
For the year 2019/20, the UK RPI applicable to the value of ROCs
is 3.3% (as published by the Office for National Statistics). We
are therefore targeting to grow the total dividend to 6.87p per
ordinary share.
The cash dividend cover pre-scrip dividends increased to 1.3x
partially attributable to the issue of the preference shares, the
proceeds of which were used to repay certain debt facilities and
increase cash flow.
Environmental, Social and Governance
We are committed to ESG principles and responsible investment.
We continue to develop our ESG policy and are committed to evolving
it and delivering sustainable growth across the Company. One
particular area we have focused on is biodiversity. Solar PV assets
represent an excellent opportunity to secure long-term biodiversity
across the countryside. In the area protected by the fencing around
our assets, we are able to create sectors fostering local plant and
wildlife.
Where previously this would have been limited, we have now
created an approach in which we are not just implementing and
maintaining the original planning conditions, we are creating
biodiversity exemplar sites across our portfolio. This approach
includes initiatives such as: pairing up with a local beekeeper
association to locate beehives seasonally on our sites, encouraging
local pollinators by planting wild flower mixes, erecting bird
boxes and supporting landowner engagement. Further details can be
found in the ESG section.
Corporate Governance
We have further enhanced Board diversity and broadened expertise
and skills through the appointment of a new Director, Sue Inglis,
after the period end.
The Board continues to review the Company's Corporate Governance
structure with a view to maintaining best practice processes and
procedures. During the course of the year, the Board undertook a
review of its effectiveness, taking into account the views of the
external service providers and consultants of the Company. The
outcome of the review was that the Board and the Audit Committee
are functioning effectively. We undertake the Board's effectiveness
review on a yearly basis. Further details (including adhering to
the UK Corporate Governance Code and viability statement reporting)
on the Company's Corporate Governance can be found in the Corporate
Governance section.
Admission to the FTSE-250 Index
In April 2019, the Company's ordinary shares were included in
the FTSE-250 Index. The Board is aware of the additional reporting
and disclosure requirements that this involves.
Distribution of Annual Reports
Our Annual Report will be accessible on the Company's website
(www.nextenergysolarfund.com). As part of our Company's principles
of environmental governance, the Company will no longer be issuing
a printed copy of the Annual Report to shareholders, except where a
shareholder has expressly requested a hard copy. A communication
will be sent to ordinary shareholders before the next AGM advising
how to register their communication preference.
Outlook
Looking forward, we have a clear strategy to continue generating
attractive financial returns for our shareholders while having
positive social and environmental impacts.
We expect to continue taking advantage of the new-build
opportunities we have secured in the subsidy-free solar sector in
the UK. Having identified this opportunity early, we have been able
to secure development opportunities at attractive valuations. This
will facilitate the construction of new plants with satisfactory
financial returns. We are targeting a total of between 100 and 150
MW in subsidy-free solar plants. We shall seek to achieve
attractive risk-adjusted returns from these activities via
corporate PPAs or direct-wire agreements with off-takers.
Any opportunity to acquire operating solar PV assets in the UK
will be closely scrutinised by our Investment Adviser but we expect
to have limited growth from those opportunities due to our
financial discipline in acquisitions.
Our teams will continue to work on achieving technical
improvements, cost reductions, financing efficiencies and the
implementation of new technology across the portfolio. Achieving
these objectives should contribute to posting increased cash
dividend cover results. An area of particular focus will continue
to be the life extension of individual assets across the
portfolio.
In addition, we will continue to expand our biodiversity
programme to include an increasing number of our solar PV assets.
This work is just one of our contributions to ensuring a better
environment for this and future generations.
We currently have no plans to issue further ordinary shares to
achieve the objectives outlined above.
Since our initial public offering in April 2014, we have paid
out a total of GBP119m in dividends (including scrip issuance).
Each year we have achieved the dividend targets set at the time of
the IPO and we intend to continue this track record as we move into
the next year. All of our financial innovation during this time -
ideas such as preference shares - has been about future proofing
our financial performance and dividends. We are therefore targeting
to grow the dividend to 6.87p per ordinary share for the year ended
2019/20 as mentioned above.
Given the successes this year and our plans for the year ahead
the outlook for the Company remains strong.
Kevin Lyon
Chairman
17 June 2019
Strategic Report
Structure
The Company is a Guernsey registered closed-ended investment
company.
The Company has a premium listing and its ordinary shares are
traded on the London Stock Exchange under the ticker "NESF". The
Group comprises the Company and HoldCos which invest in SPVs which
hold the underlying solar PV assets.
Investment Objective
The Company seeks to provide investors with a sustainable and
attractive dividend that increases in line with RPI over the
long-term. In addition, the Company seeks to provide ordinary
shareholders with an element of capital growth through the
reinvestment of net cash generated in excess of the target dividend
in accordance with the Company's investment policy.
Investment Policy
The Company seeks to achieve its investment objective by
investing exclusively in solar PV assets. The Company invests in
solar PV assets primarily in the UK. Not more than 15% of the
Company's GAV (calculated at the time of investment) may be
invested in solar PV assets that are located outside the UK.
Investments outside the UK will be made only in OECD countries that
the Investment Manager and Investment Adviser believe have a stable
solar energy regulatory environment and provide investment
opportunities with similar, or better, investment characteristics
and returns relative to investments in the UK.
The Company intends to continue to acquire solar PV assets that
are primarily ground-based and utility-scale and which are on sites
that may be agricultural, industrial or commercial. The Company may
also acquire portfolios of residential or commercial
building-integrated installations. The Company targets solar PV
assets that are anticipated to generate stable cash flows over
their asset lifespan.
The Company typically seeks to acquire sole ownership of
individual solar PV assets through SPVs, but may enter into joint
ventures or acquire majority interests, subject, in each case, to
the Company maintaining a controlling interest. Where an interest
of less than 100% in a particular solar PV asset is acquired, the
Company intends to secure controlling shareholder rights through
shareholders' agreements or other legal arrangements. Investments
by the Company in solar PV assets may be either by way of equity or
a mix of equity and shareholder loans.
The Company has built up a diversified portfolio of solar PV
assets and its investment policy contains restrictions to ensure
risk diversification. No single investment (or, if an additional
stake in an existing investment is acquired, the combined value of
both the existing and the additional stake) by the Company in any
one solar PV asset will constitute (at the time of investment) more
than 30% of the GAV. In addition, the four largest solar PV assets
will not constitute (at the time of investment) more than 75% of
the GAV.
The Company will continue, primarily, to acquire operating solar
PV assets, but may also invest in solar PV assets that are under
development (that is, at the stage of origination, project planning
or construction) when acquired. Such assets will constitute (at the
time of investment) not more than 10% of the GAV in aggregate.
The Company may also agree to forward-fund by way of secured
loans the construction costs of solar PV assets where it retains
the right (but not the obligation) to acquire the relevant asset
once operational. Such forward-funding will not fall within the 10%
development restriction above but will be restricted to no more
than 25% of the GAV (at the time such arrangement is entered into)
in aggregate and will only be undertaken where supported by
appropriate security (which may include financial instruments as
well as asset-backed guarantees).
The right to forward fund, subject to the above limitations,
enables the Company to retain flexibility in the event of changes
in the development pipeline over time. In addition, the Company
will not employ forward funding and engage in development activity
in relation to the same project or asset.
A significant proportion of the Group's income is expected to
result from the sale of the entirety of the electricity generated
by the solar PV assets within the terms of power purchase
agreements ("PPAs") to be executed from time to time. These are
expected to include the monetisation of ROCs and other regulated
benefits and the sale of electricity generated by the assets to
energy consumers and energy suppliers ("brown power"). Within this
context, the Company expects to execute PPAs with creditworthy
counterparties at the appropriate time.
The Company will continue to diversify its third-party
suppliers, service providers and other commercial counterparties,
such as developers, engineering and procurement contractors,
technical component manufacturers, PPA providers and landlords.
In pursuit of the Company's investment objective, the Company
may employ leverage, which borrowing together with the aggregate
subscription monies paid in respect of all preference shares in
issue and including any unpaid or undeclared dividends thereon)
will not exceed (at the time the relevant arrangement is entered
into) 50% of the GAV in aggregate. Such leverage will be deployed
for the acquisition of further solar PV assets in accordance with
the Company's investment policy. The Company may seek to raise
leverage at any of the SPV, UK HoldCo or Company level.
The Company invests with a view to holding its solar PV assets
until the end of their useful life. However, assets may be disposed
of or otherwise realised where the Investment Manager determines,
in its discretion, that such realisation is in the best interests
of the Company. Such circumstances may include (without limitation)
disposals for the purposes of realising or preserving value, or of
realising cash resources for reinvestment or otherwise. The Company
will seek to optimise and extend the lifespan of its assets and may
invest in their repowering and/or integration of ancillary
technologies (e.g. energy storage) on its solar PV assets to fully
utilise grid connections and balance the electricity grid with a
view to generating greater revenues. The Company expects to
re-invest any cash surplus (in excess of that required to meet the
Company's dividend target and ongoing operating expenses) in
further investments, thereby supporting its long-term net asset
value.
The Company may invest cash held for working capital purposes
and pending investment or distribution in cash or near-cash
equivalents, including money market funds.
The Company may (but is not obliged to) enter into hedging
arrangements in relation to interest rates and/or power prices.
Where investments are made in currencies other than sterling,
currency hedging may be carried out to seek to provide protection
to the level of sterling dividends and other distributions that the
Company aims to pay on its shares and in order to reduce the risk
of currency fluctuations and the volatility of returns that may
result from such currency exposure. This may involve the use of
forward foreign exchange contracts to hedge the income from assets
that are exposed to exchange rate risk against sterling and foreign
currency borrowings to finance foreign currency assets.
Hedging transactions (if carried out) will only be undertaken
for the purpose of efficient portfolio management to protect or
enhance returns from the Company's portfolio and will not be
carried out for speculative purposes.
As required by the Listing Rules, any material change to the
Investment Policy of the Company will be made only with the
approval of the FCA and of the Company's ordinary shareholders by
ordinary resolution.
In the event of any breach of the Company's Investment Policy,
shareholders will be informed of the actions to be taken by the
Investment Manager by an announcement issued through a Regulatory
Information Service or a notice sent to shareholders at their
registered addresses in accordance with the Articles.
The Company's Board and Committees
The Company's Board of Directors comprises five independent,
non-executive Directors. The Board's role is to manage and monitor
the Company. The Board monitors the Company's adherence to its
investment policy, the operational and financial performance of the
Company and its underlying assets, as well as the performance of
the Investment Adviser and other key service providers. In
addition, the Board has overall responsibility for the review and
approval of the Company's NAVs prepared by the Administrator. The
Board also maintains the risk register, which it monitors and
updates on a regular basis. The structure of the Board processes
allows the members to test business controls and choice of
acquisitions to ensure they meet the strategy driving the long-term
dividend target.
The Investment Manager, Investment Adviser and Asset Manager
The Company's Investment Manager is NextEnergy Capital IM
Limited. The Investment Manager has appointed NextEnergy Capital
Limited to act as Investment Adviser in relation to the Company.
Michael Bonte-Friedheim, Aldo Beolchini and Abid Kazim comprise the
Investment Committee of the Investment Adviser, whose role is to
consider and, if thought fit, recommend actions to the Investment
Manager in respect of the Company's potential and actual
investments.
-- Michael Bonte-Friedheim is Founding Partner and CEO of the
NextEnergy Capital Group ("NEC Group"). He has over 22 years'
specialist experience in the power and energy sector and was
previously Managing Director in Goldman Sachs' energy and power
investment banking team in London and non-executive Chairman and
CEO of a number of listed energy companies.
-- Aldo Beolchini is Managing Partner and CIO of the NEC Group.
He has over 17 years' experience in investment banking and
renewables. Mr Beolchini joined in 2008 and was previously Vice
President at Morgan Stanley Investment Banking and an Officer at
the Financial Guard Corps in Italy.
-- Abid Kazim is CEO of the WiseEnergy Group and was previously
the UK Managing Director of the NEC Group. He has over 27 years'
experience in strategy development and large programme delivery,
with a significant track record in business outsourcing,
transaction services and service management in the renewable energy
sector.
The Company has entered into an asset management framework
agreement with the asset manager, WiseEnergy, a member of the NEC
Group. Under the framework agreement, WiseEnergy enters into
individual asset management contracts with each solar power plant
entity acquired by the Company and performs a broad and defined set
of asset management activities for each entity. The collective
experience of the NEC Group in managing and monitoring solar PV
assets best positions the Company to implement efficiencies at both
the investment and operating asset level. The technical and
operating outperformance of the portfolio to date underlines the
benefits of this comprehensive strategic relationship.
The NEC Group is a privately-owned specialist investment and
asset manager focused on the solar sector. It was formed in 2007
and has developed a unique track record in the European solar
sector. Prior to the IPO of the Company, it had developed,
financed, managed the construction of and owned 14 solar projects
in the UK and Italy. Its asset management activities have included
the management and monitoring of more than 1,300 utility-scale
solar power plants for a total capacity of over 1.9GW on behalf of
third-party equity investors and financing banks. Its clients
include listed solar funds (in addition to the Company), private
equity, family offices, renewable energy specialists and other
equity investors as well as some of Europe's leading lenders and
financiers in the solar sector. It has developed proprietary
hardware and software products and solutions to facilitate delivery
of its services to its client base. The NEC Group also manages two
private equity funds: NextPower II LP, a EUR232m fund dedicated to
solar PV asset investments in Italy, and NextPower III LP, a USD96m
fund dedicated to solar PV asset investments globally.
NEC Group consists of nearly 150 dedicated staff focused on the
solar sector. The team has significant experience in energy and
infrastructure transactions across international jurisdictions.
The Company, through its contractual arrangements with the NEC
Group, has access to a highly experienced investment team and to a
leading asset manager in the solar sector and expects to leverage
this expertise to secure further attractive solar power plant
acquisitions and achieve best-in-class technical, operational and
financial performance from its portfolio of operating plants. The
wide range of services provided by the NEC Group strategically
positions the Company to best resolve any potential technical and
commercial issues that may impact individual assets and drive
best-in-class performance. This ensures that the Company's solar PV
assets are operated as efficiently as possible to optimise their
technical and financial performances with a view to achieve and
exceed the target cash flow yield over their useful life span.
Activities of the NEC Group for NESF
Investment Manager
-- Full discretion to make investments in accordance with the Company's investment policy.
-- Acts as AIFM of the Company.
-- Responsible for risk management and portfolio management activities.
-- Considers investment proposals, exclusively advanced by the Investment Adviser.
-- Reports to the Company's Board on all technical, operational
and financial issues, and the valuation of the investments.
Investment Adviser
-- Provides investment advice and recommendations to the Investment Manager.
-- Identifies investment opportunities for the Company.
-- Evaluates investment opportunities and co-ordinates external due diligence activities.
-- Negotiates all project contracts with counterparties.
-- Prepares investment proposals and provides general advice and
recommendations to the Investment Manager concerning the Company's
portfolio, financing, strategy, market developments, etc.
-- Reviews performance of the Company's portfolio together with the asset manager.
Asset Manager
-- Assumes asset management of solar power plants upon acquisition.
-- Provides periodic technical, financial and administrative reports to the Company.
-- Undertakes periodic site visits on each plant.
-- Prepares technical and financial analysis of each site to
assess performance and identify potential improvements.
-- Manages each SPV's administrative and financial functions and requirements.
-- Ensures each SPV's suppliers perform in accordance with contracts.
-- Manages unexpected occurrences at plants and ensures prompt
response to any asset management requirements of the Company.
Viability Statement
In accordance with the UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a period
of five years to March 2024.
The Directors have determined that five years constitutes an
appropriate period over which to provide this statement . A
five-year period is consistent with the period focussed on by the
Board when considering the Company's strategy and business plans,
including cash flows, and is considered reasonable having regard
the Company's size and the nature of its investments.
As the Company owns a portfolio of solar assets in the UK and
Italy which are fully operational and generating renewable
electricity it benefits from predictable and reliable long-term
cash flows and is subject to a set of risks that can be identified
and assessed. Each solar asset is supported by detailed financial
models at acquisition and incorporated into NESF's valuation model
for quarterly valuations. The Directors believe that the
diversification within the portfolio of projects helps to withstand
and mitigate the principal risks the Company is facing.
The Investment Adviser prepares a five-year cash flow forecast
annually and the Investment Manager and the Board review this as
part of business planning and to address the sustainability of the
dividends.
The forecast considers the Company's cash balances, cash flows,
dividend cover, other financial ratios, compliance, investment
policy and key operational and financial indicators over the
period. Furthermore, the forecast also considers the terms of the
Company's debt facilities (mainly interest payable, amortisation
and financial covenants) and the terms of the preference shares and
their limited redemption rights.
Certain metrics are subject to sensitivity analysis which
involves flexing a number of the main assumptions underlying the
forecast. Where appropriate, this sensitivity analysis is performed
to explore and evaluate the potential impact of the Company's
principal risks actually occurring.
The forecast also makes certain assumptions about the impact of
unfavourable weather conditions, unfavourable electricity markets
and considers whether additional financing facilities would be
required. It also considers the individual asset performances,
expected cashflow and is consistent with the Company's valuation
model. Any changes to these drivers, assumptions and risks are
reviewed quarterly by the Board of Directors and the Investment
Manager.
The forecast assumes continued payment of subsidies from the
government for the solar assets that have received
accreditation.
If the ordinary shares trade, on average, at a discount to the
NAV in excess of 10% over any financial year of the Company, the
Board is required to propose, at the next annual general meeting of
the Company, a special resolution that the Company ceases in its
current form. Accordingly, the forecast considers the historic
ratings of the Company's ordinary shares and the Company's
peers.
Based on the results of the review of the five-year forecast,
the sensitivity analysis and assessment of the principal risks
facing the Company, the Directors have a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period to March 2024.
Kevin Lyon
Chairman
17 June 2019
Principal Risks
The Company has in place risk management procedures and internal
controls to monitor and mitigate the main risks faced as well as a
process to review the effectiveness of those controls over the
Company and its subsidiaries as a whole. The Investment Manager
assists the Company in regularly identifying, assessing and
mitigating those risk factors likely to impact the financial or
strategic position of the Company.
Under the FCA's Disclosure Guidance and Transparency Rules, the
Board is required to identify those material risks to which the
Company is exposed and take appropriate steps to mitigate those
risks. The material risks identified by the Board can be
categorised as follows:
-- portfolio management and performance risks;
-- operational and strategic risks; and
-- external risks.
Each of these categories of risk, together with the principal
risks within that category, is summarised in the table below which
includes a summary of the steps taken to mitigate them.
Portfolio Management and Performance Risk
Risks Summary Mitigation
1. Electricity Solar is an intermittent There is a level of predictability
generation falling energy source compared for solar irradiation compared
below expectation to traditional energy to other renewables, in
resources such as coal that irradiation levels
and gas. tend to follow a set trend
The volume of solar irradiation throughout the year.
available on a given The geographical location
day is out of the Company's of the asset has an impact
control and this is a on irradiation levels,
risk on the performance due to climate variations
of the assets. and small differences in
Unplanned DNO outages, day lengths across regions.
weather patterns and Assets are chosen with
technical issues can this in mind.
impact generation. The asset manager has value-enhancing
tools that optimise the
Company's portfolio generation
and resolve interruptions
efficiently.
2. Portfolio Valuation of a solar Drivers of the SPV valuation
valuation PV asset is dependent model are frequently reviewed
on financial models based by the Investment Manager
on several drivers: principally to ensure they are at the
discount rates, rate appropriate level.
of inflation, power price Documentation to prove
curves and amount of these calculations are
electricity the solar presented to the Board
assets are expected to quarterly for approval
produce. Certain assumptions and adoption.
may prove to be inaccurate, To mitigate the impact
particularly during periods of the power price volatility,
of volatility. the Investment Adviser
uses an average of the
power price curves from
the Consultants.
Operational and Strategic Risks
Risks Summary Mitigation
1. Plant operational The Company relies on The Company can seek legal
risk third-party contractors recourse against failure
to provide corrective by an O&M contractor.
and preventative maintenance The asset manager monitors
through O&M contracts. and ensures that the O&M
The O&M contractor could contract maintains a detailed
fail to fulfil its obligation preventative schedule,
and the solar plant's with contract warranties
performance could deteriorate. and penalty payments in
Degradation of the solar the event of failure.
modules reduce the performance The Company looks at technological
of the plant over time. improvements on an ongoing
An increase in the rate basis to offset the effect
of degradation may lead of degradation. Also, the
to under performance. Company has contract warranties
to secure the performance
of the plants.
2. Counterparty This is the risk of counterparty The asset manager continuously
risk failure. The Company monitors its contracts
has entered into O&M in line with the market.
contracts and PPAs, which There are contractual arrangements
affect the costs and in place that have warranties
revenues of the Company. in case of defaults.
The Company has also The asset manager ensures
contracted with various that counterparties are
EPCs for construction of an acceptable financial
of the subsidy-free assets. standing to minimise risk.
If the counterparty becomes
insolvent there is a
risk of disruption and
financial loss until
the counterparty is replaced.
3. A decline Revenues of solar PV Short-term: The Company
in the price assets are dependent enters into PPAs and forward
of electricity on the electricity market. contracts to fix electricity
Exposure to the wholesale prices for a future period
energy market impacts ranging from six to 12
the prices received for months.
energy generated by and Long-term: The power prices
revenues forecast for are often beyond the control
the operating assets of the Company. The Investment
of the Company. Adviser reviews wholesale
The acquisition of subsidy-free electricity price forecasts
assets will increase and enters into both long-term
this risk as all their and short-term PPA contracts
revenues are wholly derived where appropriate.
from the wholesale energy Subsidy free assets: The
market. Investment Adviser will
The Company is exposed plan for short-term and
to a reduction in the long-term contracts before
price of electricity. the asset is operational.
External and Market Risks
Risks Summary Mitigation
1. Adverse changes Brexit negotiations continue The Investment Manager
in government between the UK government believes Brexit is likely
policy and political and the European Union. to have a very limited
uncertainty An unfavourable outcome effect on the Company's
could affect an investor's financial and operating
appetite to invest in prospects.
the Company. The UK's Climate Change
Changes by the coalition Act 2008 enshrines the
government in Italy could Government's commitment
affect the value of the to reduce the country's
Italian assets. greenhouse gas emissions
by 80% compared to 1990
levels. The Investment
Manager does not think
the UK government will
introduce primary legislation
to reverse this commitment
as a result of Brexit.
The implications of Brexit
and the policies of the
Italian government on the
Company are not identifiable
at present. These risks
are beyond the control
of the Company, but the
Company closely monitors
developments and their
impact on the solar industry.
2. Adverse changes Uncertainty for the future The Company actively monitors
to regulatory regulatory framework regulatory changes within
framework for for solar PV creates the industry and participates
solar PV a risk that further planned in contributing towards
acquisitions do not take government discussions
place. This would affect on the industry.
the Company's growth
potential, valuation
and profitability.
3. Changes to Changes to the existing The Investment Manager
tax legislation rates and rules could has tax advisers to ensure
and rates have an adverse effect constant awareness of any
on the valuation of the upcoming changes to tax
portfolio and levels legislation and rates,
of dividends paid to to implement the necessary
shareholders. changes as quickly and
smoothly as possible.
ESG
Environmental, Social and Governance
Introduction from the CEO of the NEC Group
The mission of the NEC Group is to generate a more sustainable
future by leading the transition to clean energy. We place this
mission at the heart of everything we do and stand for; leadership
on this is very important to us.
In 2015, the United Nations Member States adopted 'The 2030
Agenda for Sustainable Development' to chart a way forward for
peace and prosperity for people and the planet. Central to this
agenda, and to ours, lie the 17 Sustainable Development Goals
("SDGs"), which represent a holistic approach to achieving the
objectives of this agenda. Our group has adopted and integrated key
elements of the SDGs into our Environmental, Social and Governance
policy and operational practices.
Aligned with our mission-driven values, we are committed to
managing, measuring and reporting our contribution to the SDGs. As
part of this we have developed a framework to evaluate ourselves
and measure our impact on the world around us. We are able to
determine certain impacts on a quantitative basis, while by
necessity other impacts must be appraised on a qualitative basis.
For our investors, we provide an opportunity that combines
financial returns from solar projects with positive impacts to the
local community and the global society more broadly.
SDG based strategy - Based on its mission and company values,
and with the support of the Green Investment Group, NEC has mapped
those SDGs for which the company, its various funds (including the
Company) and the NextEnergy Foundation positively contributes.:
SDG1 Poverty alleviation, SGD3 Good Health and Well-being, SDG6
Clean Water and Sanitation, SDG7 Affordable and Clean Energy, SDG8
Decent Work and Economic Growth, SDG9 Industry Innovation and
Infrastructure, SDG11 Sustainable Cities and Communities, SDG12
Responsible Consumption and Production, SDG13 Climate Action and
SDG15 Life on Land. As NEC continues to grow, it aims to develop
its SDGs strategy further by pursuing other aspirational goals.
NEC has appointed a dedicated senior ESG manager responsible for
the implementation of its ESG strategy, including the definition of
SDG-related indicators, internal training and external stakeholder
engagement. To fulfil its commitment towards sustainable
development, NEC has developed a responsible investment policy and
an ESG management system to measure and keep track of ESG
performance across its activities.
Responsible investment policy and procedures - In 2018 NEC
adopted a responsible investment policy that defines the ESG
principles and the operating standards of the company across all
its funds (including the Company). The policy reflects the
commitment towards the UN Principle for Responsible Investment
("UNPRI") to which NEC has been a signatory since 2016 and includes
references to underlying ESG standards; it aims to manage any ESG
risks associated with the investment activities but also to
identify positive impacts and contribution to the SDGs for each
fund. The policy is regularly reviewed, approved by the NEC board
and signed by the CEO.
NEC has developed ESG procedures to guide its investment
managers and analysts on the implementation of the responsible
investment policy throughout the investment process. The ESG review
applies to any new acquisition, and includes ESG screening during
the project selection phase and ESG due diligence ahead of the
investment decision. The objective of the ESG review is to confirm
that the project to be acquired is ESG sound, complies with
national regulation and, where applicable, is developed in line
with international standards such as the International Finance
Corporation Performance Standards and Equator Principles. Depending
on the outcome of the project due diligence, the ESG manager can
require additional documentation, including but not limited to
specific action plans to ensure compliance with applicable
standards as indicated by NEC's responsible investment policy.
Following an acquisition, NEC's asset manager, WiseEnergy,
monitors and reports on specific ESG KPIs throughout the
operational phase until divestment.
The ESG KPIs have been selected based on the SGDs framework and
can be either quantitative or qualitative. Examples include:
focusing exclusively on generating electricity from 100% clean
energy, targeting a reduction of CO2 emission of over two million
tonnes per year, taking full account of biodiversity impact, water
and energy efficiency, waste management, health and safety impacts
and local job creation, and conducting dealings with local
authorities in a transparent manner, adhering to the rule of law
and procedures of each jurisdiction in which it operates.
Transparency and reporting - NEC is committed to measuring and
reporting annually on its performance based on indicators that are
aligned to the SDGs framework. It will be able to report on SDG
performance after its first-year of implementation of its strategy.
Measuring and reporting against the SDGs allows NEC to establish
dialogue with other stakeholders committed to sustainable
development.
Stakeholder engagement - NEC has mapped its various
stakeholders, from the broader financial community, to
sector-specific sustainable initiatives to local communities where
it invests and operates. The stakeholder dialogue is an integral
part of NEC's business strategy and its objective is not only to
foster transparency but also to share best practice, and continue
to inform NEC strategy and improve operational standards through a
continuous evolving process.
NEC is a signatory of the UNPRI and is a member of the
Institutional Investors Group on Climate Change ("IIGCC"). By being
a signatory to UNPRI, NEC works to enhance the effectiveness by
which it implements the Principles for Responsible Investment,
reflecting NEC's initiative to incorporate ESG issues into
investment analysis, decision-making processes, ownership policies
and practices.
NextEnergy Foundation
The NextEnergy Foundation was founded in 2016 with the mission
to provide power and light from clean energy sources to underserved
regions as well as to benefit local communities in which it is
present and beyond. The Foundation is NEC's personal participation
effort to support small or other commendable projects that would
otherwise not be in the remits of its operations. NEC has pledged
5% of its profits annually to the Foundation and recognises the
importance of benefiting society as a whole and this is reflected
through its vision and mission to deliver through research and
learning activities. For example, most recently it has taken part
in funding thousands of solar lights in refugee camps in Syria;
provided solar plants to schools in Malawi; and scholarships to
students from Zimbabwe. Details of each project are disclosed on
the Foundation website (www.nextenergyfoundation.org) and some
SDG-specific KPIs are monitored throughout the life of the
projects. The Foundation will be able to report on any SDGs impact
indicator after its first-year of implementation.
Case Study 1 - Eastbourne College attends Berwick Solar Farm
On 10 October 2018 a group of ten pupils, in Years 11 to 13,
from Eastbourne College attended Berwick Solar Farm. The main
objective of the day was for the children to learn more about
renewable energy and how it is incorporated into their school
curriculum, how a solar farm works and what NESF is doing to
enhance the current biodiversity features of a solar farm.
"My thanks for a terrific afternoon out in the field. The pupils
were buoyant on the journey home and this is testament to your
efforts." Sam Mason, Head of Geography.
Whilst on site, the pupils completed a tour to understand how a
solar farm works and how the land use has changed from agricultural
to an energy source. As Berwick solar farm was selected as a
biodiversity exemplar site in 2017, the pupils created habitats for
the native species including a bug hotel and two homes for solitary
bees as part of the Biodiversity Management Plan. These features
will be monitored over the coming years to record any changes.
"So good to see that local school children are able to use our
exemplar sites for field study. Learning the value of nature
benefiting in a sustainable way from solar power" - Sulwen Vaughan,
SPV Director.
Case Study 2 - Biodiversity exemplar sites update
Across the four exemplar sites, Berwick, Boxted, Emberton and
Langenhoe, implementation of Biodiversity Management Plans was
continued throughout 2018/19. This including Wild Flower Meadow
planting, building bug hotels, hibinaculars, weed management,
engaging with bee keeping community, and planting nesting
habitats.
Results from the annual survey reports show significant increase
in bees and butterflies of up to ten times in new wild flower
meadow areas at Langenhoe and Boxted. Breeding bird and botany
surveys were completed across the Company's portfolio.
These aspects will be monitored annually over the lifetime of
the site.
Following the success of the first exemplar projects, NEC has
expanded the number of exemplar sites from four to ten sites now
including: Balheary, Brafield on the Green, Poulshot, Raglington
and Temple Normanton.
Initial surveys and Biodiversity Management Plans were completed
in Spring 2019 with the intention of rolling out measures at the
end of 2019.
Case Study 3 - Community engagement - Panel recycle
NEC values strong relationships with the local communities of
its solar farms. For example, it has fostered a strong partnership
with the village of Wedmore in Somerset. Wedmore is the local
village of NESF's solar asset Hawkers Farm and has set ambitious
zero carbon targets for 2045. As part of the process of becoming
zero carbon, Wedmore is aiming to become a solar village and
installing solar across all its community buildings and wherever
possible. Last year, NESF group companies contributed towards the
solar installations on their village hall and this year they have
donated towards the solar installations on the village tennis
pavilion and bowls club house.
NESF group companies donated fifty 250kW panels that had been
previously decommissioned from another rooftop asset and was
committed to finding them an alternative purpose. They believe
strongly in recycling and in this case the panels were in perfect
condition with a 20 year life remaining.
The panels were installed on both buildings in March 2019 and as
a result both buildings are now receiving renewable energy and have
thus reduced their electricity bills. As part of the panel
donation, NESF group companies also funded the inverter and
installation costs.
NESF group companies are committed to continuing this precedence
of ensuring all decommissioned panels that are in working condition
are recycled to the benefit of local communities.
Environmental
During the year, the Company's portfolio produced 693 GWh (2018:
451 GWh) of clean energy. This is the equivalent of:
-- 184,000 UK homes powered for one year, the equivalent needed
to power the cities of Northampton and Portsmouth combined
-- 195,600 tonnes of CO2 emissions avoided per annum
Investment Manager's Report
Portfolio Highlights
During the year, the portfolio grew from 63 to 87 assets, which
represented an increase of 122MW to the total capacity.
In May 2018, the Company announced the acquisition of two solar
PV assets of 7.2MW with integrated battery energy storage systems
of 1MW capacity.
In June 2018, the Company acquired ten operating solar PV assets
with total installed capacity of 46.6MW with subsidies including
ROC and FiTs.
In July 2018, the Company acquired a portfolio of ten operating
solar PV assets of 67MW for GBP58.3m. On acquisition we were aware
that the portfolio required significant remedial action to achieve
an optimal level of technical performance, and priced the asset
accordingly (effectively through a lower than normal acquisition
price). We immediately started a remedial works programme which is
currently ongoing and is on track to be completed during the year
ending March 2020, at which point the portfolio is expected to be
operating at optimal level. Had this portfolio been excluded from
the overall portfolio performance, generation delta during the year
would have been 9.7% and Asset Management Alpha would have been
0.9%, highlighting the strong performance of NESFs other
assets.
In February 2019, the Company announced a partnership with
Zestec Asset Management Limited for future acquisition of solar PV
assets to be installed on commercial properties. The Company is
targeting up to GBP20m investment in the calendar year 2019 in new
solar installations from Zestec.
These acquisitions utilised the remaining proceeds from the
capital raised in the previous year. The Company has now fully
invested all its ordinary share capital.
At the year end, all the Company's completed assets were
operational and connected to the grid and qualified for ROC or FiT
subsidies.
In the UK, the summer of 2018 and the month of February 2019
were some of the hottest in history and multiple solar irradiation
records were broken. Whilst the greater irradiation drove an
overall greater than expected level of generation, the asset
manager had to cope with the adverse effects of high temperatures
on the technical performances of solar PV components, which are
optimal at lower than 25 degrees Celsius. The estimated loss of
generation over the summer of 2018 due to high temperatures was
1.8% of the total energy production. Furthermore, some plants
suffered from grid curtailment, as generation peaks driven by
exceptional irradiation levels exceeded at times the export
capacity allocated by the grid authority to each plant.
In Italy, the weather pattern was unusual, albeit not as unusual
as the UK, the Solis portfolio had an irradiation delta of +2.9%
and a generation delta of +5.4% which resulted in an Asset
Management Alpha of +2.5%.
Overall, the operational performance of the portfolio during the
year was positive and above budget. The resulting Asset Management
Alpha of +0.1% (2018: +1.8%) was an expected outcome of these
exceptional weather conditions and does not represent any change in
the ability to achieve a greater level of outperformance in the
future.
As at 31 March 2019, the actual performance versus expectations
for 84 of the portfolio solar PV assets had been monitored by the
asset manager for at least two months post completion. The three
rooftop portfolios were excluded as irradiation was not
monitored.
Assets Irradiation Generation Asset Management
Period monitored (delta vs. budget) (delta vs. budget) Alpha
Period 2014/15 6 (0.4%) +4.8% +5.2%
Full year 2015/16 23 +0.4% +4.1% +3.7%
Full year 2016/17 31 (0.3%) +3.3% +3.6%
Full year 2017/18 55 (0.9%) +0.9% +1.8%
Full year 2018/19 84 +9.0% +9.1% +0.1%
Cumulative from IPO to 31 March 2019 84 +2.1% +5.0% +2.9%
The Asset Management Alpha measurement allows the Company to
identify the "real" outperformance of the portfolio due to active
management, excluding the effect of variation in solar irradiation.
The "nominal" outperformance is calculated as GWh generated by the
portfolio vs. the GWh expected in the assumptions used at the time
of acquisition.
Portfolio Optimisation
Extending the useful life of the Company's assets is a
value-creating opportunity we have focused on since 2015, when we
secured a ten-year option to extend the lease on the Company's
largest plant Glebe Farm. Over the year, we have secured options or
rights to extend the leases on 14 individual plants. The positive
impact on NAV of these life-extensions amounts to +1.2p per
ordinary share at the year end. We continue to work on extending
the life of the remaining portfolio and are in advanced stages of
negotiations on another six sites. For illustrative purposes,
should the entire portfolio of assets be valued on a 35-year lease
basis from the date of connection to the grid (assuming current
lease terms) the Company's ordinary NAV at 31 March 2019 would have
increased by c.4.9% (5.4p per ordinary share).
We have begun a programme of re-structuring and implementing new
contracts across the portfolio. Re-negotiating the contracts means
we are able to make savings, refine service levels, maximise
revenue and increase dividend cover. Notable contractual
negotiations we have carried out this year include the replacement
of operation and management ("O&M") contracts in the ten assets
acquired in July 2018 and four other assets that achieved final
acceptance certification during the year. Consequently, we have
achieved a cost reduction of c.GBP0.5m p.a. Additionally we have
undertaken a tender process to source the most competitive import
power costs. Power is imported to operate the solar equipment when
there is insufficient irradiation. Import power renewals have been
placed for 40 of the Company's sites, resulting in a cost saving of
10% (GBP44k p.a.). Other tenders are ongoing across the portfolio
regarding power imports. We have completed the majority of
insurance renewals across the portfolio and we secured a 14%
discount (GBP46k p.a.) on the main insurance policy. Furthermore,
the aggregation of 14 SPVs into two SPVs created operational and
administrative efficiencies.
A market opportunity we have developed this year has been the
Company's move into the commercial and industrial solar rooftop
sector, funding a developer to locate and build solar plants on
rooftops of commercial and industrial buildings. Currently this is
focused on London and the South of England. This is a particularly
attractive venture, typically requiring small individual
investments (often GBP200,000-GBP300,000 per rooftop) but securing
very attractive risk-weighted financial returns. It will also be a
good avenue to deploy excess cash flows generated by the portfolio
in excess of the dividend and operating cost base.
Our asset manager has recently identified and tested a technical
improvement on one of its utility-scale facilities in Italy that
can achieve notable increases in generation from operating solar
plants. Their tests have indicated increases in generation of above
2% compared to "non-improved" portions of the same plant over the
test period. We are reviewing which assets in the portfolio could
benefit from this improvement and expect to begin deploying it
across selected assets during the current financial year.
Preference Shares
On 8 November 2018, ordinary shareholders agreed to amend the
Company's Articles of Incorporation to create a class of preference
share and approved the allotment of up to GBP200m of shares with no
pre-emption rights. Subsequently, on 13 November 2018, the Company
issued an initial tranche of GBP100m of preference shares. The
Company is considering an issue of a second tranche of GBP100m
preference shares.
The preference shares are generally non-redeemable, are
generally non-voting and carry a fixed preferred dividend of 4.75%
p.a. as well as a preferred capital entitlement at nominal value.
From 1 April 2036, the preference shareholders have the right to
convert all or some of their preference shares into either ordinary
shares or B shares, at the election of the holder, with B shares
being unlisted shares carrying the same rights to dividends and
capital in a liquidation as the ordinary shares. The conversion
price will be based on the ratio of the nominal value (plus unpaid
dividends, if any) per preference share relative to NAV per
ordinary share at the date of conversion.
From 1 April 2030, the Company may elect to redeem all or some
of the preference shares. Dividends and, save as referred to in the
preceding paragraph, redemption will remain at the sole discretion
of the Board during the life of the preference shares. Should more
competitive sources of capital become available, the Company may
choose at its sole discretion to issue new capital (debt or equity)
to fund a full or partial redemption after March 2030.
Preference shares are entitled to their dividend before any
dividend is distributed to ordinary shareholders. Should the
Company be unable to pay a preferred dividend in full, this will be
rolled over into the following periods until it can be paid. Unpaid
preferred dividends accrue at 4.75% p.a. and are not compounded.
Payment of preferred dividends remains at the discretion of the
Board. The preference shareholders have no redemption rights or
voting rights in the event of unpaid dividends.
The preference shares represent a cheaper and more flexible
source of funds in terms of lower annual cash cost compared to
alternative financing sources, ranging from long-term debt
financing to issuance of new ordinary shares. This reduced cost is
achieved mainly in exchange for priority of dividend payments over
the ordinary shares.
The proceeds of the initial GBP100m preference shares were used
to repay a portion of the existing long-term project financing
facilities associated with portfolio investments.
Benefits of the preference shares for NESF include:
-- increase in cash dividend cover and returns for ordinary
shareholders by replacing debt facilities which have high cash
costs (including interest and principal amortisation);
-- improving the cash flows by GBP4.5m in the financial year
ended 31 March 2019 and we expect to see further improvement of
cash flows by cGBP6.5m in the financial year end 31 March 2020;
-- no refinancing risk to the Company other than in the event of
a change of control or delisting of the Company;
-- simplification of the Company's capital structure by reducing
the number of loans outstanding and the number of financial
covenants for the Company; and
-- reduction in the Company's exposure to secured debt financing.
The preference shares form part of the Company's share capital
but, for accounting purposes, they are treated as liabilities.
Accordingly, for the purpose of the borrowing limit in the
investment policy the Company has classified the preference shares
as liabilities, and the investment management fee is calculated
based on ordinary shareholders' NAV.
The Italian Solis Portfolio
In December 2017 the Company acquired the portfolio of eight
operating solar plants with an installed capacity of 34.5MWp
located in Italy for a total value of EUR 131.9m (equivalent to
GBP116.2m, being 12% of the Company's GAV at the time of
investment). Five of the plants are in the Puglia region, and the
remaining three are in the Campania region. All eight plants were
connected to the grid between 2010 and 2011. Therefore,
pre-acquisition they had already built up a significant operating
history.
The plants are ground mounted with land leases expiring in 2036.
The PV modules were supplied by top tier manufacturers, Yingli
Solar and Chint, and the inverters provided by Bonfiglioli and
Power One.
The portfolio was acquired with long-term non-recourse project
finance debt of EUR76.9m (GBP68.1m) which was fully repaid
following the issuance of the first tranche of preference shares in
November 2018. During the year ended 31 March 2019, as a
consequence of the repayment of the project finance debt, the
Company, through a HoldCo, increased the size of the EUR/GBP
foreign currency hedging structure to cover 92% of the expected
cash flows generated by the portfolio over the next 15 years; this
reduces currency fluctuation exposure on returns. The average
forward exchange rate is 0.89 EUR/GBP including costs. This FX
hedging structure is particularly effective as the Company is not
obliged to provide any cash collateral as credit support to the
bank.
The key benefits of the Solis portfolio continue to be:
-- High risk-adjusted return - due to the experience of the
Investment Adviser in Italy, the acquisition price resulted in a
favourable net IRR of 9.4%.
-- Low risk-profile - The Company benefits from the portfolio's
operating history and the high quality of its components. In
addition, it reduces NESF's exposure to wholesale energy markets,
as around 85% of its revenues are fixed for the next 15 years. The
Italian FiT was subject to a retroactive reduction in 2014, but a
number of mitigants reduce significantly the risk of this occurring
again during the life of the Solis portfolio investment.
-- Positive contribution to dividend cover - The higher return
on investment is coupled by an attractive cashflow generation
profile, which is higher than ROC assets, and evenly spread over
the life of the investment, as the Italian FiT is fully fixed. For
the purposes of comparison, the Solis portfolio has a cash dividend
cover equivalent metric of 1.4x, which supports the Company's
overall dividend target.
-- NAV accretion - As at 31 March 2019, the Solis portfolio was
valued on a DCF basis with an overall discount rate of 8.0% (2018:
9.0%) as a result of the increasing competition to acquire solar PV
assets in Italy.
-- Diversifying market risk - Italy is the fifth largest solar
market globally and is supported by a FiT incentive mechanism. The
FiT is granted by a state-owned company which promotes and supports
renewable energy in Italy, where the sole shareholder is the
Ministry of Economy and Finance. Tariffs differ depending on the
capacity, type of plant and the time of commissioning. The FiTs for
the Solis portfolio range between EUR195/MWh to EUR318/MWh. Once a
PV plant is accredited, the FiT is granted over a period of 20
years and is not inflated.
-- Low revenue risk - Of the Solis portfolio revenues, 85%
result from FiT where a 20-year regulated fixed price per MWh has
been generated. The FiTs specific to this portfolio expire in 2031.
The remaining 15% is from the sale of the brown electricity fed
into the grid at market price or via PPAs to other market
participants. With this revenue mix there is low revenue risk. In
addition, low operating costs result in stable EBITDA margins in
excess of 80%.
Financial Results
Profit before tax was GBP70.6m (2018: GBP32.2m), with earnings
per ordinary share of 12.37p (2018: 5.88p).
Dividends
For the year ended 31 March 2019, the fourth quarterly dividend
of 1.6625p per ordinary share is expected to be paid on 28 June
2019 to ordinary shareholders on the register at the close of
business on 24 May 2019. As a result, the Company will achieve its
target for total dividends for the financial year 2018/19 of 6.65p
per ordinary share.
The Company offers scrip dividends, details of which can be
found on the website www.nextenergysolarfund.com.
Total Total
Amount per pre-scrip post-scrip
Month of ordinary dividends dividends
Dividends paid payment share (p)) GBP'000 GBP'000
For the period 2014/15 5.2500 10,946 10,946
For the year 2015/16 6.2500 17,372 17,372
For the year 2016/17 6.3100 25,039 20,681
For the year 2017/18 6.4200 36,840 27,737
First quarterly dividend for year 2018/19 Sep-18 1.6625 9,608 7,105
Second quarterly dividend for year 2018/19 Dec-18 1.6625 9,646 8,350
Third quarterly dividend for year 2018/19 Mar-19 1.6625 9,666 9,303
Total dividends declared to date 29.2175 119,117 101,494
Fourth quarterly dividend for year 2018/19 Jun-19 1.6625 9,671 8,915
Pre-scrip Post-scrip
dividends dividends
Cash income(2) GBP'000 GBP'000 GBP'000
Cash income for year to 31 March 2019 57,071(1)
Net operating expenses for year to 31 March 2019 (6,748)
Preference shares dividend (1,822)
Net cash income available for distribution 47,501
Ordinary shares dividend paid during year 38,159 31,518
Cash dividend cover 1.3x 1.5x
(1) Cash income differs from the Income in the Statement of
Comprehensive Income. This is because the Statement of
Comprehensive Income is on an accruals basis.
(2) Alternative Performance Measure.
The expected ordinary dividend calendar is set out in the table
below:
Expected
Date of amount per
expected ordinary
Proposed ordinary dividend for year 2019/20 payment share (p)
September
First interim 2019 1.7175
December
Second interim 2019 1.7175
Third interim March 2020 1.7175
Fourth interim June 2020 1.7175
Total 6.8700
Operating Expenses
The net operating expenses of the Company amounted to GBP6.7m
(2018: GBP6.3m). The Company's OCR was 1.1% (2018: 1.1%). The
budgeted OCR for the year ending 31 March 2020 is 1.1%. The OCR has
been calculated in accordance with AIC recommended methodology. OCR
is an Alternative Performance Measure.
Portfolio Valuation Bridge - For the year to 31 March 2019
NAV Bridge - For the year to 31 March 2019
NAV Movement
The Company's ordinary NAV is calculated on a quarterly basis
based on the valuation of the investment portfolio provided by the
Investment Manager and the other assets and liabilities of the
Company provided by the Administrator. The ordinary NAV is reviewed
and approved by the Board of Directors. All variables relating to
the performance of the underlying assets are reviewed and
incorporated in the process of identifying relevant drivers of the
DCF valuation. The Company reports its financial results on a
non-consolidated basis under IFRS 10 (see note 2c) and the change
in fair value of its assets during the year is taken through the
statement of comprehensive income.
During the year the ordinary NAV increased from 105.1p to
110.9p. The movement was driven by the following factors:
-- the upward revisions in the forecasts for long-term power
prices adopted by the Company, being 0.1% higher compared to the
assumptions employed at 31 March 2018 (taking into account the most
recent forecasts released by the Consultants in the period between
end of the year and the date of preparation of this Annual
Report);
-- the value uplift generated by the decrease in discount rates
reflecting an increase in market value of UK and Italy solar PV
assets;
-- the value uplift generated by acquisitions of assets whose
IRR at acquisition was higher than the Company's discount rate;
-- the increase in the long-term RPI inflation to 3.0%;
-- the operating results achieved by the Company's solar PV assets;
-- the cash dividends paid by the Company during the year and
the Company's operating costs; and
-- the uplift coming from lease extensions and aggregation of certain SPVs.
Sensitivity Analysis
Sensitivities on the Company's ordinary NAV and detailed
disclosure on the asset valuation methodologies are provided below
and in note 14 of the Financial Statements.
In the event Ofgem's Targeted Charging Review results in the
removal of embedded benefits from April 2021 onwards, the Company's
NAV would decline by c.1.3p per ordinary share.
The chart shows the percentage change in the portfolio resulting
from a change in the underlying variables and its impact on the NAV
per ordinary share.
Cashflow Generation Model
The Company's investment portfolio generates revenues through
the sales of electricity and the subsidies provided under different
subsidy regimes (ROC and FiT). Both revenue streams are underpinned
by two main factors:
-- the actual energy output (measured as amount of KWh of energy
generated) which is mainly driven by the solar irradiation,
technical performance and availability of the plant; and
-- the actual price at which the energy generated is sold by the
Company as well as the subsidies received for the same
generation.
The performance of a plant in terms of revenues is therefore a
product of both the operational performance and the commercial
terms of the PPAs in place. Before taking into account tax and
financing considerations, the cashflow generation of solar PV
assets is also influenced by operating expenses, which are usually
governed by long-term contracts and characterised by low volatility
over the long-term.
The table below summarises the economic performance of the
operating portfolio during the year, as illustrated by the revenues
and costs expressed as an average per MW across the portfolio.
Year ended 31 Actual per Budget per Delta vs.
March 2019 MW(1) MW(1) Budget Comments
(kWh/m(2) Actual irradiation
Solar irradiation [A] ) 1,304 1,197 +9.0% for the year
Positive delta
represents Asset
Management Alpha
Conversion factor(2) [B] (%) 84.2 84.1 +0.1% for the year
Actual generation
[C] = measured at
[A x the meter for
Metered generation B] (kWh) 1,098 1,006 +9.1% the year
Power Power
Price Subsidies Price Subsidies
Implied average
power price
and subsidies
across entire
portfolio (including
ROC recycle
and embedded
Realised prices [D] (GBP/MWh) 45.3 62.3 46.9 61.6 (0.8)% benefits)
[E] =
Revenues (brown [C x
power & subsidies) D] (GBP'000) 49.7 68.4 47.2 62.0
Actual revenues
at portfolio
level for the
year (unaudited
figures per
Total revenues [E] (GBP'000) 118.2 109.2 +8.2% MW)
Actual costs
at portfolio
level for the
year (unaudited
figures per
Operating expenses [F] (GBP'000) (25.5) (27.7) (7.8)% MW)
Actual EBITDA
[G] = for the year
[E - (unaudited figures
EBITDA(3) F] (GBP'000) 92.6 81.5 +13.6% per MW)
[G] /
EBITDA margin(3) [E] (%) 78.4 74.7
(1) Based on the average installed capacity over the financial
year. Given the different composition of the growing portfolio,
this information is not directly comparable with what was provided
in the previous Annual Report.
(2) Illustrative factor capturing the solar plant performance
ratio as well as the availability (which reflects all system
shut-downs for maintenance or one-off events such as DNO
outages).
(3) EBITDA is a reference to EBITDA at the SPV levels.
During the year, the investment portfolio performance exceeded
budget in terms of generation, revenues and EBITDA. The
outperformance was mainly driven by:
-- positive impact from higher irradiation comparing with budget during the year;
-- higher ROC recycle and embedded benefits comparing with budget;
-- reduction in O&M additional services expenses; and
-- reduction in insurance costs at project level.
Current and Long-Term Power Prices
The Investment Manager continuously reviews multiple inputs for
power price forecasts and takes the average of two of the leading
independent energy market consultants' (the "Consultants")
long-term projections to derive the power curve adopted in the
valuation of the Company's portfolio. This approach allows
mitigation of inevitable forecasting errors as well as any delay in
response from the Consultants in publishing periodic (quarterly) or
ad hoc updates following any significant market development.
During the year, the Consultants revised their forecasts for the
UK wholesale power price upward in the short-term and downwards in
the long-term. Short-term projections are mainly driven by the
increase in the commodity prices of gas and coal. In the long-term,
wholesale prices are expected to move downwards as more low-cost
generation is being deployed, notably off-shore wind and solar
PV.
The power price forecasts used by the Company also reflect an
assumed "solar capture" discount which reflects the difference
between the prices available on the market in the daylight hours of
operation of a solar plant vs. the baseload prices included in the
power price estimates. This solar capture discount is estimated by
the Consultants on the basis of a typical load profile of a solar
plant and is reviewed as frequently as the baseload power price
forecasts. The application of such a discount results in a lower
long-term price being assumed for the energy generated by NESF's
assets compared to the baseload price, driven by the expected
further deployment of low-cost renewable capacity. This lower price
is effectively already included in the financial estimates that
drive the Company's NAV.
The Company's current long-term power price forecast implies an
average growth rate of approximately -0.3% in real terms over the
20-year period and an average price of c.GBP54/MWh in today's
terms. This represents an increase of 0.1% compared to those used
at the end of the previous financial year (and 36% below the
assumptions employed at IPO).
Compared to the previous year, electricity day ahead prices in
the UK decreased from c.GBP57/MWh in March 2018 to c.GBP44/MWh in
March 2019 (see graph below). The Company continues to secure
attractive prices for the energy generated by its portfolio through
its electricity sales strategy with short to medium term prices
significantly above the projections provided by its
Consultants.
Following a similar trend, the Italian price of electricity
decreased from c.EUR57/MWh in March 2018 to c.EUR53/MWh in March
2019.
Forecast UK Power Prices (Real 2019)
Historic - UK Power Prices
Source: N2EX - UK Baseload - day ahead
Power Purchase Agreements
The NEC Group has now hired a specialist energy trader who,
along with the external brokers, ensures that the electricity sales
strategy maximises revenues whilst mitigating the negative impact
of short-term fluctuations in the power markets. As the capacity of
assets under management has increased by 122MW during the year, the
Investment Adviser has executed a range of short-term PPA hedges
from three months to one year on these new assets through a wider
competitive tendering process resulting in more counterparts with
reduced fees and increased pass-through value of ROCs, FiTs and
embedded benefits. In addition, the market fundamentals were
bullish throughout the summer, with the first nearby(1) forward
contract trading from GBP46.90 (3 April 2018) to a high of GBP72.70
(24 September 2018), an increase of 55%, which has encouraged a
shorter term hedging strategy to capitalise on the rising prices.
Although the market has since fallen to GBP42.60 at the end of
March 2019, continuing to hedge based on the flexible structure
used last year has ensured that the Company reduces its exposure to
the daily volatility in the market.
(1) First nearby contract is the front month on the forward
curve that trades in the UK electricity market. On expiry, the next
month becomes the first nearby contract.
Percentage of Revenue fixed as at 31 March 2019
UK Portfolio Revenue breakdown
Valuation of the Investment Portfolio Introduction
The Investment Manager is responsible for carrying out the fair
market valuation of the Company's underlying investment portfolio
which is presented to the Company's Board for its review and
approval. The valuation is carried out quarterly or more often if
capital increases or other relevant events arise. The valuation
principles used are based on a discounted cash flow methodology and
take into account IPEV guidelines.
Assets not yet operational or where the completion of the
acquisition is not imminent at the time of valuation, use the
acquisition cost as a proxy for fair value.
The Board reviews the operating and financial assumptions used
in the valuation of the Company's underlying portfolio and approves
them based on the recommendation of the Investment Manager.
Discount rate
During the year, the solar PV market continued to experience
increased competition for operating and subsidised assets on the
secondary market. In the context of high liquidity provided to
international investors, a maturing renewable market, a scarcity of
subsidised assets and lack of any incentive framework for new
installations, demand for operating solar assets remained strong
resulting in sustained pressure on prices in the last year. These
changing dynamics were evidenced by the experience of the
Investment Manager when bidding for solar PV assets in the UK.
As a result, during the year the Company lowered its discount
rate for unlevered operating solar PV assets in the UK by 0.25%
(from 6.75% to 6.50%) and will continue to monitor this rate.
For those operating solar PV assets with debt, the Company
adopts a levered discount rate to capture the greater level of
volatility risk associated with the cash flows available to equity
investors after debt service. The appropriate level of risk premium
due to project level debt was evaluated taking into account various
factors for each specific asset, including the level of financial
gearing, maturity profile, cost of debt and other factors mentioned
above. This range was unchanged from the previous year (0.7% -
1.0%).
For the Solis portfolio a 8.0% discount rate was applied. This
reflects the additional country risk premium to the UK considering
the differences in risk-free rates in the long-term. It is worth
noting that the Solis portfolio debt was fully repaid, and the
current currency hedge effectively mitigates the revenue exposure
to FX.
The resulting weighted average discount rate for the Company's
portfolio was 7.0%.
The Company does not adopt WACC as a discount rate for its
investments, as it believes that the reduction in WACC deriving
from the introduction of long-term debt financing does not reflect
the greater level of risk to equity investors associated with
levered assets or levered portfolios. However, for the purposes of
transparency, the Company's pre-tax WACC as of 31 March 2019 was
5.4%. Compared to last year end's WACC of 5.8% this value reflects
a increase in the overall gearing from 31% to 36%, as further
described below.
The value uplift generated by the assets valued for the first
time on a DCF basis demonstrates that the new acquisitions are
acquired at an attractive price.
Asset life
The DCF methodology implemented in the portfolio valuation
assumes a valuation time-horizon capped to the current terms of the
lease and planning permission on the properties where each
individual solar PV asset is located. These leases have been
typically entered into for a 25-year period from commissioning of
the relevant PV plants (specific terms may vary). However, the
useful operating life of the Company's portfolio of solar PV assets
is expected to be longer than 25 years. This is due to many
factors, including: (i) solar PV assets with technology components
similar to the ones deployed in the Company's portfolio have been
demonstrated to be capable of operating for over 40 years, with
levels of technical degradation lower than those assumed or
guaranteed by the manufacturers; (ii) local planning authorities
have already granted initial planning consents that do not expire
and/or have granted permissions to extend initial consented
periods; and (iii) the Company owns rights to supply electricity
into the grid through connection agreements that do not expire. The
Company continues to seek to extend the useful life of its assets,
mainly by extending the terms of the land leases for some projects
with the intention of extending leases for others in due course.
During the year, four assets in the portfolio received an extension
to the planning consent for up to 15 years. We have secured options
or rights to extend the leases on a further ten individual plants,
which will add value to the existing portfolio.
As at 31 March 2019, the remaining weighted average lease life
of the Company's portfolio was 25.2 years. The DCF valuation
assumes a zero terminal value at the end of the lease term for each
asset or the end of the planning permission, whichever is the
earlier.
Operating performance
The Company values each solar PV asset on the basis of (i) the
minimum Performance Ratio ("PR") guaranteed by the vendor or (ii)
the PR estimated by the appointed technical adviser during due
diligence. These estimates are generally lower than the actual PR
that the Company has been experiencing during subsequent
operations. The Investment Manager deems it appropriate to adopt
the actual PR after two years of operating history when, typically,
the plants have satisfied tests and received final acceptance
certification ("FAC").
As at 31 March 2019, 50 UK solar PV assets and all Italian solar
PV assets in the investment portfolio had achieved FAC and their
actual PR was used in the DCF valuation. This represents 437MW of
the portfolio, with the remaining assets expecting to reach FAC
according to the timeline below.
Financial quarter ending June 2019: 42 MW
Financial quarter ending September 2019: 77 MW
Financial quarter ending December 2019: 48 MW
Financial quarter ending March 2020: 14 MW
Period from April 2020 to June 2021: 47 MW
Capital Deployment Timeline
As at 31 March 2019, the Company's issued share capital
comprised 581,730,541 ordinary shares (including scrip dividends)
and 100,000,000 preference shares. The Company's capital raises are
shown below:
Amount raised
Date Shares issued (GBPm) Amount invested Time to deployment
100% by September
April 2014 85,600,000 85.6 2014 5 months
November/December 100% by January
2014 95,000,000 99.6 2015 6 weeks
February 2015 59,750,000 61.4 100% by April 2015 6 weeks
100% by November
September 2015 37,607,105 38.8 2015 6 weeks
July/August/September Used to repay debt
2016 64,100,926 64.7 facility Immediate
November 2016 110,300,000 115.3 100% by August 2017 10 months
1 year 2
June 2017 115,000,000 126.5 100% by August 2018 months
Partially used to
repay debt
November 2018 100,000,000(1) 100.0 facility 2 months
(1) Preference shares
Status at
Debt raised 31 March
Date (GBPm) Lender Amount deployed 2019
July 2015 22.7 NIBC 100% Repaid
January 2016 45.4 Bayern Landesbank 100% Repaid
March 2016 55.0 MIDIS 100% Drawn
Macquarie/NAB/
February 2017 150.0 CBA 100% Drawn
UniCredit
November 2017 68.1 & ING 100% Repaid
February 2018 20.0 NIBC Not drawn Not drawn
July 2018 40.0 Santander 100% Drawn
July 2018 58.3 Bayern Landesbank 100% Repaid
January 2019 30.0 100% Drawn
Share Price Movement
During the year the ordinary share price increased from 111.0p
to 117.5p. The table below shows the returns:
Full year Total Annualised
2018/19 since IPO since IPO
Ordinary shareholder total return 11.8% 46.7% 9.5%
NAV total return per ordinary
share 11.8% 40.1% 8.1%
The annualised returns since IPO are in line with the target
range of 7% - 9% equity return for ordinary shareholders (at IPO
both initial issue price and NAV per ordinary share were 100p).
At 31 March 2019, NESF's ordinary shares were included in the
FTSE All-Share Index as well as the FTSE Small Cap Index. In April
2019, the ordinary shares were included in the FTSE 250 Index.
NESF's ordinary shares outperformed the FTSE All-Share Index by
13.8% pts over the period from the IPO to 31 March 2019.
Ordinary shareholder total return and ordinary share NAV total
return are used to review the Company's performance against its
objectives.
Financing and Cash Management
At the year end, the Company's subsidiaries had financial debt
outstanding of GBP269m (2018: GBP270m), on a look-through basis
including project level debt. Of the financial debt, GBP199m was
long-term fully amortising debt, and GBP70m was drawn under a short
term credit facility. The total financial debt, together with the
preference shares, represented a gearing level of 36% (2018: 31%),
which is below the stated maximum debt-to-GAV level of 50%.
During the year, a GBP70m RCF with Santander was closed and the
proceeds were immediately deployed. Projects were also acquired
with debt facilities in place (GBP58m with Bayern Landesbank and
GBP1.2m with Lombard) which were subsequently repaid. The Solis
portfolio debt of GBP68m and the NIBC RCF of GBP20m were fully
repaid.
The table below is a summary of the debt outstanding:
Termination
Facility Amount (including
Provider/ amount outstanding options Applicable
Arranger Type Borrower Tranches GBPm GBPm to extend) rate
Fully-amortising
long-term
MIDIS/CBA/NAB debt NESH Medium-term 48.4 48.4 Dec-26 2.91%(1)
Floating long-term 24.2 24.2 Jun-35 3.68%(1)
Index linked RPI index
long-term 38.7 36.8 Jun-35 + 0.36%
Fixed long-term 38.7 38.8 Jun-35 3.82%
Debt Service
Reserve Facility 7.5 - Jun-26 1.50%
Fully-amortising
long-term NESH RPI index
MIDIS debt IV Inflation linked 27.5 24.6 Sep-34 + 1.44%
Fixed long-term 27.5 26.5 Sep-34 4.11%
Total long-term debt 199.3
NESH
NIBC RCF II n/a 20.0 - Feb-20 LIBOR +2.20%
NESH
Santander RCF IV n/a 70.0 70.0 Jul-20 LIBOR +1.30%
Total short-term debt 70.0
Total
debt 269.3
(1) Applicable rate represents the swap rate.
As at 31 March 2019, the Company held cash of GBP19.3m at high
credit rated financial institutions in the UK.
NextEnergy Capital IM Limited
17 June 2019
Investment Portfolio - Diversification
By Revenue Type
By Regulatory Regime
By Location
By Installed Capacity
By Solar Module Manufacturer
By Inverter Manufacturer
Investment Portfolio - Locations
United Kingdom:
Italy:
Investment Portfolio
Remaining
life
Installed Investment of the
Announcement Regulatory Capacity Cost plant
Power plant Location Date Regime(1) (MWp) (GBPM) (years)
1 Higher Hatherleigh Somerset 01/05/2014 1.6 6.1 7.3(5) 19.0
2 Shacks Barn Northamptonshire 09/05/2014 2.0 6.3 8.2(5) 18.3
3 Gover Farm Cornwall 23/06/2014 1.4 9.4 11.1(5) 20.7
4 Bilsham West Sussex 03/07/2014 1.4 15.2 18.9(5) 20.6
5 Brickyard Warwickshire 14/07/2014 1.4 3.8 4.1(5) 20.6
6 Ellough Suffolk 28/07/2014 1.6 14.9 20.0(5) 35.0
7 Poulshot Wiltshire 09/09/2014 1.4 14.5 15.7(5) 19.9
8 Condover Shropshire 29/10/2014 1.4 10.2 11.7(5) 20.6
9 Llywndu Ceredigion 22/12/2014 1.4 8.0 9.4 30.7
Cock Hill
10 Farm Wiltshire 22/12/2014 1.4 20.0 23.6 20.4
11 Boxted Airfield Essex 31/12/2014 1.4 18.8 20.6(5) 21.0
12 Langenhoe Essex 12/03/2015 1.4 21.2 22.9(5) 36.0
13 Park View Devon 19/03/2015 1.4 6.5 7.7(5) 21.0
14 Croydon Cambridgeshire 27/03/2015 1.4 16.5 17.8(5) 20.7
15 Hawkers Farm Somerset 13/04/2015 1.4 11.9 14.5(5) 21.0
16 Glebe Farm Bedfordshire 13/04/2015 1.4 33.7 40.5(5) 45.7
17 Bowerhouse Somerset 18/06/2015 1.4 9.3 11.1(5) 36.0
18 Wellingborough Northamptonshire 18/06/2015 1.6 8.5 10.8(5) 20.2
19 Birch Farm Essex 21/10/2015 FiT 5.0 5.3(5) 21.2
Thurlestone
20 Leicester Leicestershire 21/10/2015 FiT 1.8 2.3 14.1
21 North Farm Dorset 21/10/2015 1.4 11.5 14.5(5) 35.7
Ellough Phase
22 2 Suffolk 03/11/2015 1.3 8.0 8.0(5) 21.8
23 Hall Farm Leicestershire 03/11/2015 FiT 5.0 5.0(5) 37.1
24 Decoy Farm Lincolnshire 03/11/2015 FiT 5.0 5.2(5) 37.0
25 Green Farm Essex 26/11/2015 FiT 5.0 5.8 22.0
26 Fenland Cambridgeshire 11/01/2016 1.4 20.4 23.9(2,3) 21.3
27 Green End Cambridgeshire 11/01/2016 1.4 24.8 29.0(2,3) 21.4
28 Tower Hill Gloucestershire 11/01/2016 1.4 8.1 8.8(2,3) 21.0
29 Branston Lincolnshire 05/04/2016 1.4 18.9 25.9
30 Great Wilbraham Cambridgeshire 05/04/2016 1.4 38.1 26.0
31 Berwick East Sussex 05/04/2016 1.4 8.2 97.9(2,4) 22.5
32 Bottom Plain Dorset 05/04/2016 1.4 10.1 41.5
33 Emberton Buckinghamshire 05/04/2016 1.4 9.0 41.1
34 Kentishes Essex 22/11/2016 1.2 5.0 4.5 22.7
35 Mill Farm Hertfordshire 04/01/2017 1.2 5.0 4.2 37.7
36 Bowden Somerset 04/01/2017 1.2 5.0 5.6 22.9
37 Stalbridge Dorset 04/01/2017 1.2 5.0 5.4 23.0
38 Aller Court Somerset 21/04/2017 1.2 5.0 5.5 23.0
39 Rampisham Dorset 21/04/2017 1.2 5.0 5.8 23.5
40 Wasing Berkshire 21/04/2017 1.2 5.0 5.3 22.7
Flixborough
41 South Humberside 21/04/2017 1.2 5.0 5.1 23.5
42 Hill Farm Oxfordshire 21/04/2017 1.2 5.0 5.5 23.0
43 Forest Farm Hampshire 21/04/2017 1.2 3.0 3.3 33.0
44 Birch CIC Essex 12/06/2017 FiT 1.7 1.7 21.2
45 Barnby Nottinghamshire 12/06/2017 1.2 5.0 5.4 23.3
46 Bilsthorpe Nottinghamshire 12/06/2017 1.2 5.0 5.4 23.7
47 Wickfield Wiltshire 12/06/2017 1.2 4.9 5.6 24.1
48 Bay Farm Suffolk 18/08/2017 1.6 8.1 10.5 20.9
49 Honington Suffolk 18/08/2017 1.6 13.6 16.0 20.8
50 Macchia Rotonda Apulia 01/11/2017 FiT 6.6 16.8
51 Iacovangelo Apulia 01/11/2017 FiT 3.5 17.1
52 Armiento Apulia 01/11/2017 FiT 1.9 17.1
53 Inicorbaf Apulia 01/11/2017 FiT 3.0 116.2(2,6) 16.9
Gioia del
54 Colle Campania 01/11/2017 FiT 6.5 17.6
55 Carinola Apulia 01/11/2017 FiT 3.0 17.6
56 Marcianise Campania 01/11/2017 FiT 5.0 17.5
57 Riardo Campania 01/11/2017 FiT 5.0 17.5
58 Gilley's Dam Cornwall 18/12/2017 1.3 5.0 6.4 27.5
59 Pickhill Bridge Clwyd 18/12/2017 1.2 3.6 3.7 22.9
60 North Norfolk Norfolk 01/02/2018 1.6 11.0 14.6 25.6
61 Axe View Devon 01/02/2018 1.2 5.0 5.6 28.0
62 Low Bentham Lancashire 01/02/2018 1.2 5.0 5.4 26.9
63 Henley Shropshire 01/02/2018 1.2 5.0 5.2 27.2
64 Pierces Farm Berkshire 30/05/2018 FiT 1.7 1.2 20.1
65 Salcey Farm Buckinghamshire 30/05/2018 1.4 5.5 6.5 20.1
66 Thornborough Buckinghamshire 25/06/2018 1.2 5.0 5.7 22.0
67 Temple Normaton Derbyshire 25/06/2018 1.2 4.9 5.6 22.3
Fiskerton
68 Phase 1 Lincolnshire 25/06/2018 1.3 13.0 16.6 31.0
Huddlesford
69 HF Staffordshire 25/06/2018 1.2 0.9 0.9 21.8
70 Little Irchester Northamptonshire 25/06/2018 1.2 4.7 5.9 22.8
71 Balhearty Clackmannanshire 25/06/2018 FiT 4.8 2.6 31.8
72 Brafield Northamptonshire 25/06/2018 1.2 4.9 5.8 22.7
Huddlesford
73 PL Staffordshire 25/06/2018 1.2 0.9 0.9 22.0
74 Sywell Northamptonshire 25/06/2018 1.2 5.0 5.9 22.1
75 Coton Park Derbyshire 25/06/2018 FiT 2.5 1.1 22.1
76 Hook Somerset 11/07/2018 1.6 15.3 21.9(2) 19.5
77 Blenches Wiltshire 11/07/2018 1.6 6.1 7.8(2) 19.7
78 Whitley Somerset 11/07/2018 1.6 7.6 10.5(2) 20.0
79 Burrowton Devon 11/07/2018 1.6 5.4 7.3(2) 19.5
80 Saundercroft Devon 11/07/2018 1.6 7.2 9.6(2) 20.5
81 Raglington Hampshire 11/07/2018 1.6 5.7 8.1(2) 34.8
82 Knockworthy Cornwall 11/07/2018 FiT 4.6 6.6(2) 19.0
83 Chilton Canetello Somerset 11/07/2018 FiT 5.0 9.0(2) 18.3
84 Crossways Dorset 11/07/2018 FiT 5.0 10.1(2) 18.9
85 Wyld Meadow Dorset 11/07/2018 FiT 4.8 7.1(2) 20.6
86 Ermis - rooftops Multiple 07/08/2018 FiT 1.0 3.0 17.6
Angelia -
87 rooftops Multiple 07/08/2018 FiT 0.2 0.6 17.5
Total 690.8 893.8
To be build/under construction
A Francis/Gourton Clwyd 12/06/2017 None 10.0 - -
B Glebe Worcestershire 12/06/2017 None 19.6 - -
C Radbrook Warwickshire 12/06/2017 None 20.7 - -
D Moss Cheshire 12/06/2017 None 9.5 - -
E Staughton Bedfordshire - None 50.0 - -
F Llanwern Gwent - None 62.5 - -
G Hall Farm Leicestershire - None 5.4 2.2 -
Total 177.7 2.2 -
Grand Total 896.0 -
(1) An explanation of ROC regime is available at ofgem.gov.uk/environmental-programmes/renewables-obligation-ro.
(2) Acquired with project level debt.
(3) Part of the Thirteen Kings portfolio.
(4) Part of the Radius portfolio.
(5) Part of the Apollo portfolio.
(6) Part of the Solis portfolio.
Portfolio Assets
Year ended 31 March
2019 Since acquisition
Irradiation Generation Irradiation Generation
Operational Acquisition Generation delta delta delta delta
Power plant date date (MWh) (%) (%) (%) (%)
Higher
1 Hatherleigh Apr-14 May-14 6.2 4.2 8.0 (0.3) 4.5
2 Shacks Barn May-14 May-14 6.7 11.2 17.0 2.3 9.0
3 Gover Farm Jan-15 Jun-14 8.2 5.3 (10.0) 1.5 (0.7)
4 Bilsham Jan-15 Jul-14 16.8 11.2 8.5 3.9 5.7
5 Brickyard Jan-15 Jul-14 3.7 11.5 9.2 2.5 5.1
6 Ellough Jul-14 Jul-14 16.5 9.1 14.4 0.3 6.6
7 Poulshot Apr-15 Sep-14 14.6 4.9 8.5 (0.8) 3.9
8 Condover May-15 Oct-14 10.1 5.8 7.5 (0.8) 1.3
9 Llywndu Jul-15 Dec-14 8.0 0.5 6.1 (5.0) 0.3
10 Cock Hill Farm Jul-15 Dec-14 20.5 9.8 7.1 1.8 3.0
11 Boxted Airfield Apr-15 Dec-14 19.7 10.5 10.6 2.9 4.9
12 Langenhoe Apr-15 Mar-15 23.4 12.8 16.0 5.4 9.0
13 Park View Jul-15 Mar-15 6.8 0.4 3.8 (3.8) 0.1
14 Croydon Apr-15 Mar-15 16.9 15.1 13.5 5.1 6.5
15 Hawkers Farm Jun-15 Apr-15 12.6 3.2 6.9 (1.5) 2.3
16 Glebe Farm May-15 Apr-15 37.4 15.7 21.6 5.0 11.0
17 Bowerhouse Jul-15 Jun-15 9.3 6.4 2.8 0.8 1.2
18 Wellingborough Jun-15 Jun-15 8.5 12.7 7.9 1.4 4.1
19 Birch Farm Sep-15 Oct-15 5.2 10.4 9.5 3.2 5.2
Thurlestone
Leicester
20 - rooftops Oct-15 Oct-15 1.6 N/A 7.3 N/A 0.8
21 North Farm Oct-15 Oct-15 12.5 1.7 2.0 (4.8) (2.9)
Ellough Phase
22 2 Aug-16 Nov-15 8.8 16.0 16.4 9.3 12.7
23 Hall Farm Apr-16 Nov-15 5.0 10.7 13.2 3.4 (1.9)
24 Decoy Farm Mar-16 Nov-15 5.3 11.0 15.9 3.7 9.1
25 Green Farm Dec-16 Nov-15 5.4 9.7 11.1 3.9 4.4
26 Fenland Jan-16 Jan-16 22.5 12.8 16.3 4.4 8.9
27 Green End Jan-16 Jan-16 26.0 12.9 11.1 4.0 5.1
28 Tower Hill Jan-16 Jan-16 8.3 6.1 9.8 1.9 5.8
29 Branston Mar-16 Apr-16 18.6 13.4 6.6 5.4 3.3
30 Great Wilbraham Mar-16 Apr-16 41.0 14.3 14.3 4.6 5.0
31 Berwick Mar-16 Apr-16 9.6 9.9 12.8 5.1 8.6
32 Bottom Plain Mar-16 Apr-16 11.1 8.3 9.5 1.9 3.1
33 Emberton Mar-16 Apr-16 9.6 13.4 13.0 3.7 3.6
34 Kentishes Jul-17 Nov-16 5.5 11.3 11.6 5.6 6.3
35 Mill Farm Jul-17 Jan-17 5.5 15.8 15.9 8.6 10.3
36 Bowden Sep-17 Jan-17 5.4 1.9 2.0 (0.9) 0.8
37 Stalbridge Sep-17 Jan-17 5.5 2.4 7.0 (0.3) 6.0
38 Aller Court Sep-17 Apr-17 5.3 4.0 4.1 2.5 3.6
39 Rampisham Sep-17 Apr-17 5.3 0.2 (1.4) (2.3) (3.4)
40 Wasing Aug-17 Apr-17 5.6 10.6 13.7 5.9 10.1
41 Flixborough Aug-17 Apr-17 5.2 10.0 11.8 5.4 8.0
42 Hill Farm Mar-17 Apr-17 5.5 11.4 14.6 7.5 9.7
43 Forest Farm Mar-17 Apr-17 3.3 7.8 11.2 4.3 8.4
44 Birch CIC May-17 Jun-17 1.8 10.3 8.8 4.8 4.6
45 Barnby Aug-17 Jun-17 5.2 10.9 11.8 5.6 7.4
46 Bilsthorpe Aug-17 Jun-17 5.3 10.2 13.2 4.7 8.6
47 Wickfield Mar-17 Jun-17 5.0 7.7 5.5 4.8 4.2
48 Bay Farm Sep-17 Aug-17 8.3 15.0 11.0 9.7 6.8
49 Honington Sep-17 Aug-17 14.2 9.8 10.1 5.3 3.5
50 Macchia Rotonda Nov-17 Nov-17 10.0 5.4 6.1 2.6 3.8
51 Iacovangelo Nov-17 Nov-17 5.4 3.8 6.7 1.2 4.7
52 Armiento Nov-17 Nov-17 2.9 4.5 7.0 1.8 4.9
53 Inicorbaf Nov-17 Nov-17 4.7 4.5 6.8 1.9 4.4
54 Gioia del Colle Nov-17 Nov-17 9.7 (1.1) 3.9 (2.5) 1.5
55 Carinola Nov-17 Nov-17 4.4 3.0 7.4 (0.3) 3.6
56 Marcianise Nov-17 Nov-17 7.3 3.1 5.8 0.6 2.4
57 Riardo Nov-17 Nov-17 7.3 3.0 2.6 0.1 (1.5)
58 Gilley's Dam Nov-17 Dec-17 5.1 (4.3) (1.4) (5.3) (1.9)
59 Pickhill Bridge Dec-17 Dec-17 3.8 9.4 12.4 7.2 10.5
60 North Norfolk Dec-17 Feb-18 11.8 10.2 12.1 7.8 10.4
61 Axe View Dec-17 Feb-18 5.2 6.0 7.4 4.7 6.4
62 Low Bentham Dec-17 Feb-18 4.8 3.5 5.0 3.0 5.2
63 Henley Jan-18 Feb-18 5.0 5.9 8.5 3.8 6.4
64 Pierces Farm May-18 May-18 1.4 8.5 10.3 8.5 10.3
65 Salcey Farm May-18 May-18 4.5 17.0 10.5 17.0 10.5
66 Thornborough Jun-18 Jun-18 2.9 15.8 (11.4) 15.8 (11.4)
67 Temple Normaton Jun-18 Jun-18 3.0 13.1 (3.0) 13.1 (3.0)
Fiskerton Phase
68 1 Jun-18 Jun-18 8.4 15.5 0.9 15.5 0.9
69 Huddlesford HF Jun-18 Jun-18 0.6 14.8 6.7 14.8 6.7
70 Little Irchester Jun-18 Jun-18 2.8 16.3 (11.6) 16.3 (11.6)
71 Balhearty Jun-18 Jun-18 2.2 3.2 (18.1) 3.2 (18.1)
72 Brafield Jun-18 Jun-18 3.3 15.8 (0.2) 15.8 (0.2)
73 Huddlesford PL Jun-18 Jun-18 0.6 14.8 6.0 14.8 6.0
74 Sywell Jun-18 Jun-18 3.1 18.8 (3.6) 18.8 (3.6)
75 Coton Park Jun-18 Jun-18 1.6 12.7 9.8 12.7 9.8
76 Hook Jul-18 Jul-18 9.4 5.4 0.6 5.4 0.6
77 Blenches Jul-18 Jul-18 3.8 8.9 11.3 8.9 11.3
78 Whitley Jul-18 Jul-18 4.7 4.6 5.2 4.6 5.2
79 Burrowton Jul-18 Jul-18 8.0 2.8 2.9 2.8 2.9
80 Saundercroft Jul-18 Jul-18
81 Raglington Jul-18 Jul-18 3.8 7.6 2.5 7.6 2.5
82 Knockworthy Jul-18 Jul-18 3.0 2.8 2.7 2.8 2.7
Chilton
83 Canetello Jul-18 Jul-18 3.5 6.3 10.2 6.3 10.2
84 Crossways Jul-18 Jul-18 3.7 4.9 8.6 4.9 8.6
85 Wyld Medow Jul-18 Jul-18 3.2 (1.1) 2.1 (1.1) 2.1
86 Ermis - rooftops Aug-18 Aug-18 0.4 N/A (1.8) N/A (1.8)
Angelia -
87 rooftops Aug-18 Aug-18 0.1 N/A 7.5 N/A 7.5
Total 693.6 9.0 9.1 2.1 5.0
Governance
Corporate Governance
Introduction
As a regulated Guernsey incorporated company with a premium
listing on the Official List and admitted to trading on the main
market of the London Stock Exchange, the Company is required to
comply with the principles of the UK Code.
The Board recognises the importance of a strong corporate
governance culture that meets the requirements of the UK Listing
Authority as well as other relevant bodies such as the GFSC and the
AIC.
As the Company is an AIC member, the Board has also considered
the principles and recommendations of the AIC Code by reference to
the AIC Guide. The AIC Code addresses all the principles set out in
the UK Code, as well as setting out additional principles and
recommendations on issues of specific relevance to the Company. The
AIC Code, published in July 2016, addresses all of the principles
set out in the UK Code, and has been endorsed by the Financial
Reporting Council as ensuring investment company boards fully meet
their obligations to the UK Code and LR 9.8.6 of the Listing Rules.
Having adopted the AIC Code at the time of the Company's IPO in
2014, the Board has therefore assessed itself, the Committees and
performance of the Directors against the parameters and principles
outlined within the AIC Code for the year ended 31 March 2019.
The GFSC Code came into force in Guernsey on 1 January 2012. The
Company is deemed to satisfy the GFSC Code provided that it
continues to conduct its governance in accordance with the
requirements of the AIC Code, which incorporates the UK Code.
The Board is of the view that, throughout the year ended 31
March 2019, the Company has complied with the recommendations of
the AIC Code and the relevant provisions of the UK Code, except for
the provisions relating to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the UK Code, the Board considers that, as the Company has
outsourced its management and administration to third parties, has
no employees and a Board composed solely of non-executive
Directors, these provisions are not currently relevant or
appropriate to the position of the Company.
As per the Company's Articles, all Directors, including the
Chairman, must disclose any interest in a transaction that the
Board and Committees approve.
Following the Company's admission to the FTSE 250 on 15 April
2019, the Board will implement, where appropriate, those provisions
of the UK Code applicable to FTSE 250 companies going forward.
Chairman
Mr Lyon was appointed to the position of Chairman of the Board
on 22 January 2014. Mr Lyon is responsible for leading the Board in
all areas, including determination of strategy, organising the
Board's business and ensuring the effectiveness of the Board and
individual Directors in all aspects of their roles. He also
endeavours to produce an open culture of debate within the Board
which facilitates the ability of the Board to make objective
decisions.
A summary of Mr Lyon's other commitments can be identified in
his biography on page 53.
The effectiveness and independence of the Chairman is evaluated
on an annual basis as part of the Board's performance evaluation;
the Senior Independent Director is tasked with collating feedback
and discussing this with the Chairman on behalf of the rest of the
Board. The Chairman is not subject to any relationships which may
create a conflict between his interests and those of the
shareholders and does not serve on any other investment company
boards managed by the Investment Manager.
Board Independence and Disclosure
The Chairman, Vic Holmes and Patrick Firth were selected prior
to the Company's launch. Sharon Parr was appointed with effect from
1 January 2018 and Sue Inglis was appointed with effect from 1
April 2019. All Directors are independent of the Investment Manager
and Investment Adviser.
The Board considered Sue Inglis' previous role as Managing
Director - Investment Companies of Cantor Fitzgerald Europe, the
Company's appointed financial adviser and broker, and were
satisfied that this did not compromise Sue Inglis'
independence.
The Board is composed entirely of non-executive Directors, who
meet regularly to determine the Company's strategic direction. The
Board reviews the Company's financial performance and oversees the
performance of the Investment Manager and other service providers
to scrutinise the achievement of agreed goals and objectives, and
monitor performance. Through the Audit Committee they are able to
ascertain the integrity of financial information and confirm that
all financial controls and risk management systems are robust.
There is currently no Management Engagement Committee for the
Company as it had not been deemed required, given the size,
composition and structure of the Company. Therefore, the Board as a
whole has fulfilled the functions of a Management Engagement
Committee and reviews and analyses the actions, performance and
judgements of the Investment Manager and also the terms of the
Investment Management Agreement. Further to this the Board analyses
and evaluates the performance of other service providers on a
regular basis. Having regard to the size of the Company and the
Board, the Board is currently considering the need for a Management
Engagement Committee.
As part of the annual performance evaluation process, the
independence of each of the Directors was considered. Following the
annual performance evaluation, it was deemed that the Directors had
been proven to challenge the Investment Manager throughout the year
under review, as minuted and recorded. Therefore, for the purposes
of assessing compliance with the AIC Code, the Board as a whole
considers that each Director is independent of the Investment
Manager and free from any business or other relationship that could
materially interfere with the exercise of their independent
judgement. If required, the Board is able to access independent
professional advice. The Investment Manager is also requested to
declare any potential conflicts surrounding votes and share dealing
on an annual basis to the Board to help with the assessment of
investments.
Open communication between the Investment Manager and the Board
is facilitated by regular Board meetings, to which the Investment
Manager is invited to attend and update the Board on the current
status of the Company's investments, along with ad hoc meetings as
required.
Changes to the Directors' significant business commitments have
been declared when required during the year. Each Director's
commitments can be identified in their biographies detailed on
pages 53 to 57. When appointing a new Director and conducting the
annual evaluation of existing Directors, their other commitments
are considered to assess whether they have sufficient time to
fulfill their responsibilities.
The terms and conditions of appointment for non-executive
Directors are outlined in their letters of appointment and are
available for inspection by any person at the Company's registered
office during normal business hours and at the AGM for 15 minutes
prior to and during the meeting.
In his role as Senior Independent Director, Vic Holmes is
available to ordinary shareholders should they wish to raise
concerns which have not been addressed by, or are not appropriate
to raise via, the usual channels.
There is no executive director function in the Company; all
day-to-day functions are delegated to external service
providers.
Development
The Board believes that the Company's Directors should develop
their skills and knowledge through participation at relevant
courses. The Chairman is responsible for reviewing and discussing
the training and development of each Director according to
identified needs. Upon appointment, all Directors participate in
discussions with the Chairman and other Directors to understand the
responsibilities of the Directors, in addition to the Company's
business and procedures. The Company also provides regular
opportunities for the Directors to obtain a thorough understanding
of the Company's business by regularly meeting the Investment
Manager, members of the senior management team from the Investment
Adviser and other service providers, both in person and by
telephone.
Balance of the Board and Diversity Policy
The Board is well-balanced, with a wide array of skills,
experience and knowledge that ensures it functions effectively and
that no single Director may dominate the Board's decisions. Having
five Directors appointed ensures that, during any transition
period, there are at least three (more likely four) Directors to
provide stability.
At this time, the Board has chosen not to adopt a formal policy
for diversity but it has diversity at the forefront of its decision
making. The Board recognises the importance of diversity, including
gender, for the effective functioning of the Board and is committed
to supporting diversity in the boardroom illustrated by the recent
appointments of Sharon Parr and Sue Inglis. It is the Board's
ongoing aspiration to maintain a well-diversified representation.
The Board also values diversity of business skills and experience
because Directors with diverse skill sets, capabilities and
experience gained from different backgrounds enhance the Board by
bringing a wide range of perspectives to the Company. The Board
believes that the current mix of skills, experience, knowledge and
age of the Directors is appropriate to the requirements of the
Company.
Annual Performance Evaluation
The Board's balance is reviewed on a regular basis as part of a
performance evaluation review. Using a pre-determined template
based on the AIC Code's provisions as a basis for review, the Board
undertook an evaluation of its performance and, in addition, an
evaluation focusing on individual commitment, performance and
contribution of each Director was conducted. The Chairman then met
with each Director to fully understand their views of the Company's
strengths and to identify potential weaknesses. If appropriate, new
members would be proposed to resolve any perceived issues, or a
resignation sought. Following discussions and review of the
Chairman's evaluation by the other Directors, the Senior
Independent Director reviewed the Chairman's performance. Training
and development needs are identified as part of this process,
thereby ensuring that all Directors are able to discharge their
duties effectively. Given the Company's size and the structure of
the Board, no external facilitator or independent third party was
used in the performance evaluation.
Re-election and Board Tenure
The Company has established a combined Remuneration and
Nominations Committee whose role includes undertaking a thorough
process of reviewing the skill set of the individual Directors, and
proposes new, or renewal of current, appointments to the Board.
The primary role and responsibilities of the Remuneration and
Nominations Committee are clearly defined in its terms of
reference, available at the registered office and the Company's
website.
Following the Company's admission to the FTSE 250 in April 2019,
and in accordance with the UK Code, all Directors will be subject
to annual re-election.
The biographic details of the Directors can be found on page 53
to 57.
Following the annual performance evaluation the Board confirms
that each Director has proved their ability to fulfil all legal
responsibilities and to provide effective independent judgement on
issues of strategy, performance, resources and conduct. The Board
therefore has no hesitation in recommending to the shareholders
that Sue Inglis be elected and all other Directors be re-elected at
the AGM.
Appointment Process
Prior to each Directors appointment, they disclosed their other
significant appointments to the Board and undertook that they had
sufficient time to fulfil their duties in accordance with the
expected time commitments detailed in their letters of
appointment.
During the year the Remuneration and Nominations Committee
reviewed the Board's composition and concluded that a further
appointment would be beneficial due to the significant increase in
the size of the Company since launch and to further enhance the
Board's knowledge and experience. The Remuneration and Nominations
Committee reviewed the existing balance of skills, experience,
independence and knowledge on the Board and, following the
evaluation, prepared a description of the role and capabilities
required for the proposed appointment. The Company utilised OSA
Recruitment (which has no other connection with the Company) to
identify suitable candidates, with a number of potential candidates
being suggested by OSA. The Directors interviewed Sue Inglis, being
one of the potential candidates, having been familiar with her
depth of knowledge and experience as a result of her prior role at
Cantor Fitzgerald Europe. Following the interview the Directors
were satisfied that Sue Inglis satisfied the necessary credentials
for the proposed appointment.
Following the process outlined above, the Board, following the
recommendation of the Remuneration and Nominations Committee,
appointed Sue Inglis as a non-executive Director with effect from 1
April 2019.
For renewal of current appointments, all Directors except the
individual in question are entitled to vote at the meeting. No new
nominations have been made for the role of Chairman of the
Board.
The Remuneration and Nominations Committee will keep under
review the composition of the Board as the Company continues to
develop.
Board and Board Committees
Matters reserved for the Board include: a review of the
Company's overall strategy and business plans; approval of the
Company's Interim and Annual Reports; review and approval of any
alteration to the Company's accounting policies or practices and
valuation of investments; approval of any alteration to the
Company's capital structure; approval of dividend policy;
appointments to the Board and constitution of Board Committees;
observation of relevant legislation and regulatory requirements;
and performance review of key service providers. The Board also
retains ultimate responsibility for Committee decisions; every
Committee is required to refer to the Board, who will make the
final decision.
Terms of reference containing a formal schedule of matters
reserved for the Board of Directors and its duly authorised
Committee has been approved and can be reviewed at the Company's
registered office.
There were four scheduled quarterly meetings during the year
ended 31 March 2019; the meeting attendance record is displayed on
the next page. The Company Secretary acts as the Secretary to the
Board.
As noted above, the Board fulfils the responsibilities typically
undertaken by a Management Engagement Committee and reviews the
actions and judgements of the Investment Manager and also the terms
of the Investment Management Agreement.
The Board seeks to undertake an assessment of the Investment
Manager's scope and responsibilities as outlined in the Investment
Management Agreement on a formal basis every year. Discussions on
the Investment Manager's performance are also conducted regularly
throughout the year by the Board. Reviews of engagements with other
service providers to ensure all parties are operating
satisfactorily are also undertaken by the Board so as to ensure the
safe and accurate management and administration of the Company's
affairs and business and that they are competitive and reasonable
for shareholders.
Audit Committee
The Board has established an Audit Committee composed of all the
independent members of the Board. The Chairman of the Board is
included as a Committee member to enable a full understanding of
the issues facing the Company, but cannot be Audit Committee
Chairman. The Audit Committee, its membership and its terms of
reference are kept under regular review by the Board, and it is
perceived all members have sufficient financial skills and
experience. Patrick Firth is Audit Committee Chairman.
The Audit Committee had three scheduled meetings during the year
ended 31 March 2019; the meeting attendance record is displayed
below. The Company Secretary acts as the Secretary to the Audit
Committee.
Owing to the size and structure of the Company, there is no
internal audit function. The Audit Committee has reviewed the need
for an internal audit function, and perceived that the internal
financial and operating control systems in place within the Company
and its service providers, as evidenced by the internal control
reports provided by the Administrator, give sufficient assurance
that a sound system of internal control is maintained that
safeguards shareholders' investment and Company assets.
The Audit Committee is intended to assist the Board in
discharging its responsibilities for the integrity of the Company's
financial statements, as well as aiding the assessment of the
Company's internal control effectiveness and objectivity of the
external Auditor.
Further information on the Audit Committee's responsibilities is
given in the Audit Committee Report on pages 64 to 66.
Formal terms of reference for the Audit Committee are available
at the registered office and website and are reviewed on a regular
basis.
Remuneration and Nominations Committee
The joint Remuneration and Nominations Committee is composed of
all the Directors. The Chairman of the Board is included as a
Committee member to enable a full understanding of the issues
facing the Company, but cannot be Remuneration and Nominations
Committee Chairman. The Remuneration and Nominations Committee, its
membership and its terms of reference are kept under regular review
by the Board. Vic Holmes is Remuneration and Nominations Committee
Chairman.
The Remuneration and Nominations Committee had two scheduled
meetings during the year ended 31 March 2019; the meeting
attendance record is displayed below. The Company Secretary acts as
the Secretary to the Remuneration and Nominations Committee.
Further information on the Remuneration and Nominations
Committee's responsibilities is given in the Directors'
Remuneration Report on pages 62 to 63.
Formal terms of reference for the Remuneration and Nominations
Committee are available at the registered office, and are reviewed
on a regular basis.
Board and Committee Meeting Attendance
Individual attendance at Board and Committee scheduled meetings
is set out below:
Remuneration
and
Audit Nominations
Board Committee Committee
Kevin Lyon 4 3 2
Patrick Firth 4 3 2
Vic Holmes 4 3 2
Sharon Parr 4 3 2
Sue Inglis(1) - - -
Total meetings for the year 4 3 2
(1) Sue Inglis joined the Board on 1 April 2019
All Directors have attended all scheduled quarterly Board and
Audit Committee meetings. During the year, a further 15 ad hoc
Board/Committee meetings were convened in Guernsey at short notice
to deal with administrative and process matters, and to conclude a
number of matters previously discussed at scheduled meetings. In
such instances it is not always necessary or practical for all
Directors to be in attendance at all ad hoc meetings. Directors who
are unable to attend ad hoc meetings convey their opinion to their
fellow Directors where necessary in advance of such meetings.
Company Secretary
Reports and papers, containing relevant, concise and clear
information, are provided to the Board and Committees in a timely
manner to enable review and consideration prior to both scheduled
and ad hoc specific meetings. This ensures that Directors are
capable of contributing to, and validating, the development of
Company strategy and management. The regular reports also provide
information that enables scrutiny of the Company's Investment
Manager and other service providers' performance. When required,
the Board has sought further clarification of matters with the
Investment Manager and other service providers, both by means of
further reports and in-depth discussions, in order to make more
informed decisions for the Company.
Under the direction of the Chairman, the Company Secretary
facilitates the flow of information between the Board, Committees,
Investment Manager and other service providers through the
development of comprehensive, detailed meeting packs, agendas and
other media. These are circulated to the Board and other attendees
in sufficient time to review the information.
Full access to the advice and services of the Company Secretary
is available to the Board; in turn, the Company Secretary is
responsible for advising on all governance matters through the
Chairman. The Articles and schedule of matters reserved for the
Board indicate the appointment and resignation of the Company
Secretary is an item reserved for the full Board. A review of the
performance of the Company Secretary is undertaken by the Board on
a regular basis.
Financial and Business Information
An explanation of the Directors' roles and responsibilities in
preparing the Annual Report and Audited Financial Statements for
the year ended 31 March 2019 is provided in the Statement of
Directors' Responsibilities on page 58.
Further information enabling shareholders to assess the
Company's performance, business model and strategy can be sourced
in the KPI section on page 2, Chairman's Statement on pages 3 to 6,
the Strategic Report on pages 8 to 12, the Principal Risks section
on pages 13 to 15, the Investment Manager's Report on pages 24 to
43, the Corporate Governance section on page 45 to 52 and the
Report of the Directors on pages 59 to 61.
There is no information that is required to be disclosed under
LR 9.8.4.
Principal Risk Management and Risk Control
Details of the Company's principal risks can be found in the
Principal Risks section on pages 13 to 15.
Risk Management and Risk Control
The Board is required annually to review the effectiveness of
the Company's key internal controls such as financial, operational
and compliance controls and risk management. The controls are
designed to ensure that the risk of failure to achieve business
objectives is minimised, and are intended to provide reasonable
assurance against material misstatement or loss. Through regular
meetings and meetings of the Audit Committee, the Board seeks to
maintain full and effective control over all strategic, financial,
regulatory and operational issues. The Board maintains an
organisational and Committee structure with clearly defined lines
of responsibility and delegation of authorities.
As part of the compilation of the risk register for the Group,
appropriate consideration has been given to the relevant control
processes and that the risk has been considered, assessed and
managed as an integral part of the business. The Company's system
of internal controls includes, inter alia, the overall control
exercise, procedures for the identification and evaluation of
business risk, the control procedures themselves and the review of
these internal controls by the Audit Committee on behalf of the
Board. Each of these elements that make up the Company's system of
internal financial and operating control is explained in further
detail as follows:
(i) Control environment
The Company is ultimately dependent upon the quality and
integrity of the staff and management of its Investment Manager,
its Investment Adviser and its Administration and Company
Secretarial service providers. In each case, qualified and able
individuals have been selected at all levels. The staff of both the
Investment Manager and Administrator are aware of the internal
controls relevant to their activities and are also collectively
accountable for the operation of those controls. Appropriate
segregation and delegation of duties is in place.
The Audit Committee undertakes a review of the Company's
internal financial and operating controls on a regular basis. The
Auditor of the Company, PricewaterhouseCoopers CI LLP, considers
internal controls relevant to the Company's preparation and fair
presentation of the financial statements in order to design its
audit procedures, but not for the purpose of expressing an audit
opinion on the effectiveness of the Company's internal
controls.
The Board is made aware of the business controls of the
Investment Adviser and Investment Manager during periodic Board
updates enabling oversight of the key business processes. The
Investment Adviser also provides an update of the control
environment for the UK HoldCos and SPVs to ensure the Board has
oversight of business controls for the entire Group.
In its role as a third-party fund administration services
provider, Ipes (Guernsey) Limited (prior to its change of name to
Apex Fund and Corporate Services (Guernsey) Limited) produced an
annual AAF 01/06 Assurance Report on the internal control
procedures in place for the year ended 30 September 2018, and this
is subject to review by the Audit Committee and the Board.
(ii) Identification and evaluation of business risks
Another key business risk is the performance of the Company's
investments. This is managed by the Investment Manager, which
undertakes regular analysis and reporting of business risks in
relation to the investment portfolio, and then proposes appropriate
courses of action to the Board for their review.
(iii) Key procedures
In addition to the above, the Audit Committee's key procedures
include a comprehensive system for reporting financial results to
the Board regularly, as well as quarterly reviews of loans
(including reports on the underlying investment performance).
Although no system of internal control can provide absolute
assurance against material misstatement or loss, the Company's
system is designed to assist the Directors in obtaining reasonable
assurance that problems are identified on a timely basis and dealt
with appropriately. It is the view of the Board that the controls
in relation to the Company's operating, accounting, compliance and
IT risks performed robustly throughout the year. In addition, all
have been in full compliance with the Company's policies and
external regulations, including:
-- the Company's published investment policy, from time to time;
-- personal account dealing;
-- whistleblowing policy;
-- anti-bribery policy;
-- applicable FCA regulations;
-- Listing Rules and Disclosure Guidance and Transparency Rules;
-- treatment and handling of confidential information;
-- conflicts of interest;
-- compliance policies; and
-- anti-money laundering regulations.
Corporate Governance Statement
There were no protected disclosures made pursuant to the
Company's whistleblowing policy, or that of service providers in
relation to the Company, during the year ended 31 March 2019.
In summary, the Board considers that the Company's existing
internal financial and operating controls, coupled with the
analysis of risks inherent in the business models of the Company
and its subsidiaries, continue to provide appropriate tools for the
Company to monitor, evaluate and mitigate its risks.
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD, which was implemented across the EU on 22 July 2013
with the transition period ending on 22 July 2014, aims to
harmonise the regulation of Alternative Investment Fund Managers
("AIFMs") and imposes obligations on managers who manage or
distribute Alternative Investment Funds ("AIFs") in the EU or who
market shares in such funds to EU investors.
After seeking professional regulatory and legal advice, the
Company was established in Guernsey as a non-EU AIF, appointing
NextEnergy Capital IM Limited to act as the non-EU AIFM.
The marketing of shares in AIFs that are established outside the
EU (such as the Company) to investors in that EU member state is
prohibited unless certain conditions are met. Some of these
conditions are outside the Company's control as they are dependent
on the regulators of the relevant third country (in this case
Guernsey) and the relevant EU member state entering into regulatory
co-operation agreements with one another.
Currently, the NPPR provides a mechanism to market non-EU AIFs
that are not allowed to be marketed under the AIFMD domestic
marketing regimes. The Board is utilising the NPPR in order to
market the Company, specifically in the UK, the Republic of
Ireland, the Netherlands and Sweden. The Board has worked with the
Company's advisers to ensure the necessary conditions are met, and
all required notices and disclosures are made under the NPPR.
Any regulatory changes arising from implementation of AIFMD (or
otherwise) that limit the Company's ability to market future issues
of its ordinary shares may materially adversely affect the
Company's ability to carry out its investment policy successfully
and to achieve its investment objective, which in turn may
adversely affect the Company's business, financial condition,
results of operations, NAV and/or the market price of the ordinary
shares.
The Board, in conjunction with the Company's advisers, will
continue to monitor the development of the AIFMD and its
impact.
The Board has considered the disclosure obligations under
Articles 22 and 23 and can confirm that the Investment Manager
complies with the various organisational, operational and
transparency obligations.
Foreign Account Tax Compliance Act ("FATCA") and the OECD Common
Reporting Standards ("CRS")
The Board, in conjunction with the Company's service providers
and advisers, will ensure the Company's compliance with FATCA's and
CRS's requirements to the extent relevant to the Company.
Dialogue with Shareholders
The Directors place a great deal of importance on communication
with shareholders. The Investment Manager and Brokers aim to meet
with large ordinary shareholders at least annually, together with
the Investment Adviser, and calls are undertaken on a regular basis
with ordinary shareholders. The Board also receives regular reports
from the Brokers on ordinary shareholder issues. Publications such
as the Annual Report and Audited Financial Statements are reviewed
and approved by the Board prior to circulation and are available on
the Company's website.
All Directors are available for discussions with shareholders,
as and when required. During the year, the Chairman met with four
ordinary shareholders.
AGM
The Notice of AGM is sent out at least 20 working days in
advance of the meeting. All ordinary shareholders have the
opportunity to put questions to the Board or Investment Manager,
either formally at the Company's Annual General Meeting, informally
following the meeting, or in writing at any time during the year
via the Company Secretary. The Company Secretary is also available
to answer general ordinary shareholder queries at any time.
All Directors will be present at the AGM to answer any questions
from ordinary shareholders.
By order of the Board
Kevin Lyon
Chairman
17 June 2019
Board of Directors
Kevin Lyon
(Independent Non-Executive Director and Chairman)
Mr Lyon is a qualified Chartered Accountant, with over 30 years
of experience in private equity and senior director positions in a
number of different companies. He spent approximately 17 years with
the 3i Group, responsible for their core private equity business
across the UK, with a team of 10 Directors and 40 executives. Mr
Lyon is also chairman of Inoapps Ltd, a vendor of Oracle software,
of ACS Clothing Limited, the leading men's hirewear supplier in the
UK and of Ramco Limited a service company focussed on the energy
industry. He has served as chairman or non-executive Director on
more than 20 companies over the last 15 years including Smart
Metering Systems plc, Valiant Petroleum plc, Wyndeham Press Group,
Craneware plc, Rovop Limited, Drilling Systems Group Ltd, Booker
plc, David Lloyd Leisure, and Phase 8. He won the Institute of
Directors Scotland, No n-Executive Director of the Year Award in
March 2013. Mr Lyon graduated from Edinburgh University in 1982 and
has attended management courses at INSE AD, IESE and Ashridge.
He is resident in the UK.
Patrick Firth
(Independent Non-Executive Director and Audit Committee
Chairman)
Mr Firth qualified as a Chartered Accountant with KPMG Guernsey
in 1991 and is also a member of the Chartered Institute for
Securities and Investment. Mr Firth is a director of a number of
management companies, general partners and investment companies,
including Riverstone Energy Limited, JZ Capital Partners Limited,
ICG-Longbow Senior Secured UK Property Debt Investments Limited and
GLI Finance Limited. He has worked in the fund industry in Guernsey
since joining Rothschild Asset Management C.I. Limited in 1992
before moving to become managing director at Butterfield Fund
Services (Guernsey) Limited (subsequently Butterfield Fulcrum Group
(Guernsey) Limited), a company providing third party fund
administration services, where he worked from April 2002 until June
2009. Mr Firth is a former Chairman of the Guernsey International
Business Association and of the Guernsey Investment Fund
Association. He is a resident of Guernsey.
Vic Holmes
(Independent Non-Executive Director, Senior Independent Director
and Remuneration and Nominations Committee Chairman)
Mr Holmes is a qualified Chartered Certified Accountant. He has
been involved in financial services for over 30 years. In 1986, Mr
Holmes joined the board of Guernsey International Fund Management
Limited, Guernsey's largest fund administration company. In 1990,
he was appointed managing director of the newly established
Irish-based Baring Asset Management subsidiary, providing
international fund administration services from a Dublin base. He
continued in that position until 2003, when he was appointed head
of fund administration services for the Baring Asset Management
group of companies, providing services out of London, Dublin,
Guernsey, Isle of Man and Jersey.
Subsequent to the acquisition of the Baring Asset Management
Financial Services Group by Northern Trust in 2005, he was
appointed country head of Northern Trust's Irish businesses and, in
2007, he returned to Guernsey to assume the position of
jurisdictional head of Northern Trust's Channel Island businesses.
Since 1986, Mr. Holmes has served on a wide range of fund-related
boards, based mainly in Guernsey and Ireland, but also in the UK
and the Cayman Islands. Mr Holmes' current directorships include
Permira Holdings Limited, Utmost Worldwide Limited, Highbridge
Multi-Strategy Fund Limited (London listed), DBG Management GP
(Guernsey) Limited and a range of Ashmore funds. Mr Holmes was the
first chairman of what is now known as the Irish Fund Industry
Association which he was instrumental in establishing in 1991, and
served as chairman of the executive committee of the Guernsey
Investment Fund Association from April 2013 to April 2015. He is a
resident of Guernsey.
Sharon Parr
(Independent Non-Executive Director)
Ms Parr is a non-executive Director of the Company. She is a
Fellow of the Institute of Chartered Accountants in England and
Wales, having qualified with Deloitte and Touche in the U.K. After
spending time with Deloitte in Chicago and the British Virgin
Islands Sharon moved to Guernsey with them in 1999. In addition she
is also a member of the Society of Trust and Estate
Practitioners.
After doing a private equity backed MBO of the trust and fund
administration division of Deloitte, called Walbrook, in 2003 she
sold the business to Barclays Wealth in 2007. As a Managing
Director of Barclays Wealth, Ms Parr ultimately became global head
of the Barclays trust and fund administration businesses,
comprising over 450 staff in 10 countries, as well as being country
head of all Barclays trust, fund administration and other
operations in Guernsey.
In 2011 Ms Parr stepped down from her executive roles to focus
on other business areas and interests. She has maintained her
directorships of the Bridgemere group of companies; a group that
has significant investment interests in the leisure and property
development sectors both in the UK and Europe, including a
significant shareholding in Redrow plc, and is also a non-executive
Director on JZ Capital Partners Limited. In addition she is a
director and treasurer of the Guernsey Literary Festival LBG and is
active with a number of other Guernsey based charities.
Formally she was a committee member of the Guernsey Association
of Trustees.
She is a resident of Guernsey
Sue Inglis
(Independent Non-Executive Director)
Ms Inglis has over 30 years' experience advising investment
companies and financial institutions, initially as a lawyer and
subsequently as an investment banker.
Ms Inglis qualified as a lawyer in Scotland in 1988 and was a
partner and head of the funds and financial services group at
Shepherd & Wedderburn, a leading Scottish law firm.
In 1999, Ms Inglis left Shepherd & Wedderburn to be a
founding partner and director of Intelli Corporate Finance, an
advisory boutique firm focusing in the asset management and
investment company sectors, which was acquired by Canaccord Genuity
in 2009. She was a Managing Director - Corporate Finance in the
Investment Companies and Financial Institutions Groups teams at
Canaccord Genuity until 2012 and then Managing Director - Corporate
Finance in the Investment Companies team at Cantor Fitzgerald
Europe until June 2018.
Since leaving Cantor Fitzgerald Europe, Ms Inglis has been
pursuing a non-executive career. She is currently Chairman of The
Bankers Investment Trust plc and a non-executive Director of
Baillie Gifford US Growth Trust plc, BMO Managed Portfolio Trust
plc, Seneca Global Income & Growth Trust plc and The European
Investment Trust plc.
She is resident in the UK.
Ms Inglis was appointed to the Board on 1 April 2019. Further
details of her appointment are disclosed in the Corporate
Governance section.
Statement of Directors' Responsibilities
The Directors are responsible for preparing financial statements
for each financial period which give a true and fair view, in
accordance with applicable laws and regulations, of the state of
affairs of the Company and of the profit and loss of the Company
for that period.
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare financial statements for each financial period. The
financial statements have been prepared in accordance with IFRS. In
preparing the financial statements, the Directors are required
to:
-- select suitable accounting policies and apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The maintenance and integrity of the Company's website is the
responsibility of the Directors. Legislation in Guernsey governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008, as amended. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Each of the Directors confirms that, to the best of their
knowledge:
-- they have complied with the above requirements in preparing the financial statements;
-- there is no relevant audit information of which the Company's Auditor is unaware;
-- all Directors have taken the necessary steps that they ought
to have taken to make themselves aware of any relevant audit
information and to establish that the Auditor is aware of said
information;
-- the financial statements, prepared in accordance with IFRS
and applicable laws, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
and
-- the KPI section, Chairman's Statement, Strategic Report,
Investment Manager's Report, Principal Risks section, Report of the
Directors and Corporate Governance Statement include a fair review
of the development of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
The 2016 UK Corporate Governance Code, as adopted through the
AIC Code by the Company, also requires Directors to ensure that the
Annual Report and Audited Financial Statements are fair, balanced
and understandable. In order to reach a conclusion on this matter,
the Board requested that the Audit Committee advise on whether it
considers that the Annual Report and Audited Financial Statements
fulfil these requirements. The process by which the Committee
reached these conclusions is set out in the Audit Committee Report
on pages 64 to 66. Furthermore, the Board believes that the
disclosures set out on pages 8 to 43 of the Annual Report provide
the information necessary for shareholders to assess the Company's
performance, business model and strategy.
Having taken into account all the matters considered by the
Board and brought to the attention of the Board for the year ended
31 March 2019, as outlined in the KPI section, Chairman's
Statement, Strategic Report, Investment Manager's Report, Principal
Risks section, Report of the Directors and Corporate Governance
Statement, the Board has concluded that the Annual Report and
Audited Financial Statements for the year ended 31 March 2019,
taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Company's
performance, business model and strategy.
For NextEnergy Solar Fund Limited
Kevin Lyon
Chairman of the Board of Directors
17 June 2019
Report of the Directors
The principal activities and investment objective of the Company
are to provide shareholders with a sustainable and attractive
dividend that increases in line with RPI over the long term by
investing exclusively in a diversified portfolio of solar PV assets
that are located primarily in the UK. Not more than 15% of the
Company's GAV (calculated at the time of investment) may be
invested in solar PV assets that are located outside the UK. The
Company's principal activities and investment objective are
detailed more fully in the Strategic Report on pages 8 to 12.
The structure of the Group facilitates the holding and
management of the Company's assets to enable the Company to pursue
its principal activities and objectives.
Dividends
For details regarding the dividend policy applied by the
Company, please refer to page 5.
During the year, the Company has declared four dividends
totalling GBP38,159,397 (2018: GBP34,800,353) relating to the year
ended 31 March 2019. For each quarterly dividend, a scrip
alternative was offered to cash. Details of the dividends declared
during the year can be seen in note 12 and the scrip dividends can
be seen in note 10 to the Financial Statements.
Capital
As part of the Company's IPO, completed on 25 April 2014,
85,600,000 ordinary shares of the Company, with an issue price of
100 pence per share, were admitted to the premium segment of the UK
Listing Authority's Official List and to trading on the main market
of the London Stock Exchange. Since the IPO, the ordinary shares in
issue have increased to 581,730,541 as a result of further share
issues made pursuant to the first Placing Programme, tap issues,
the second Placing Programme and scrip dividends. Details of shares
issued during the year ended 31 March 2019 can be seen in note 10
to the Financial Statements.
In November 2018, the Company issued the first tranche of 100
million preference shares at 100p per share.
Debt Facilities
Details of the Company's debt facilities can be seen in the
Investment Manager's Report on page 37.
Business Review
As at 31 March 2019, the Company's portfolio comprised 87 assets
amounting to 691MW installed solar capacity and an invested capital
of GBP896m (2018: 63 assets, 569MW and GBP734m invested
capital).
Full details of the Company's performance during the year ended
31 March 2019, its financial position and future developments are
detailed in the KPI section, Chairman's Statement, the Strategic
Report, the Principal Risks section and the Investment Manager's
Report on pages 2 to 43.
Substantial Interests
As at 31 May 2019, the Company is aware of the following
material ordinary shareholdings:
Ordinary shares % shareholding
Name held as at 31 May 2018
Quilter plc 74,732,293 12.85
Prudential plc group of companies 74,441,385 12.80
Artemis Investment Management LLP on behalf of discretionary funds under
management 73,068,746 12.56
Investec Wealth &Investment Limited 50,399,566 8.66
Baillie Gifford & Co 41,180,510 7.08
Legal & General Group plc 38,052,043 6.54
Tredje AP-Fonden (AP 3) 36,426,102 6.26
Directors and Directors' Interests in Shares
The Directors who have served during the year ended 31 March
2019 were Kevin Lyon, Patrick Firth, Vic Holmes and Sharon Parr.
Sue Inglis was appointed as Director on 1 April 2019.
The biographical details of each of the Directors are shown on
pages 53 to 57.
The Directors' interests in shares are shown below:
Ordinary shares Ordinary shares
Name at 31 March 2019 at 31 March 2018
Kevin Lyon 160,000 160,000
Patrick Firth 80,429 75,807
Vic Holmes 110,000 110,000
Sharon Parr - -
Sue Inglis(1) - -
(1) After the year end, Sue Inglis acquired 50,000 shares.
Corporate Governance
The Corporate Governance Statement on pages 45 to 52 sets out in
detail the code of corporate governance against which the Company
reports. It also sets out the Company's compliance with the
relevant principals and any reasons for deviations from the code.
Finally, it includes details regarding the Audit Committee's
composition.
Going Concern
The Company's business activities and factors likely to affect
its performance, position and prospects are set out in the
Strategic Report and Principal Risks section on pages 8 to 15.
Further to this, the KPI section, Chairman's Statement, Investment
Manager's Report and Strategic Report provide further information
on the financial position of the Company, its cash flows, liquidity
and borrowing facilities.
The Board is satisfied that the Company has sufficient resources
available to be able to manage the Company's business effectively
and pursue the Company's principal activities and investment
objective.
The Directors have a reasonable expectation that the Company has
sufficient resources available to continue as a going concern for
12 months from the date of approval of the Financial Statements. As
such, the Directors deem it appropriate to adopt the going concern
basis of accounting in preparing these financial statements.
Share Repurchase/Treasury Shares
Under section 315 of the Companies (Guernsey) Law, 2008 (as
amended from time to time) the Company is entitled to hold shares
acquired by market purchase as treasury shares. Up to 10% of the
issued share capital may be held in treasury and either sold in the
market or cancelled.
Authority to purchase ordinary shares to be held in treasury or
cancelled was granted at the 2018 AGM and will expire at the
conclusion of this year's AGM. A resolution will be proposed as a
special resolution at the AGM to provide the Company with an
authority to purchase, through the market, up to 14.99% of the
ordinary issued share capital. Ordinary shares repurchased by the
Company may be held in treasury and resold or cancelled. Annual
shareholder approval will be sought to renew this authority. This
authority will expire at the conclusion of the AGM in 2020.
Whether the Company buys back any shares, and the timing and the
price paid on any such purchase, will be at the discretion of the
Directors. The Directors will consider repurchasing ordinary shares
in the market if they believe it to be in shareholders' interests,
in particular as a means of correcting any imbalance between supply
of and demand for the ordinary shares.
Any purchase of ordinary shares will be in accordance with the
Articles and the Listing Rules in force at the time.
No shares were repurchased and held in treasury or cancelled
during the year. No shares are held in treasury as at the date of
this report.
Disapplication of Pre-emption Rights
A resolution will be proposed as a special resolution at the AGM
to provide the Directors with an annual authority to disapply
pre-emption rights in respect of up to 116,346,107 ordinary shares,
equivalent to 20% of the current issued ordinary share capital less
one share, when issuing ordinary shares and/or selling ordinary
shares from treasury for cash. This authority will expire at the
conclusion of the AGM in 2020. Any future issues, or sales of
ordinary shares from treasury, will only be undertaken at a premium
to the prevailing NAV per ordinary share.
Annual General Meeting
The Company's Annual General Meeting will be convened in August
2019 at the offices of Apex Fund and Corporate Services (Guernsey)
Limited, 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, GY1
2HL.
Accountability and Audit
The respective responsibilities of the Directors and the Auditor
in connection with the financial statements are set out on page
58.
Independent Auditor
As the Company has passed its fifth anniversary and in order to
assess the competitiveness of the Auditor, the Audit Committee
intends to conduct a tender for the position of Independent Auditor
to the Company. The current independent Auditor,
PricewaterhouseCoopers CI LLP, has indicated their willingness to
be included in the tender process.
By order of the Board
Kevin Lyon
Chairman
17 June 2019
Directors' Remuneration Report
Remuneration Policy and Components
The Board has established a combined Remuneration and
Nominations Committee, which comprises all of the Directors,
including Sue Inglis following her appointment on 1 April 2019. Vic
Holmes is Chairman of the Remuneration and Nominations Committee.
The Chairman of the Board is a member of the Remuneration and
Nominations Committee.
The Remuneration and Nominations Committee endeavours to ensure
the remuneration policy reflects and supports the Company's
strategic aims and objectives throughout the year under review.
The primary role and responsibilities of the Remuneration and
Nominations Committee are clearly defined in its terms of
reference, available at the registered office and on the Company's
website.
Remuneration is set by the Board with details of remuneration of
the Board as per Directors' letters of appointment. During the
course of the year, the Remuneration and Nominations Committee did
not utilise any external consultants or propose any increase to
Director fees. Each Director receives a base annual fee of
GBP35,000, with a GBP5,000 increment to the basic fee level for the
Chairman of the Audit Committee, and a GBP2,500 increment to the
basic fee level for the Senior Independent Director. The Chairman
of the Board receives an annual fee of GBP60,000. No element of the
Directors' remuneration is performance related. A resolution to
receive and adopt the Directors' Remuneration Report will be
proposed at the Annual General Meeting.
The aggregate remuneration and benefits in kind of the Directors
in respect of the Company's year ended 31 March 2019, payable out
of the assets of the Company, equalled GBP172,500 (2018:
GBP146,250). It is the Company's policy to determine the level of
Directors' fees, having regard for the level of fees payable to
non-executive Directors in the industry generally, the role that
individual Directors fulfil in respect of responsibilities related
to the Board and Audit Committee and the time dedicated by each
Director to the Company's affairs. Base fees are set out below.
Base Fees Per annum GBP
Kevin Lyon - Chairman 60,000
Patrick Firth - Audit Committee Chairman 40,000
Vic Holmes - Senior Independent Director 37,500
Sharon Parr 35,000
Sue Inglis 35,000
Total Directors' Fees 207,500
In accordance with the Articles of Incorporation the Board may
determine that additional remuneration may be paid, from time to
time, to any one or more Directors in the event such Director or
Directors are requested by the Board to perform extra or special
services on behalf of the Company. No additional fees were paid to
the Directors during the year.
As outlined in the Articles, the Directors shall also be paid
all reasonable travelling, hotel and other expenses properly
incurred by them in attending and returning from meetings of the
Directors or any committee of the Directors or general meetings of
the Company or in connection with the business of the Company. The
total amount of Directors' expenses paid for the year ended 31
March 2019 was GBP4,785 (2018: GBP2,644).
No amount has been set aside or accrued by the Company to
provide pension, retirement or other similar benefits for the
Directors.
No Director has any entitlement to pensions, bonuses or
performance fees, been granted share options or been invited to
participate in long-term incentive plans. No loans have been taken
on behalf of a Director by the Company.
None of the Directors has a service contract with the Company.
Each of the Directors has entered into a letter of appointment with
the Company, and has been (or in Sue Inglis' case, will be) subject
to election at the first Annual General Meeting following their
appointment, or as determined in line with the Company's Articles,
and re-election at subsequent Annual General Meetings in accordance
with the Company's Articles and all due regulations and provisions.
The Directors do not have any interests in contractual arrangements
with the Company or its investments during the year under review,
or subsequently. Each appointment can be terminated in accordance
with the Company's Articles and without compensation. As outlined
in the letters of appointment, each appointment can be terminated
by:
-- resignation by Director by giving written notice (six months
for the Chairman and three months for the remaining Directors) to
the Board;
-- a resolution of the ordinary shareholders;
-- disqualification from acting as Director under the Guernsey
companies law or the Articles, without notice; or
-- acting otherwise in accordance with the Articles.
Directors' and officers' liability insurance cover is maintained
by the Company but is not considered a benefit in kind nor
constitutes a part of the Directors' remuneration. The Articles
indemnify each Director, Secretary, agent and officer of the
Company, former or present, out of assets of the Company in
relation to charges, losses, liabilities, damages and expenses
incurred during the course of their duties, in so far as the law
allows and provided that such indemnity is not available in
circumstances of fraud, wilful misconduct or negligence.
Directors' Fees
The Directors received the following fees during the year under
review, totalling GBP172,500 (2018: GBP146,250):
Total Total
fee for fee for
the year the year
ended ended
Director 31 March 31 March
2019 2018
GBP GBP
Kevin Lyon 60,000 60,000
Patrick Firth 40,000 40,000
Vic Holmes 37,500 37,500
Sharon Parr 35,000 8,750(1)
Sue Inglis(2) - -
Aggregate fees 172,500 146,250
(1) Pro-rata for the period from appointment on 1 January 2018 to 31 March 2018
(2) Sue Inglis was appointed to the Board on 1 April 2019
Vic Holmes
Remuneration and Nominations
Committee Chairman
17 June 2019
(1) Appointed as non-executive Director on 1 April 2019
Audit Committee Report
The Board is supported by the Audit Committee, and comprises of
all of the Directors, including Sue Inglis following her
appointment on 1 April 2019. Patrick Firth is Chairman of the Audit
Committee. The Chairman of the Board is a member of the Audit
Committee, to enable his greater understanding of the issues facing
the Company. The Board has considered the composition of the Audit
Committee and is satisfied it has sufficient recent and relevant
skills and experience and that the Committee as a whole has
competence relevant to the sector in which the Company
operates.
Role and Responsibilities
The primary role and responsibilities of the Audit Committee are
clearly defined in the Audit Committee's terms of reference,
available at the registered office and the Company's website.
The Committee met three times during the year under review;
individual attendance of Directors is outlined on page 49. The main
matters discussed at those meetings were:
-- detailed review of the Annual Report and Accounts and
recommendation for approval by the Board;
-- establish the audit requirements for the Company;
-- review terms of reference for the Committee to present to the Board for consideration;
-- detailed review of the Half Year Report and Accounts and
recommend for approval by the Board;
-- review and approval of the interim review plan of the external Auditor;
-- discussion of reports from the external Auditor following its interim reviews;
-- review and approval of the annual audit plan of the external Auditor; and
-- review of the Company's key risks and internal controls.
The Committee has assessed the effectiveness and independence of
the external Auditor at the conclusion of the 31 March 2019 audit
process. The Committee has also reviewed and considered the
whistleblowing policy in place for the Investment Adviser and other
service providers, and is satisfied the relevant staff can raise
concerns in confidence about possible improprieties in matters of
financial reporting or other matters insofar as they may affect the
Company.
Significant Areas in Relation to the Financial Statements
Following discussions with the Investment Manager, Investment
Adviser and the external Auditor, the Committee determined that the
significant areas connected with the preparation of the financial
statements of the Company related to investment valuation.
Valuation of the assets provides a higher inherent risk as the
valuations are based upon models which require complex and
subjective judgements or estimates for inputs into the model. This
is further complicated by the portfolio of Italian assets, the
Solis portfolio, together with the hedging arrangements in place as
the Solis portfolio benefits from different feed-in-tariffs when
compared to the UK portfolio as well utilising a different discount
rate and having a significantly different performance profile.
The Audit Committee considers, in detail, those assumptions that
are subject to judgement and that have a material impact on the
valuation of the assets and how those assumptions vary between the
UK and Italian assets. During this process the Audit Committee
challenges the assumptions made by the Investment Adviser and
Investment Manager and monitors the changes in these assumptions
over time. The key assumptions include but are not limited to:
-- inflation rates and other macroeconomic factors;
-- discount rates and other valuation methodologies;
-- operating performance and costs assumptions; and
-- power price assumptions.
The Investment Manager discusses and agrees valuation
assumptions with the Committee and provides suitable rationale for
changes to the same.
Internal Controls and Risk Management
The Board is ultimately responsible for the Company's systems of
internal control and for reviewing its effectiveness. Under the
Committee's terms of reference, responsibility has been delegated
to the Committee for monitoring the Company's internal financial
controls, and the Company's internal control and risk management
systems. The Committee maintains a risk matrix which is reviewed
and, where necessary, amended and updated at each meeting and
reports on any changes to the Board at the next available
opportunity for the Board's consideration.
The internal controls and risk management process are detailed
more fully in the Corporate Governance Statement on pages 45 to
52.
Internal Audit
The Audit Committee considers at least once a year whether or
not there is a need for an internal audit function. Currently it
does not consider there to be a need for an internal audit
function, given that there are no employees in the Company and all
outsourced functions are with parties who have their own internal
controls and procedures.
Review of External Audit Process Effectiveness
The Audit Committee communicated regularly with the Investment
Manager, Investment Adviser and Administrator to obtain a good
understanding of the progress and efficiency of the audit process.
Similarly, feedback in relation to the efficiency of the Investment
Manager, Investment Adviser and other service providers in
performing their relevant roles was sought from relevant involved
parties, including the audit partner and team. The external Auditor
is invited to attend the Audit Committee meetings at which the
semi-annual and annual accounts are considered, and meetings are
also held with the Auditor to meet and discuss any matters with the
Audit Committee members without the presence of the Investment
Adviser, Investment Manager or Administrator.
The Committee conducted a review of PwC CI, as external Auditor,
following the conclusion of the previous year end audit process and
in doing so considered:
-- the quality of service, the Auditor's specialist expertise,
the level of audit fee, identification and resolution of any areas
of accounting judgement, and quality and timeliness of papers
analysing these judgements;
-- review of the audit plan presented by the Auditor and, when
tabled, the final audit findings report;
-- meeting with the Auditor regularly to discuss the various papers and reports in detail;
-- furthermore, interviews of appropriate staff at the
Investment Manager, Investment Adviser and Administrator to receive
feedback on the effectiveness of the audit process from their
perspective; and
-- compilation of a checklist with which to provide a means
objectively to assess the Auditor's performance.
The Audit Committee is satisfied with PwC CI's effectiveness and
independence as Auditor having considered the degree of diligence
and professional scepticism demonstrated by them.
Auditor's Tenure and Objectivity
The Company's current Auditor, PwC CI, has acted in this
capacity since the Company's inaugural meeting on 22 January 2014.
As detailed above, the Committee has reviewed the Auditor's
performance at the conclusion of the year end audit process and
will continue to do so on a regular basis to ensure the Company
receives an optimal service. Subject to annual appointment by
shareholder approval at the Annual General Meeting, the appointment
of the Auditor is formally reviewed by the Audit Committee on an
annual basis. The Auditor is required to rotate the audit partner
every five years, and the current partner has been in place for
three year end audits.
PwC CI has regularly updated the Audit Committee on the rotation
of audit partners, staff, level of fees, details of any
relationships between the Auditor, the Company and its investment
portfolio, and also provided overall confirmation of its
independence and objectivity. There are no contractual obligations
that restrict the Company's choice of Auditor.
During the year ended 31 March 2019, PwC CI reviewed the Interim
Report of the Company. PwC Luxembourg provided analysis for the
Company's KID and PwC UK audited the Company's UK subsidiary
entities.
The Audit Committee is satisfied that PwC CI is independent of
the Company, the Investment Manager and other service
providers.
As the Company has passed its fifth anniversary and in order to
assess the competitiveness of the Auditor, the Audit Committee
intends to conduct a tender for the position of Independent Auditor
to the Company. Once the Audit Committee has selected their choice
for Auditor, they will recommend it to the Board.
Conclusions in Respect of the Financial Statements
The production and the audit of the Company's Annual Report and
Audited Financial Statements are a comprehensive process requiring
input from a number of different contributors. In order to reach a
conclusion on whether the Company's Annual Report and Audited
Financial Statements are fair, balanced and understandable, as
required under the UK Corporate Governance Code dated April 2016,
the Board has requested that the Audit Committee advise on whether
it considers that the Annual Report and Audited Financial
Statements fulfil these requirements as detailed in the Committee's
terms of reference. In outlining its advice, the Audit Committee
has considered the following:
-- the comprehensive documentation that is in place outlining
the controls in place for the production of the Annual Report,
including the verification processes in place to confirm the
factual content;
-- the detailed reviews undertaken at various stages of the
production process by the Investment Manager, Investment Adviser,
Administrator, Auditor and the Audit Committee that are intended to
ensure consistency and overall balance;
-- controls enforced by the Investment Manager, Investment
Adviser, Administrator and other third party service providers to
ensure complete and accurate financial records and security of the
Company's assets; and
-- the existence and content of a satisfactory control report
produced by Ipes (Guernsey) Limited (prior to changing its name to
Apex Fund and Corporate Services (Guernsey) Limited) that has been
reviewed and reported upon by a reputable audit firm to verify the
effectiveness of the internal controls of the Administrator, such
as the Audit and Assurance Faculty (AAF) Report.
As a result of the work performed, the Audit Committee has
concluded and reported to the Board that the Annual Report and
Audited Financial Statements for the year ended 31 March 2019,
taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the Company's
performance, business model and strategy. The Board's conclusions
in this respect are set out in the Statement of Directors'
Responsibilities on page 58.
Patrick Firth
Audit Committee Chairman
17 June 2019
Financial Statements
Independent Auditor's Report to the Members of NextEnergy Solar
Fund Limited
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements give a true and fair
view of the financial position of NextEnergy Solar Fund Limited
(the "Company") as at 31 March 2019, and of its financial
performance and its cash flows for the year then ended in
accordance with International Financial Reporting Standards and
have been properly prepared in accordance with the requirements of
The Companies (Guernsey) Law, 2008.
What we have audited
The Company's financial statements comprise:
-- the statement of financial position as at 31 March 2019;
-- the statement of comprehensive income for the year then ended;
-- the statement of changes in equity for the year then ended;
-- the statement of cash flows for the year then ended; and
-- the notes to the financial statements, which include a
summary of significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the financial statements section of our
report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements of the Company, as required by the Crown Dependencies'
Audit Rules and Guidance. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our audit approach
Context
Our audit was planned and executed having regard to the fact
that the operations of the Company were largely unchanged from the
prior year. In light of this, our overall audit approach in terms
of scoping and key audit matters was largely unchanged with
continued scrutiny over the valuation of investments.
Overview
Materiality * Overall materiality was GBP16.1 million (2018:
GBP15.1 million) which represents 2.5% of Net Assets
(2018: 2.5% of Net Assets).
Audit scope
* The principal activity of the Company comprises
investing in a diversified portfolio of solar
photovoltaic assets located in the UK and Italy
through a structure of intermediate holding companies
and special purpose vehicles.
* The financial statements consist of the standalone
parent company financial information and include the
investments into subsidiaries, which are held at fair
value. The financial statements are not consolidated.
* We conducted our audit of the financial statements
from information provided by Apex Fund and Corporate
Services (Guernsey) Limited (formerly known as Ipes
(Guernsey) Limited) (the "Administrator") to whom the
Board of Directors has delegated the provision of
certain functions. The Company engages NextEnergy
Capital IM Limited (the "Investment Manager") who in
turn engage NextEnergy Capital Limited (the
"Investment Adviser") to manage the investment
portfolio. We had significant interaction with both
the Administrator and Investment Adviser in
completing aspects of our audit work.
* We conducted our audit work in Guernsey and we
tailored the scope of our audit taking into account
the type of investments held by the Company, the
accounting processes and controls and the industry
the Company is exposed to through its investments.
Furthermore, we also held meetings with the
Investment Adviser in London during the planning and
completion stages of our audit.
Key audit matters
-- Valuation of investments
Audit scope
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we considered where the directors made
subjective judgements; for example, in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all
of our audits, we also addressed the risk of management override of
internal controls, including among other matters, consideration of
whether there was evidence of bias that represented a risk of
material misstatement due to fraud.
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which the Company operates.
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They
are considered material if individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Company materiality for the financial statements as a whole as set
out in the table below. These, together with qualitative
considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements, both individually and in
aggregate on the financial statements as a whole.
Overall Company materiality GBP16.1 million (2018: GBP15.1 million)
How we determined it 2.5% of Net Assets (2018: 2.5% of Net Assets)
Rationale for the materiality benchmark We believe that Net Assets is the most appropriate benchmark because this is
the key metric
of interest to investors. It is also a generally accepted measure used for
companies in this
industry.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP0.8 million
(2018: GBP0.8 million), as well as misstatements below that amount
that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in
the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Key audit matter How our audit addressed the Key audit matter
Valuation of Investments We planned our audit to critically assess management's
The Company's investments amount to GBP722.8 million at assumptions and the investment valuation
31 March 2019 (31 March 2018: GBP526.2 model in which they are applied.
million) and comprise the Company's holdings in direct Our audit procedures included:
subsidiaries, which in turn hold equity * We updated and reconfirmed our understanding and
interests in special purpose vehicles which in turn own evaluation of the Company's processes and internal
solar photovoltaic assets (the "underlying controls in so far as they apply to investment
investment portfolio") for which there is no liquid valuations, the valuation model used and the areas
market. where significant judgements and estimates are made;
The fair value of investments has been determined based
on the fair value of (1) the underlying
investment portfolio and (2) the other residual net * We assessed the accounting policy applicable to the
assets within the subsidiaries as at 31 valuation of investments for compliance with
March 2019. The fair value of the underlying investment International Financial Reporting Standards.
portfolio has been valued on a discounted
cash flow basis, which necessitates significant
estimates in respect of the forecasted cash * We performed tests to assess the operational
flows and discount rates applied. effectiveness of the controls operated by management
The estimates in respect of forecasted cash flows during the valuation process to determine the fair
include assumptions around future energy value of the underlying investment portfolio;
generation yields, discount rates, power prices,
inflation, tax rates and operating costs.
The Audit Committee has set out their consideration of * We agreed the cash transfers made between the Company
this risk on page 64 as well as the and its directly held subsidiaries to relevant
forecasted cash flows being recognised as a critical supporting agreements and legal documentation where
accounting estimate in note 4 of the applicable;
financial statements. Determining the valuation
methodology and determining the inputs to
the valuation are subjective and complex. This, * We used our own PricewaterhouseCoopers internal
combined with the significance of the unlisted valuation specialists to provide audit support in
investments balance in the statement of financial reviewing and concluding on the fair valuation of the
position, meant that this was a key audit underlying investment portfolio. The
matter for our current year audit. PricewaterhouseCoopers valuation experts (a) reviewed
the appropriateness of the valuation methodology and
approach and (b) reviewed and commented on the
computation of the discounted cash flow valuation
model, including benchmarking the discount rates and
other key assumptions against comparable market
participants and other macroeconomic data;
* We obtained satisfactory explanations when
challenging assumptions made by management in the
applicable valuation model;
* On a sample basis, we tested the mathematical
accuracy of the valuation model to ensure
incorporation of the assumptions into the valuation
model was performed correctly and the selected
discount rates were correctly applied in line with
the stated accounting policy;
* On a sample basis, we verified the inputs into the
model by agreement to third party sources where
applicable;
* We corroborated the cash flow projections where
possible, focusing on changes since the previous
reporting date or the date of acquisition for current
period assets acquired, substantiating any contracted
revenues and costs and comparison against actual
historical results for the underlying assets;
* We agreed a sample of material balances within the
residual net assets amounts at subsidiary levels to
respective supporting documentation such as bank
statements. We also obtained explanations and
challenged management's rationale for any significant
adjustments made to residual net assets.
We have concluded that the valuation of investments is
within a reasonable range. Additionally,
the valuation is supported by the available evidence and
the significant assumptions and valuation
methodologies used have been assessed by us as being
appropriate and reasonable.
No matters or material differences were identified in our
testing which required reporting
to those charged with governance.
Other information
The directors are responsible for the other information. The
other information comprises all the information included in the
Annual Report and Audited Financial Statements but does not include
the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of the directors for the financial
statements
The directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards, the requirements of
Guernsey law and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing, as applicable, matters relating to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor's report. However, future events or
conditions may cause the Company to cease to continue as a going
concern. For example, the terms on which the United Kingdom may
withdraw from the European Union are not clear, and it is difficult
to evaluate all of the potential implications on the Company and
the wider economy.
-- Evaluate the overall presentation, structure and content of
the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit;
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this
responsibility.
We have nothing to report in respect of the following matters
which we have reviewed:
-- the directors' statement set out on page 60 in relation to
going concern. As noted in the directors' statement, the directors
have concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going concern
basis presumes that the Company has adequate resources to remain in
operation, and that the directors intend it to do so, for at least
one year from the date the financial statements were signed. As
part of our audit we have concluded that the directors' use of the
going concern basis is appropriate. However, because not all future
events or conditions can be predicted, these statements are not a
guarantee as to the Company's ability to continue as a going
concern;
-- the directors' statement that they have carried out a robust
assessment of the principal risks facing the Company and the
directors' statement in relation to the longer-term viability of
the Company. Our review was substantially less in scope than an
audit and only consisted of making inquiries and considering the
directors' process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the statements
are consistent with the knowledge acquired by us in the course of
performing our audit; and
-- the part of the Corporate Governance Statement relating to
the Company's compliance with the ten further provisions of the UK
Corporate Governance Code specified for our review.
This report, including the opinion, has been prepared for and
only for the members as a body in accordance with Section 262 of
The Companies (Guernsey) Law, 2008 and for no other purpose. We do
not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
John Luff
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
17 June 2019
Statement of Comprehensive Income
For the year ended 31 March 2019
Year ended Year ended
31 March 2019 31 March 2018
Notes GBP'000 GBP'000
Income
Income 5 55,613 41,083
Net changes in fair value of investments 6 24,538 (2,880)
Total net income 80,151 38,203
Expenditure
Management fees 17 5,402 5,070
Preference share dividends 1,822 -
Legal and professional fees 732 482
Administration fees 277 268
Directors' fees 20 173 146
Audit fees 16 156 177
Regulatory and listing fees 33 144
Sundry expenses 27 12
Insurance 15 29
Total expenses 8,637 6,328
Operating profit 71,514 31,875
Finance income 65 285
Profit and comprehensive income for the year 71,579 32,160
Earnings per ordinary share - basic 11 12.37p 5.88p
Earnings per ordinary share - diluted 11 11.93p 5.88p
All activities are derived from ongoing operations.
There is no other comprehensive income or expense apart from
those disclosed above and consequently a Statement of Other
Comprehensive Income has not been prepared.
The accompanying notes are an integral part of these financial
statements.
Statement of Financial Position
As at 31 March 2019
As at As at
31 March 2019 31 March 2018
Notes GBP'000 GBP'000
Non-current assets
Investments 6, 14 722,763 526,221
Total non-current assets 722,763 526,221
Current assets
Cash and cash equivalents 19,285 75,893
Trade and other receivables 7 41,409 28,397
Total current assets 60,694 104,290
Total assets 783,457 630,511
Current liabilities
Trade and other payables 8 39,384 25,521
Total current liabilities 39,384 25,521
Non-current liabilities
Preference shares 99,022 -
Total non-current liabilities (99,022) -
Net assets 645,051 604,990
Equity
Share capital and premium 10 600,029 593,388
Retained earnings 45,022 11,602
Total equity attributable to ordinary shareholders 645,051 604,990
Net assets per ordinary share 13 110.9p 105.1p
The accompanying notes are an integral part of these financial
statements.
The financial statements were approved and authorised for issue
by the Board of Directors on 17 June 2019 and signed on its behalf
by:
Director Director
Statement of Changes in Equity
For the year ended 31 March 2019
Share capital Retained
and premium earnings Total equity
GBP'000 GBP'000 GBP'000
For the year ended 31 March 2019
Shareholders' equity at 1 April 2018 593,388 11,602 604,990
Profit and comprehensive income for the year - 71,579 71,579
Ordinary shares issued 6,641 - 6,641
Ordinary dividends paid - (38,159) (38,159)
Shareholders' equity at 31 March 2019 600,029 45,022 645,051
For the year ended 31 March 2018
Shareholders' equity at 1 April 2017 464,341 14,242 478,583
Profit and comprehensive income for the year - 32,160 32,160
Ordinary shares issued 129,047 - 129,047
Ordinary dividends paid - (34,800) (34,800)
Shareholders' equity at 31 March 2018 593,388 11,602 604,990
The accompanying notes are an integral part of these financial
statements.
Statement of Cash Flows
For the year ended 31 March 2019
Year ended Year ended
31 March 2019 31 March 2018
Notes GBP'000 GBP'000
Cash flows from operating activities
Profit and comprehensive income for the year 71,579 32,160
Adjustments for:
Proceeds from HoldCos 4,654 104,248
Payments to HoldCos (176,658) (217,486)
Change in fair value of investments 6 (24,538) 2,880
Finance income (65) (285)
Amortisation 22 -
Operating cash flows before movements in working capital (125,006) (78,483)
Changes in working capital
Movement in trade and other receivables (13,012) (17,231)
Movement in trade and other payables 13,863 17,244
Net cash used in operating activities (124,155) (78,470)
Cash flows from investing activities
Finance income 65 285
Net cash generated from investing activities 65 285
Cash flows from financing activities 22
Proceeds from issue of shares 10 - 124,372
Proceeds from preference shares 10 99,000 -
Dividends paid on ordinary shares 12 (31,518) (30,125)
Net cash generated from financing activities 67,482 94,247
Net movement in cash and cash equivalents during the year (56,608) 16,062
Cash and cash equivalents at the beginning of the year 75,893 59,831
Cash and cash equivalents at the end of the year 19,285 75,893
The accompanying notes are an integral part of these financial
statements.
Notes to the Financial Statements
For the year ended 31 March 2018
1. General Information
The Company was incorporated with limited liability in Guernsey
under the Companies (Guernsey) Law, 2008, as amended, on 20
December 2013 with registered number 57739, and is regulated by the
GFSC as a registered closed-ended investment company. The
registered office and principal place of business of the Company is
1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel
Islands, GY1 2HL.
On 16 April 2014, the Company announced the results of its
initial public offering, which raised net proceeds of GBP85.6m. The
Company's ordinary shares were admitted to the premium segment of
the UK Listing Authority's Official List under the ticker NESF and
to trading on the Main Market of the London Stock Exchange as part
of its initial public offering which completed on 25 April 2014.
Subsequent fund raisings also took place, increasing total equity
to GBP600.0m as at 31 March 2019 (2018: GBP593.4m). On 12 November
2018 the Company issued preference shares, raising GBP100m before
transaction costs. Details can be found in note 10.
The Company seeks to provide investors with a sustainable and
attractive dividend that increases in line with retail price index
over the long-term by investing in a diversified portfolio of solar
PV assets that are located in the UK and other OECD countries. In
addition, the Company seeks to provide investors with an element of
capital growth through the reinvestment of net cash generated in
excess of the target dividend in accordance with the Company's
investment policy.
The Company currently makes its investments through HoldCos and
SPVs which are directly or indirectly wholly owned by the Company.
The Company controls the investment policy of each of the HoldCos
and its wholly-owned SPVs in order to ensure that each will act in
a manner consistent with the investment policy of the Company.
The Company has appointed NextEnergy Capital IM Limited as its
Investment Manager (the"Investment Manager") pursuant to the
Management Agreement dated 18 March 2014. The Investment Manager is
a Guernsey registered company, incorporated under the Companies
(Guernsey) Law, 2008, with registered number 57740 and is licensed
and regulated by the GFSC and is a member of the NEC Group. The
Investment Manager acts as the Alternative Investment Fund Manager
of the Company.
The Investment Manager has appointed NextEnergy Capital Limited
as its Investment Adviser (the "Investment Adviser") pursuant to
the Investment Advisory Agreement dated 18 March 2014. The
Investment Adviser is a company incorporated in England with
registered number 05975223 and is authorised and regulated by the
FCA.
The financial statements are presented in pounds sterling
because that is the currency of the primary economic environment in
which the Company operates.
2. Significant Accounting Policies
a) Basis of preparation
The financial statements, which give a true and fair view, have
been prepared on a going concern basis in accordance with IFRS.
The financial statements have been prepared on the historical
cost basis, except for the revaluation of certain investments and
financial instruments. The principal accounting policies adopted
are set out below. These policies have been consistently
applied.
Fair value is the price that would be received on sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an
asset or liability, the Company takes into account the
characteristics of the asset or liability if market participants
would take those characteristics into account when pricing the
asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in these financial
statements is determined on such a basis.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety which are described as follows:
Level 1 inputs are quoted prices in active markets for identical
assets or liabilities that the Company can access at the
measurement date
Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly
Level 3 inputs are unobservable inputs for the asset or
liability.
b) Going concern
The Directors have reviewed the current and projected financial
position of the Company making reasonable assumptions about future
performance. The key areas reviewed were:
-- maturity of debt facilities;
-- timing of future investment transactions;
-- expenditure commitments; and
-- forecast income and cashflow.
The Company has cash and short-term deposits as well as
projected positive income streams and an available credit facility
through its subsidiaries (see note 21) and as a consequence the
Directors have, at the time of approving the financial statements,
a reasonable expectation that the Company has adequate resources to
continue in operational existence for the next 12 months.
Accordingly they have adopted the going concern basis of
preparation in preparing the financial statements.
c) Basis of non-consolidation
The Company has acquired SPVs through its investment in the
HoldCos. The Company meets the definition of an investment entity
as described by IFRS 10. Under IFRS 10 investment entities are
required to hold subsidiaries at fair value through profit or loss
rather than consolidate them. There are five Holding Companies,
NextEnergy Solar Holdings Limited, NextEnergy Solar Holdings II
Limited, NextEnergy Solar Holdings III Limited, NextEnergy Solar
Holdings IV Limited and NextEnergy Solar Holdings V Limited,
collectively the "HoldCos". The HoldCos are also investment
entities and, as required under IFRS 10, hold their investments at
fair value.
As at 31 March 2019, the Company controlled all of its
investments in solar PV assets through its ownership in the HoldCos
and SPVs as listed in note 9.
Total invested capital made by the Company during the year ended
31 March 2019 was GBP176.7m (2018: GBP217.4m) as disclosed in note
6. As at 31 March 2019, there were no outstanding capital
commitment obligations by the Company (2018: GBPNil).
The Company also assists the HoldCos in obtaining revolving
credit and debt facilities. Details of these facilities are
disclosed in note 21.
During the year, certain HoldCos issued debt securities to the
Company totalling to GBP175m (2018: GBPNil), as disclosed in note
6.
The HoldCos pay cash interest or accrue interest on the debt
securities held by the Company and will repay debt based on the
terms of the respective agreements. Cash dividends may be paid
based on the SPVs' operating results and are at the discretion of
the Board of Directors of the respective SPVs which are then paid
up to the Company through the relevant HoldCos.
Characteristics of an investment entity
Under the definition of an investment entity, the entity should
satisfy all three of the following tests:
I. obtains funds from one or more investors for the purpose of
providing those investors with investment management services;
II. commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both (including having an exit strategy for
investments); and
III. measure and evaluate the performance of substantially all
of its investments on a fair value basis.
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10 the Directors note that:
I. the Company has multiple investors and obtains funds from a
diverse group of shareholders who would otherwise not have access
individually to investing in solar energy infrastructure due to
high barriers to entry due to the capital requirements;
II. the Company's purpose is to invest funds for both investment
income and capital appreciation. The HoldCos and SPVs have
indefinite lives. However, the underlying assets do not have an
unlimited life and, therefore, will have minimal residual value
and, accordingly, will not be held indefinitely; and
III. the Company measures and evaluates the performance of all
of its investments on a fair value basis which is the most relevant
for investors in the Company. Management use fair value information
as a primary measurement to evaluate the performance of all of the
investments and in decision making.
The Directors are of the opinion that the Company meets all the
typical characteristics of an investment entity and therefore meets
the definition set out in IFRS 10.
The Directors believe the treatment outlined above provides the
most relevant information to investors.
d) Taxation
Under the current system of taxation in Guernsey, the Company is
exempt from paying taxes on income, profit or capital gains.
Therefore, income from investments in solar PV assets is not
subject to any further tax in Guernsey, although these investments
are subject to tax in their country of incorporation.
e) Segmental reporting
The Chief Operating Decision Maker, which is the Board, is of
the opinion that the Company is engaged in a single segment of
business, being investment in solar power to generate investment
returns in accordance with the investment objective. The financial
information used by the Chief Operating Decision Maker to manage
the Company presents the business as a single segment.
f) Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when paid.
g) Income
Income includes investment income from financial assets at fair
value through profit or loss, management fee income and interest
income from Eurobonds.
Investment income from financial assets at fair value through
profit or loss is recognised in the Statement of Comprehensive
Income within income when the Company's right to receive payments
is established.
Management fee income and interest income from Eurobonds is
recognised in the Statement of Comprehensive Income within
investment income on an accruals basis.
Finance income comprises interest earned on cash held on
deposit. Finance income is recognised on an accruals basis.
h) Expenses
All expenses are accounted for on an accruals basis.
i) Cash and cash equivalents
Cash and cash equivalents includes deposits held at call with
banks and other short-term deposits with original maturities of
three months or less.
j) Trade and other payables
Trade and other payables are initially recognised at fair value,
and subsequently re-measured at amortised cost using the effective
interest method where necessary.
k) Financial instruments
Classification
The Company classifies its investments based on both the
Company's business model for managing those financial assets and
the contractual cash flow characteristics of the financial assets.
The portfolio of financial assets is managed and performance is
evaluated on a fair value basis. The Company is primarily focused
on fair value information and uses that information to assess the
assets' performance and to make decisions. The Company has not
taken the option to irrevocably designate any equity securities as
fair value through other comprehensive income. The contractual cash
flows of the Comapany's debt securities are solely principal and
interest, however, these securities are neither held for the
purpose of collecting contractual cash flows nor held both for
collecting contractual cash flows and for sale. The collection of
contractual cash flows is only incidental to achieving the
Company's business model's objective. Consequently, all investments
are measured at fair value through profit or loss.
Recognition, derecognition and measurement
Regular purchases and sales of investments are recognised on the
trade date - the date on which the Company commits to purchase or
sell the investment. Financial assets at fair value through profit
or loss are initially recognised at fair value. Transaction costs
are expensed as incurred in the statement of comprehensive
income.
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
Subsequent to initial recognition, all financial assets at fair
value through profit or loss are measured at fair value. Gains and
losses arising from changes in the fair value of the 'Investments'
are presented in the statement of comprehensive income within 'net
changes in fair value of investments' in the period in which they
arise.
Dividend income from financial assets at fair value through
profit or loss is recognised in the statement of comprehensive
income within 'Income' when the Company's right to receive payments
is established. Interest on debt securities at fair value through
profit or loss is recognised in the Statement of Comprehensive
Income.
Fair value estimation
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The fair value of financial assets that are not traded on an
active market is determined using valuation techniques. The
Company's investments have been valued on a look through basis
based on the discounted cash flows of the solar PV assets and the
residual value of net assets at the HoldCo level. These valuations
are reviewed regularly by the Investment Manager who reports to the
Board of Directors on a periodic basis. The Board considers the
appropriateness of the valuation model and inputs, as well as the
valuation result.
l) Share capital and share premium
Ordinary shares are classified as equity. Costs directly
attributable to the issue of new ordinary shares (that would have
been avoided if there had not been a new issue of new ordinary
shares) are written-off against the value of the ordinary share
premium. Dividends paid on the ordinary shares are recognised in
the Statement of Changes in Equity.
m) Preference Shares
In accordance with IAS32, preference shares are classified as
liabilities and are held at amortised cost. Dividends paid on the
preference shares are recognised in the Statement of Comprehensive
Income.
n) Trade and other receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost. At each
reporting date, the Company shall measure the loss allowance on
trade and other receivables at an amount equal to the lifetime
expected credit losses if the credit risk has increased
significantly since initial recognition. If, at the reporting date,
the credit risk has not increased significantly since initial
recognition, the Company shall measure the loss allowance at an
amount equal to 12-month expected credit losses. Significant
financial difficulties of the counterparty, probability that the
counterparty will enter bankruptcy or financial reorganisation, and
default in payments are all considered indicators that a loss
allowance may be required.
o) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Statement of Financial Position when there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously. The legally enforceable
right must not be contingent on future events and must be
enforceable in the normal course of business and in the event of
default, insolvency or bankruptcy of the company or the
counterparty.
3. New and Revised Standards
a) Standards, amendments and interpretations that are in issue
but not yet effective:
The following accounting standards and interpretations which
have not been applied in these financial statements were in issue
but not yet effective:
IAS 19 (amendments) Plan Amendment, Curtailment or Settlement
IAS 28 (amendments) Long-term Interest in Associates and Joint Ventures
IFRS 9 (amendments) Prepayment Features with Negative Compensation
IFRS 16 Leases
IFRS 17 Insurance Contracts
The Directors do not expect that the adoption of the accounting
standards, amendments and interpretations listed above will have a
material impact on the financial statements of the Company in
future periods.
b) New standards adopted as at 1 April 2018:
IFRS 9 'Financial Instruments' replaces IAS 39 'Financial
Instruments: Recognition and Measurement'. It makes major changes
to the previous guidance on the classification and measurement of
financial assets and introduces an 'expected credit loss' model for
the impairment of financial assets. Under IFRS 9, the
classification of assets is driven by the business model in which
the financial asset is managed and the contractual nature of the
cash flows arising from the investment. The Company invests in
financial assets with a view to profiting from their total return
in the form of interest and changes in fair value, and so these
investments are classified as fair value through profit or loss.
Eurobonds issued by its subsidiaries and held by the Company form
part of the investments in the subsidiaries and so are included in
the investment at fair value through profit or loss.
IFRS 15 'Revenue from Contracts with Customers' replaces IAS 18
'Revenue' and several revenue-related interpretations. There are no
changes to the recognition of income by the Company as a result of
the new Standard.
The adoption of new standards has not had a material impact on
the audited financial statements, and there are no restatements of
comparative information required.
4. Critical Accounting Estimates and Judgements
The Company makes estimates and assumptions that affect the
reported amounts of assets and liabilities. Estimates and
judgements are continually evaluated and based on historic
experience and other factors believed to be reasonable under the
circumstances.
a) Critical accounting estimate: Investments at fair value
through profit or loss
The Company's investments are measured at fair value for
financial reporting purposes. The Board of Directors has appointed
the Investment Manager to produce investment valuations based upon
projected future cashflows and residual net assets of the HoldCos.
These valuations are reviewed and approved by the Board. The
underlying investments are held through SPVs.
IFRS 13 establishes a single source of guidance for fair value
measurements and disclosures about fair value measurements. Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Board
bases the fair value of the investments on the information received
from the Investment Manager.
The Company classified its investments at fair value through
profit or loss as Level 3 within the fair value hierarchy. Level 3
investments amount to GBP722.8m (2018: GBP526.2m) and consist of 87
investments in solar PV assets (held indirectly through the
HoldCos) (2018: 63 (held indirectly through the HoldCos)), all of
which have been valued on a look through basis based on the
discounted cash flows of the solar PV assets (except for those not
yet operational) and the residual value of net assets at the HoldCo
level. The unlevered discount rate applied in the 31 March 2019
valuation was 6.50% (2018: 6.75%). The discount rate is a
significant Level 3 input and a change in the discount applied
could have a material effect on the value of the investments.
Investments in solar PV assets that are not yet operational are
held at fair value, where the cost of the investment is used as an
appropriate approximation of fair value. Level 3 valuations are
reviewed regularly by the Investment Manager who reports to the
Board of Directors on a periodic basis. The Board considers the
appropriateness of the valuation model and inputs, as well as the
valuation result.
Information about the unobservable inputs used at 31 March 2019
in measuring financial instruments categorised as Level 3 in the
fair value hierarchy and their sensitivities are disclosed in note
14. Unlisted investments reconcile to the closing investment
portfolio value as per the investment table in note 6.
b) Significant judgement: consolidation of entities
The Company, under the investment entity exemption rule, holds
its investments at fair value.
The Company meets the definition of an investment entity per
IFRS 10 as detailed in note 2c).
The Company does not have any other subsidiaries other than
those determined to be controlled subsidiary investments.
Controlled subsidiary investments are measured at fair value
through profit or loss and are not consolidated in accordance with
IFRS 10. The fair value of controlled subsidiary investments is
determined as described in note 4 a).
c) Significant judgement: subsidiaries
The Company and the HoldCos operate as an integrated structure
whereby the Company invests solely into the HoldCos. Per IFRS 10,
there is a requirement for the Board of Directors to assess whether
the HoldCos are themselves Investment Entities. The Board of
Directors have performed this assessment and has concluded that
each of the HoldCos are Investment Entities for the reasons
below:
(a) The HoldCos have obtained funds for the purpose of investing
in equity or other similar interests in multiple investments and
providing the Company (and its investors) with returns from capital
appreciation and investment income.
(b) The performance of investments made through the HoldCos are
measured and evaluated on a fair value basis.
Furthermore, the HoldCos themselves not deemed to be operating
entities providing services to the Company, and therefore is able
to apply the exception to consolidation.
5. Income
Year ended Year ended
31 March 2019 31 March 2018
GBP'000 GBP'000
Interest income 614 -
Investment income 46,957 35,242
Management fee income 8,042 5,841
Total Income 55,613 41,083
6. Investments
The Company owns the investment portfolio through its
investments in the HoldCos. This is comprised of the investment
portfolio and the residual net assets of the HoldCos. The total
investments at fair value are recorded under non-current assets in
the Statement of Financial Position.
As at As at
31 March 2019 31 March 2018
GBP'000 GBP'000
Brought forward cost of investments 517,474 404,236
Investment proceeds from HoldCos (4,654) (104,248)
Investment payments to HoldCos 176,658 217,486
Acquisition of Eurobonds 175,000 -
Re-allocation of investment cost (175,000) -
Carried forward cost of investments 689,478 517,474
Brought forward unrealised gains on valuation 8,747 11,627
Movement in unrealised gains on valuation 24,538 (2,880)
Carried forward unrealised gains on valuation 33,285 8,747
Total investments at fair value 722,763 526,221
On 28 February 2019, NESH III and NESH V issued Eurobond
instruments listed on TISE totalling GBP175m, which were purchased
by the Company as a non-cash transaction by re-allocating cost of
investment. The Eurobonds are included in the residual net assets
of the HoldCos.
The total change in the value of the investments in the HoldCos
is recorded through profit and loss in the Statement of
Comprehensive Income.
7. Trade and Other Receivables
As at As at
31 March 2019 31 March 2018
GBP'000 GBP'000
Management fee income receivable 249 608
Prepayments 461 458
Due from HoldCos 40,699 27,331
Total trade and other receivables 41,409 28,397
Amounts due from HoldCos are interest free and payable within 12
months.
8. Trade and Other Payables
As at As at
31 March 2019 31 March 2018
GBP'000 GBP'000
Other payables 264 290
Preference dividends payable 1,171 -
Due to HoldCos 37,949 25,231
Total trade and other payables 39,384 25,521
Amounts due to HoldCos are interest free and payable on
demand.
9. Subsidiaries
The Company holds investments through subsidiary companies
("HoldCos") which have not been consolidated as a result of the
adoption of IFRS 10: Investment entities exemption to
consolidation. The HoldCos, as per note 2c), are incorporated in
the UK and 100% directly owned. Below is the legal entity name for
the SPVs, all owned 100% in 2018 and 2019 indirectly through the
HoldCos (unless otherwise stated)
Name Country of incorporation
Push Energy (Boxted Airfield) Ltd UK
Next Power Gover Farm Ltd UK
NextPower Higher Hatherleigh Ltd UK
NextPower Shacks Barn Ltd UK
BL Solar 2 Ltd UK
North Farm Solar Park Ltd UK
Glorious Energy Ltd UK
Sunglow Power Ltd UK
Push Energy (Croydon) Ltd UK
Wellingborough Solar Ltd UK
Nextpower Ellough LLP UK
Push Energy (Birch) Ltd UK
Bowerhouse Solar Ltd UK
Push Energy (Langenhoe) Ltd UK
ST Solarinvest Devon 1 Ltd UK
Greenfields (A) Ltd UK
Push Energy (Decoy) Ltd UK
Push Energy (Hall Farm) Ltd UK
Glebe Farm Ltd UK
Ellough Solar 2 Ltd UK
SSB Condover Ltd UK
NESF - Ellough Ltd UK
Trowbridge PV Ltd UK
ESF Llwyndu Ltd UK
Warmingham Solar Ltd UK
Moss Farm Solar Ltd UK
EMGEN Solar 1288 Ltd UK
Lumicity 1 Ltd UK
BESS Pierces Ltd UK
Thornborough Solar Ltd* UK
Temple Normanton Solar Ltd* UK
UK Solar (Fiskerton) LLP* UK
Helios Solar 2 Ltd* UK
Little Irchester Solar Ltd* UK
Balhearty Solar Ltd* UK
Brafield Solar Ltd* UK
Sywell Solar Ltd* UK
Helios Solar 1 Ltd* UK
Pierces Solar Ltd* UK
Micro Renewables (Domestic) Ltd* UK
RRAM Energy Ltd UK
RRAM (Portfolio 1) Ltd UK
Knockworthy Solar Park Ltd* UK
RRAM (Portfolio 2) Ltd UK
Burcroft Solar Parks Ltd UK
Burrowton Farm Solar Park Ltd* UK
Saundercroft Farm Solar Park Ltd* UK
Renewable Energy Holdco Ltd* UK
Chilton Cantello Solar Park Ltd* UK
Crossways Solar Park Ltd* UK
Wyld Meadow Farm Solar Park Ltd* UK
Raglington Farm Solar Park Ltd* UK
Nextpower Water Projects Ltd UK
Nextpower Bosworth Ltd UK
NextZest Ltd UK
Nextpower SPV 2 Ltd UK
Nextpower SPV 3 Ltd UK
Glebe Solar Ltd UK
Thurlestone-Leicester Solar Ltd UK
Empyreal Energy Ltd UK
Birch Solar Farm CIC UK
Fiskerton Limited UK
LE Solar 51 Ltd UK
Lark Energy Bilsthorpe Ltd UK
Wickfield Solar Ltd UK
SL Solar Services Ltd* UK
Tau Solar Ltd UK
NESH 3 Portfolio A Ltd UK
Push Energy (Mill Farm) Ltd UK
Rampisham Estate Solar Park Ltd UK
WHEB European Solar (UK) 2 Ltd UK
WHEB European Solar (UK) 3 Ltd UK
PF Solar Ltd UK
Micro renewables Ltd* UK
Francis Lane Solar Ltd* UK
Gourton Hall Solar Ltd* UK
TGC Solar Radbrook Ltd* UK
Moss Lane Farm Solar Ltd* UK
Little Staughton Airfield Solar Ltd* UK
Push Energy (Kentishes) Ltd UK
Whitley Solar Park (Ashcott Farm) Ltd* UK
Hook Valley Farm Solar Park Ltd* UK
Blenches Mill Farm Solar Park Ltd* UK
NextEnergy Solar Holding VI Ltd UK
Fenland Renewables Ltd UK
Tower Hill Farm Renewables Ltd UK
Green End Renewables Ltd UK
Bowden Lane Solar Park Ltd UK
Garden Tiger Ltd UK
INRG (Solar Parks) 20 Ltd UK
KS SPV 39 Ltd UK
INRG (Solar Parks) 17 Ltd UK
INRG (Solar Parks) 21 Ltd UK
Waltham Solar Ltd UK
Barred Straw Ltd UK
Stalbridge Solar Park Ltd UK
Aller Court Solar Park Ltd UK
Nextpwer Radius Ltd UK
Berwick Solar Park Ltd UK
Bottom Plain Solar Park Ltd UK
Branston Solar Park Ltd UK
Emberton Solar Park Ltd UK
Great Wilbraham Solar Park Ltd UK
Macchia Rotonda Solar S.r.l. Italy
SunEdison Med. 6 S.r.l. Italy
Starquattro S.r.l Italy
Fotostar 6 S.r.l. Italy
Agrosei S.r.l. Italy
* as at 31 March 2018 the percentage ownership of these SPVs was 0%
10. Share Capital and Retained Earnings
Ordinary shares
Number of Gross amount Issue costs Share premium
Share Issuance shares raised GBP'000 GBP'000 GBP'000
Total issued at 31 March 2018 575,643,840 600,853 (7,465) 593,388
Scrip Dividend - 29 June 2018 2,276,348 2,479 - 2,479
Scrip Dividend - 28 September 2018 2,312,277 2,503 - 2,503
Scrip Dividend - 28 December 2018 1,183,594 1,296 - 1,296
Scrip Dividend - 29 March 2019 314,482 363 - 363
Total issued at 31 March 2019 581,730,541 607,494 (7,465) 600,029
The Company currently has one class of ordinary share in issue.
All the holders of the ordinary shares, which total 581,730,541,
are entitled to receive dividends as declared from time to time and
to one vote per share at general meetings of the Company.
Preference shares
On 12 November 2018 the Company issued 100,000,000 preference
shares at a price of 100.0p per preference share. The preference
shares pay a preferred dividend of 4.75% fixed until March 2036,
after which they have the right to convert into new ordinary shares
or a new class of unlisted B shares with dividend and capital
rights pari passu to ordinary shareholders, based on the NAV at the
time of conversion. The preference shares do not hold any voting
rights, except in limited circumstances.
The preference shares are redeemable at the option of the
Company at any time after 1 April 2030, in full or in part. The
redemption price will be the subscription price plus any unpaid
dividends. In addition, the preference shares may be redeemed in
full at the election of the holders in the event of a delisting or
change of control of the Company.
Retained earnings
Retained earnings are detailed in the Statement of Changes in
Equity.
11. Earnings Per Share
Year ended Year ended
31 March 2019 31 March 2018
Profit and comprehensive income for the year (GBP'000) 71,579 32,160
Plus: preference share dividends 1,822 -
Profit for the year attributable to ordinary shareholders 73,401 32,160
Basic weighted average number of ordinary shares 578,844,510 547,300,544
Potential dilutive effect of preference shares 36,234,245 -
Weighted average number of shares outstanding used to calculate diluted earnings per
share 615,078,755 547,300,544
Earnings per ordinary share - basic 12.37p 5.88p
Earnings per ordinary share - diluted 11.93p 5.88p
The diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding for the
ordinary shares that are potentially issuable on conversion of the
preference shares.
12. Dividends
Year ended Year ended
31 March 2019 31 March 2018
GBP'000 GBP'000
Amounts recognised as distributions to ordinary shareholders:
Interim dividend for the period ended 31 March 2017 of 1.5775p per ordinary share,
paid on
30 June 2017 - 7,199
Interim dividend for the period ended 30 June 2017 of 1.605p per ordinary share, paid
on 29
September 2017 - 9,171
Interim dividend for the period ended 30 September 2017 of 1.605p per ordinary share,
paid
on 28 December 2017 - 9,198
Interim dividend for the period ended 31 December 2017 of 1.605p per ordinary share,
paid
on 28 March 2018 - 9,232
Interim dividend for the period ended 31 March 2018 of 1.605p per ordinary share, paid
on
26 June 2018 9,239 -
Interim dividend for the period ended 30 June 2018 of 1.6625p per ordinary share, paid
on
28 September 2018 9,608 -
Interim dividend for the period ended 30 September 2018 of 1.6625p per ordinary share,
paid
on 28 December 2018 9,646 -
Interim dividend for the period ended 31 December 2018 of 1.6625p per ordinary share,
paid
on 28 March 2019 9,666 -
Total 38,159 34,800
13. Net Assets Per Ordinary Share
As at As at
31 March 2019 31 March 2018
Ordinary shareholders' equity (GBP'000) 645,052 604,990
Number of ordinary shares (excluding treasury shares) 581,730,541 575,643,840
Net assets per ordinary share - pence 110.9p 105.1p
14. Financial Risk Management
Capital management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to
shareholders. In accordance with the Company's investment policy,
the Company's principal use of cash (including the proceeds of the
IPO, other ordinary share issuance and issue of preference shares)
has been to fund investments and repay debt, as well as ongoing
operational expenses.
The Board, with the assistance of the Investment Manager,
monitors and reviews the broad structure of the Company's capital
on an ongoing basis. The capital structure of the Company consists
of equity comprising ordinary share capital and retained
earnings.
The Company is not subject to any externally imposed capital
requirements.
Financial risk management objectives
The Board, with the assistance of the Investment Manager,
monitors and manages the financial risks relating to the operations
of the Company through internal risk reports which analyse
exposures by degree and magnitude of risk. These risks include
market risk (including price risk, currency risk and interest rate
risk), credit risk and liquidity risk.
Price risk
The value of the investments held by the Company is affected by
the discount rate applied to the expected future cash flows and as
such may vary with movements in interest rates, inflation, power
prices, market prices and competition for these assets.
Currency risk
The Company operates solely in a GBP environment and therefore
is not exposed to currency risk as all assets and liabilities are
in pounds sterling, the Company's functional and presentational
currency. Cash flows from Italy to NESH V Limited are hedged and so
the cash flows to the Company from that HoldCo are exposed to
limited currency risk.
Interest rate risk
The Company is indirectly exposed to interest rate risk from the
credit facilities of the HoldCos. Of the GBP270.4m credit
facilities outstanding, GBP132.2m had fixed interested rates and
the remaining GBP138.2m had floating interest rates. For the
floating amount, interest rate swaps were implemented over the term
of the loans to mitigate interest rate risks for GBP129.2m. The
counterparties to these swaps are all investment grade financial
institutions. The remaining GBP9.0m had floating rates which are
not hedged and are not considered to be significant.
The interest rate risk due to the Company's cash and investment
in Eurobonds is considered minimal.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in a financial loss to the
Company.
The maximum exposure to credit risk is the carrying amounts of
the respective financial assets set out below:
31 March 2019 31 March 2018
GBP'000 GBP'000
Cash and cash equivalents 19,285 75,893
Trade and other receivables 41,409 28,397
Debt investments 175,000 -
Total 235,694 104,290
Debt investments relates to the Eurobond executed in accordance
with the investment objectives of the Company and which has been
fair valued as part of the "Investments" as disclosed in note
6.
No collateral is received from NESH III and NESH V. The credit
quality of these investments is based on the financial performance
of NESH III and NESH V as well as the underlying investments they
own. The risk of default is deemed low and the principal repayments
and interest payments are expected to be made in accordance with
the agreed terms and conditions.
The Company does not have any significant credit risk exposure
to any single counterparty in relation to trade and other
receivables. Ongoing credit evaluation is performed on the
financial condition of accounts receivable. As at 31 March 2019 the
probability of default is considered to be close to zero and so no
allowance has been recognised based on 12 month expected credit
loss as any impairment would be insignificant to the Company. All
receivables are from other entities in the NextEnergy Group, and so
management has sufficient oversight of the receivables to assess
the probability of default.
At investment level, the credit risk relating to significant
counterparties is reviewed on a regular basis and potential
adjustments to the discount rate are considered to recognise
changes to these risks where applicable.
The Company maintains its cash and cash equivalents across
various banks to diversify credit risk. These are subject to the
Company's credit monitoring policies including the monitoring of
the credit ratings issued by recognised credit rating agencies.
Total as at
Credit rating Cash 31 March 2019
31 March 2019 Standard & Poor's GBP'000 GBP'000
Long - A
Barclays Bank PLC Short - A-1 19,283 19,283
Long - BBB+
Lloyds Bank PLC Short - A-2 2 2
Deutsche Bank AG Long - BBB+ - -
Short - A-2
Total 19,285 19,285
Total as at
Credit rating Cash 31 March 2018
31 March 2018 Standard & Poor's GBP'000 GBP'000
Long - A
Barclays Bank PLC Short - A-1 25,887 25,887
Long - BBB+
Lloyds Bank PLC Short - A-2 25,006 25,006
Long - A-
Deutsche Bank AG Short - A-2 25,000 25,000
Total 75,893 75,893
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Board of
Directors has established an appropriate liquidity risk management
framework for the management of the Company's short-, medium- and
long-term funding and liquidity management requirements. The
Company manages liquidity risk by maintaining adequate reserves by
monitoring forecast and actual cash flows and by matching the
maturity profiles of assets and liabilities.
The Company is indirectly exposed to liquidity risk from the
credit facilities of the HoldCos. The HoldCos have sufficient funds
to meet the obligations of the credit facilities, and this is
monitored by the Investment Adviser.
The table below shows the maturity of the Company's
non-derivative financial assets and liabilities. The amounts
disclosed are contractual, undiscounted cash flows and may differ
from the actual cash flows received or paid in the future as a
result of early repayments.
Between 3 and Between 1 and
Up to 3 months 12 months 5 years Total
31 March 2019 GBP'000 GBP'000 GBP'000 GBP'000
Assets
Cash and cash equivalents 19,285 - - 19,285
Trade and other receivables 41,409 - - 41,409
Liabilities
Trade and other payables (39,384) - - (39,384)
Total 21,310 - - 21,310
Between 3 and Between 1 and
Up to 3 months 12 months 5 years Total
31 March 2018 GBP'000 GBP'000 GBP'000 GBP'000
Assets
Cash and cash equivalents 75,893 - - 75,893
Trade and other receivables 28,397 - - 28,397
Liabilities
Trade and other payables (25,521) - - (25,521)
Total 78,769 - - 78,769
The Company also has in issue 100,000,000 GBP1 preference
shares, which are treated as a financial liability. There is no
mandatory cash outflow, but they can be converted or redeemed as
disclosed in note 10.
Valuation methodology
The Directors have satisfied themselves as to the methodology
used and the discount rates and key assumptions applied in
producing the valuations in accordance with the IPEV guidelines.
All operational investments are at fair value through profit or
loss and are valued using a discounted cash flow methodology.
Investments which are not yet operational are held at fair value,
where the cost of the investment is used as an appropriate
approximation of fair value.
Discount rates
The discount rate used for valuing a solar PV asset is based on
the industry unlevered discount rate and the risk premium, which
takes into account risks and opportunities associated with the
investment earnings.
The discount rates used for valuing the investments in the
portfolio are as follows:
31 March 2019 31 March 2018
Weighted average discount rate 7.00% 7.30%
Discount rates 6.50% to 8.00% 6.75% to 9.00%
A change to the weighted average discount rate by plus or minus
0.5% has the following effect on the valuation.
Total portfolio
Discount rate +0.5% change value -0.5% change
31 March 2019 (GBP20.6m) GBP616.4m GBP22.0m
Fair value - percentage movement (3.3%) 3.6%
31 March 2018 (GBP18.2m) GBP481.4m GBP19.4m
Fair value - percentage movement (3.8%) 4.0%
Power price
The NEC Group continuously reviews multiple inputs from market
contributors and leading consultants and adjust the inputs to the
power price forecast when a different approach is deemed more
appropriate. Current estimates imply an average rate of growth of
electricity prices of approximately (0.3%) in real terms and a long
term inflation rate of 3.0%.
A change in the forecast electricity price assumptions by plus
or minus 10% has the following effect on the valuation, with all
other variables held constant.
Total portfolio
Power price -10% change value +10% change
31 March 2019 (GBP42.5m) GBP616.4m GBP43.4m
Fair value - percentage movement (6.9%) 7.0%
31 March 2018 (GBP32.5m) GBP481.4m GBP31.5m
Fair value - percentage movement (6.8%) 6.5%
Energy generation
The portfolio's aggregate energy generation yield depends on the
combination of solar irradiation and technical performance of the
solar PV assets. The table below shows the sensitivity of the
portfolio valuation to a sustained increase or decrease of energy
generation by plus or minus 5% on the valuation, with all other
variables held constant.
5% under Total portfolio 5% over
Energy generation performance value performance
31 March 2019 (GBP43.8m) GBP616.4m GBP43.4m
Fair value - percentage movement (7.1%) 6.6%
31 March 2018 (GBP32.6m) GBP481.4m GBP32.5m
Fair value - percentage movement (6.8%) 6.7%
Inflation rates
The portfolio valuation assumes long-term inflation of 3.0% per
annum for investments (based on UK RPI). A change in the inflation
rate by plus or minus 0.5% has the following effect on the
valuation, with all other variables held constant.
Total portfolio
Inflation rate -0.5% change value +0.5% change
31 March 2019 (GBP34.6m) GBP616.4m GBP36.6m
Fair value - percentage movement (5.6%) 5.9%
31 March 2018 (GBP20.1m) GBP481.4m GBP21.2m
Fair value - percentage movement (4.2%) 4.4%
Operating costs
The table below shows the sensitivity of the portfolio to
changes in operating costs by plus or minus 10% at project company
level, with all other variables held constant.
Total portfolio
Operating costs +10% change value -10% change
31 March 2019 (GBP11.5m) GBP616.4m GBP11.2m
Fair value - percentage movement (1.9%) 1.8%
31 March 2018 (GBP8.7m) GBP481.4m GBP8.4m
Fair value - percentage movement (1.8%) 1.7%
Tax rates
The UK corporation tax assumption for the portfolio valuation
was 19% until 2020, and 17% thereafter in accordance with the UK
Government announced reductions.
The Italian tax rate used is 24% with an additional 2.7% after
2020.
15. Financial Assets and Liabilities not measured at Fair
Value
Cash and cash equivalents are Level 1 items on the fair value
hierarchy. Current assets and liabilities are Level 2 items on the
fair value hierarchy. The carrying value of current assets and
current liabilities approximates fair value as these are short-term
items.
Preference shares are measured at nominal value less transaction
costs amortised over the expected life of the preference
shares.
16. Audit Fees
The analysis of the Auditor's remuneration is as follows:
Year ended Year ended
31 March 2019 31 March 2018
GBP'000 GBP'000
Fees payable to the Auditor for the audit of the Company 148 165
Interim review, additional fee and disbursements for prior year 8 12
Total audit fees 156 177
17. Management Fee
The Investment Manager is entitled to receive an annual fee,
accruing daily and calculated on a sliding scale, as follows
below:
-- for the tranche of ordinary NAV up to and including GBP200m, 1% of ordinary NAV;
-- for the tranche of ordinary NAV above GBP200m and up to and
including GBP300m, 0.9% of ordinary NAV; and
-- for the tranche of ordinary NAV above GBP300m, 0.8% of ordinary NAV.
For the year ended 31 March 2019 the Company incurred GBP5.4m in
management fees, and GBP0.5m in relation to the issue of the
Preference Shares, of which GBPnil was outstanding at 31 March 2019
(2018: GBP5.1m in management fees of which GBPnil was outstanding
at 31 March 2018).
18. Related Parties
The Investment Manager, NextEnergy Capital IM Limited, is a
related party due to having common key management personnel with
the subsidiaries of the Company. All management fee transactions
with the Investment Manager are disclosed in note 17.
The Investment Adviser, NextEnergy Capital Limited, is a related
party due to sharing common key management personnel with the
subsidiaries of the Company. There are no advisory fee transactions
between the Company and the Investment Adviser.
The asset manager, WiseEnergy (GB) Limited and WiseEnergy Italia
Srl, are related parties due to sharing common key management
personnel with the subsidiaries of the Company. Each of the
operating subsidiaries of the Company entered into an asset
management agreement with the asset manager. The total value of
recurring and one-off services paid to the asset manager by the
subsidiaries during the reporting year amounted to GBP4.0m (2018:
GBP4.0m).
At the year end, GBP37.9m (2018: GBP25.2m) was owed to and from
the subsidiaries, in relation to their restructuring. GBP8.0m of
management fees were received from the subsidiaries during the year
(2018: GBP5.8m), none of which was outstanding at the year end (31
March 2018: Nil). During the year dividends of GBP47.0m (2018:
GBP35.2m) were received from subsidiaries.
NextPower Development Limited is a related party due to sharing
common key management personnel with the subsidiaries of the
Company. There are no advisory fee transactions between the
Company, its subsidiaries and NextPower Development Limited.
The Directors of the Company and their shareholding are stated
in the Report of the Directors.
19. Controlling Party
In the opinion of the Directors, on the basis of shareholdings
advised to them, the Company has no immediate nor ultimate
controlling party.
20. Remuneration of the Directors
The remuneration of the Directors was GBP173k for the year
(2018: GBP146k) which consisted solely of short-term employment
benefits.
21. Revolving Credit and Debt Facilities
The Company's HoldCos have revolving credit and debt facilities
which are factored into the calculation of the fair value of the
underlying investments.
In January 2017, NESH closed a syndicated loan with MIDIS, NAB
and CBA for GBP157.5m ("Project Apollo") to refinance its revolving
credit facility. As part of the facility agreement, the lenders
provide an additional debt service reserve facility of GBP7.5m and
hold a charge over the assets of NESH Limited. As at 31 March 2019,
the outstanding amount was GBP148.2m.
In July 2015, NESH II agreed a loan with NIBC for GBP22.7m. In
July 2016, GBP1.0m was repaid and in March 2018, the remaining
balance was repaid. At the same time as the repayment the
short-term facility was converted into a new GBP20.0m revolving
credit facility. As at 31 March 2019, the outstanding amount was
nil.
In March 2016, NESH IV agreed the purchase of Project Radius.
The acquisition was part funded by a debt facility entered between
NESH IV and Macquarie Bank Limited for GBP55.0m, which was fully
drawn down in April 2016. As part of the debt facility agreement
Macquarie Bank Limited holds a charge over the assets of NESH. As
at 31 March 2019, the outstanding amount was GBP51.1m.
In July 2018, NESH V closed a RCF with Santander for GBP40.0m
which was subsequently fully drawdown. In January 2019, the
facility was increased to a total commitment of GBP70.0m with a
subsequent GBP30.0m drawdown. As at 31 March 2019, the outstanding
amount was GBP70.0m.
22. Reconciliation of Financing Activities
Net income Non-cash
Opening Cash flows allocation flows Closing
(GBP'000) (GBP'000) (GBP'000) (GBP'000) (GBP'000)
Share capital and premium 593,388 - - 6,641 600,029
Preference shares - 99,000 - 22 99,022
Retained earnings 11,602 (31,518) 71,579 (6,641) 45,022
Total 604,990 67,482 71,579 22 744,073
23. Commitments and Guarantees
The Company has no outstanding commitments or guarantees.
24. Taxation
Under the current system of taxation in Guernsey, the Company is
exempt from paying taxes on income, profit or capital gains.
Therefore, income from investments in solar PV assets is not
subject to and further tax in Guernsey, although these investments
are subject to tax in the UK or Italy.
25. Events After the Reporting Period
On 13 May 2019, the Company announced an interim dividend of
1.6625 pence per ordinary share for the quarter ended 31 March
2019, to be paid on 28 June 2019 to ordinary shareholders on the
register as at the close of business on 24 May 2019.
Additional Information
Company Information
Directors: Kevin Lyon, Chairman
Patrick Firth
Vic Holmes
Sharon Parr
Sue Inglis (appointed 1 April 2019)
Registered Office: 1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Investment Manager: NextEnergy Capital IM Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Investment Adviser: NextEnergy Capital Limited
20 Savile Row
London
UK
W1S 3PR
Secretary and Administrator: Apex Fund and Corporate Services (Guernsey) Limited
(changed name from Ipes (Guernsey)
Limited on 18 April 2019)
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey
GY1 2HL
Independent Auditor: PricewaterhouseCoopers CI LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4ND
Registered Number: 57739
Registrar: Link Market Services (Guernsey) Ltd
Legal Adviser to the Group as to UK law: Simmons & Simmons LLP
Legal Adviser to the Group as to Guernsey law: Mourant Ozannes LLP and Carey Olsen (Guernsey) LLP
Legal Adviser to the Group as to Debt Financing: Stephenson Harwood LLP
Financial Adviser and Broker to the Company: Cantor Fitzgerald Europe
Brokers to the Company: Shore Capital and Corporate Ltd
Fidante Partners Europe Ltd
Macquarie Capital (Europe) Ltd
Media and Public Relations Adviser: MHP Communications Limited
Alternative Performance Measures ('APMs')
This Annual Report and Accounts contain APMs, which are
financial measures not defined in IFRS. These include certain
financial KPIs shown in the table on page 2, certain financial
highlights on page 1 and cash income on page 28. The definition of
each of these APM measures is shown below. In addition to the APMs,
the Annual Report shows portfolio information including debt held
by the holding companies or SPVs.
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. These APMs are used to present a clearer
picture of how the Company has performed over the year and are all
financial measures of historical performance.
The table below defines our APMs.
Calculation and (where
relevant) reconciliation to
APM Definition Purpose IFRS
Asset Management The outperformance relative A measure of the operating The difference between (i)
Alpha to budget of the portfolio performance of the portfolio. the delta of generation vs.
due to active management, budget and (ii) the delta of
excluding irradiation
the effect of variation in vs. budget.
solar irradiation.
Cash dividend The ratio of the cash income A measure of the cash The cash income (as defined
cover - over the ordinary dividends available to pay dividends. below) less total expenses
pre-scrip paid in the period (and, for from the statement of
dividends this comprehensive
purpose, treating all scrip income (GBP8.6m for the year
dividends as if they had been ended 31 March 2019) divided
paid as cash dividends). by the pre-scrip dividends
paid
from the statement of changes
in equity (GBP38.2m for the
year ended 31 March 2019).
Cash income The cash received from the A measure of the cash The reconciliation of cash
Company's investment generated from operations. income to IFRS for the year
portfolio during the year. ended 31 March 2019 is shown
below.
Dividend The annual dividend per A measure of the return to the For the year ended 31 March
yield ordinary share expressed as a ordinary shareholders. 2019, the annual dividend per
percentage of the share ordinary share declared
price. (6.65p)
divided by the share price as
at the year-end (117.5p).
Gearing Financial debt of the NESF A measure of the NESF Group's The ratio of financial debt
level Group plus the fair value of financial debt and the outstanding at the
the preference shares preference shares relative to subsidiaries (GBP269m as at
expressed as GAV. 31 March 2019)
a percentage of GAV. plus the preference shares
from the statement of
financial position (GBP99m as
at 31 March
2019) divided by GAV (being,
as at 31 March 2019, the
aggregate of each of the
foregoing and
the net assets from the
statement of comprehensive
income of GBP645m).
Invested The amount deployed into A measure of capital deployed The valuation of the
capital solar PV assets through the to generate investment returns Company's portfolio (GBP896m
HoldCos and SPVs. for shareholders. as at 31 March 2019).
NAV per The Company NAV divided by A measure of the value of one The net assets as shown on
ordinary the number of ordinary ordinary share. the statement of financial
share shares. position (GBP645m as at 31
March 2019)
divided by the number of
ordinary shares in issue as
at the calculation date
(581.7m as at
31 March 2019).
Ongoing Regular operating costs A measure of ongoing and The total expenses less the
charges incurred in the reporting regular costs relative to the preference share dividends as
ratio period (excluding costs su Company's NAV. shown on the statement of
ered within HoldCos comprehensive
and SPVs, interest costs, income (being, for the year
preference share dividends ended 31 March 2019, GBP8.6m
and taxation) calculated as a and GBP1.8m respectively) and
percentage any
of the average ordinary NAV non-recurring expenses
in that period. (GBP254k for the year ended
31 March 2019) divided by the
average ordinary
NAV over the relevant period
(being GBP614m for the year
ended 31 March 2019).
Ordinary The increase/(decrease) in A measure of the overall The difference in the NAV per
NAV total the NAV per ordinary share financial performance of the ordinary share at the
return plus the dividends per Company. beginning and end of the
ordinary share period from the
paid in the period. statement of financial
position (5.8p for the year
ended 31 March 2019) plus the
dividends
per ordinary share paid in
the period (6.65p for the
year ended 31 March 2019) as
a percentage
of the opening NAV per
ordinary share as shown in
the statement of financial
position (being
105.1p per ordinary share as
at 31 March 2018).
Ordinary The increase/(decrease) in A measure of the performance The difference in the
shareholder the ordinary share price plus of the Company's share. ordinary share price at the
total return the dividends per ordinary beginning and end of the
share period plus the
paid in the period. dividends per ordinary share
paid in the period as a
percentage of the share price
at the
beginning of the period.
Premium/(discount) The amount by which the A measure of the performance The Company's share price as
to NAV ordinary share price is of the Company's share price a relative percentage of the
higher/lower than the NAV per relative to the NAV. NAV per ordinary share.
ordinary share,
expressed as a percentage of
the NAV per ordinary share.
Reconciliation to financial statements
Cash income reconciliation GBP'000
Income per statement of comprehensive income 55,613
Trade and other receivables - management service fee accrual at 1 April 2018 1,708
Trade and other receivables - management service fee accrual at 31 March 2019 (250)
Cash income 57,071
Glossary
AGM Annual General Meeting
AIC Association of Investment Companies
AIC Code AIC Code of Corporate Governance
AIC Guide AIC Corporate Governance Guide for Guernsey Domiciled Investment Companies
AIF Alternative Investment Fund
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Management Directive
APM Alternative Performance Measure
Asset Management Alpha The difference between (i) the delta of generation vs. budget and (ii) the delta of
irradiation
vs. budget
Apollo portfolio 21 plants held within NESH
Base fee The fee that the Investment Manager is entitled to under the Investment Management
Agreement
BEIS The Department for Business, Energy & Industrial Strategy
Brexit The UK voting to leave the European Union
Cash dividend cover The ratio of the Company's Cash Income over dividends paid during the financial
year.
CBA Commonwealth Bank of Australia
Company/NESF NextEnergy Solar Fund Limited
Consultants Two of the leading energy market consultants
CfD Contract for Difference
CRS Common Reporting Standard for automatic exchange of tax information
CSR Corporate Social Responsibility
DCF Discounted Cash Flow
Developer NextPower Development Limited
DNO Distribution Network Operators
EPC Engineering, Procurement and Construction
ESG Environmental, Social and Governance
EU European Union
FATCA Foreign Account Tax Compliance Act
FCA Financial Conduct Authority
FiT Feed-in Tariff
GAV Gross asset value, being the net asset value of the ordinary shares plus the value
of the
outstanding preference shares plus the amount of debt outstanding at the
subsidiaries
GFSC Guernsey Financial Services Commission
GFSC Code Guernsey Financial Services Commission Finance Sector Code of Corporate Governance
Group The Company, HoldCos and SPVs
GWh Gigawatt hour - a measure of electricity generated per hour
HoldCos Intermediate holding companies - NESH, NESH II, NESH III, NESH IV, NESH V and NESH
VI
IAS International Accounting Standards
IFRS International Financial Reporting Standards
Investment Adviser NextEnergy Capital Limited
Investment Manager NextEnergy Capital IM Limited
IPEV International Private Equity and Venture Capital
IPO Initial Public Offering
IRR Internal Rate of Return
ISAs International Standards on Auditing
KPI Key Performance Indicator
KWh Kilowatt hour - a measure of electricity generated per hour
LOI Letter of intent
MIDIS Macquarie Infrastructure Debt Investment Solutions
MWh Megawatt hour - a measure of electricity generated per hour
NAB National Australia Bank
NAV Net asset value
NAV per share Net asset value per ordinary share
NAV total return The actual rate of return from dividends paid and capital gains on NAV per share
over a given
period of time
NESH NextEnergy Solar Holding Limited
NESH II NextEnergy Solar Holding II Limited
NESH III NextEnergy Solar Holding III Limited
NESH IV NextEnergy Solar Holding IV Limited
NESH V NextEnergy Solar Holding V Limited
NESH VI NextEnergy Solar Holding VI Limited
NPPR National private placement regime
OCR Ongoing charges ratio per the AIC website (www.theaic.co.uk)
OECD Organisation for Economic Co-operation and Development
Official List The premium segment of the UK Listing Authority's Official List
Ordinary shareholder total return The actual rate of return from dividends paid and capital gains on share price
movements over
a given period of time
Ordinary shares The issued ordinary share capital of the Company
Performance ratio Actual generation/expected generation when array constructed
POI Law Protection of Investors (Bailiwick of Guernsey) Law, 1987
PPA Power purchase agreement
Premium/discount to NAV The amount by which the Company's ordinary shares trade above or below its NAV
PV Photovoltaic
PwC CI PricewaterhouseCoopers CI LLP
Radius portfolio Five plants held within NESH IV
RCF Revolving Credit Facilities
RO Scheme Renewable Obligation Scheme
ROC Renewable Obligation Certificates
RPI Retail Price Index
Solis portfolio Eight plants held within NESH V
SPA Share purchase agreement
SPVs Special purpose vehicles which hold the Company's investment portfolio of
underlying operating
assets
Thirteen Kings portfolio Thirteen plants held in NESH III
TISE The International Stock Exchange
UK United Kingdom of Great Britain and Northern Ireland
UK Code UK Corporate Governance Code dated April 2016
UKLA UK Listing Authority
WACC Weighted average cost of capital
WiseEnergy WiseEnergy (Great Britain) Limited and WiseEnergy Italia Srl
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFLFUWFUSELM
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