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Downing Renewables & Infrastructure Trust PLC
("DORE" or "the Company")
Annual Report and Accounts
Downing Renewables & Infrastructure Trust plc (LSE: DORE) announces its results for the period from incorporation on 8 October 2020 to 31 December 2021
Highlights
Successfully raised gross proceeds during the period of £137.4 million through a placing, an offer for subscription and an intermediaries offer at an issue price of 100 pence per ordinary share at IPO in December 2020 (£122.5 million) and a placing at 102.5 pence per ordinary share in October 2021 (£14.9 million). Swift deployment of the majority of IPO proceeds through the completion of two investments, investing £102 million:
o portfolio of eight operational hydropower plants in central and southern Sweden for £60 million in February 2021; and
o a 96MWp portfolio of UK Solar PV assets for £42 million in March 2021.
Strong operational performance meant operating profit of investments was 16.9% above expectations (being the budget figures used when acquiring the assets). Portfolio generation of 195 GWh, 4.7% above expectations.Reflecting its impactful investments and specific Sustainable Investment Objectives, the Company became an Article 9 fund pursuant to the EU taxonomy and the EU Sustainable Finance Disclosure Regulations ("SFDR").Net asset value ("NAV") as at 31 December 2021 of 103.5 pence per ordinary share, up 5.5 pence per ordinary share compared to the NAV immediately post IPO of 98 pence per ordinary share.Interim dividends per ordinary share of 2.25 pence paid during the period and a further 1.25 pence per ordinary share declared (but not accrued) relating to the period to December 2021. Target dividend from 1 July 2021 onwards has been increased against guidance at IPO to 5 pence per ordinary share per annum. Cash dividend cover of 1.21x1 Entered, via wholly owned subsidiaries, into two separate loan facility agreements: a £25 million Revolving Credit Facility ("RCF") with Santander UK plc and a seven-year EUR 43.5 million debt facility with Skandinaviska Enskilda Banken AB ("SEB") for its Swedish hydropower assets.
Post Year End Highlights
Acquired two operational portfolios of hydropower plants, located in central Sweden for £20.1 million.
o The portfolio consists of c. 12 GWh pa of hydropower plants located in the SE3 electricity pricing zone and a c. 36 GWh pa portfolio located in the SE2 zone.
Completed the acquisition of an operational 46 MW onshore wind farm located in north eastern Sweden for £19.8 million.
o The project has been operational since 2011 and has a strong operational track record. The asset is expected to generate c. 108 GWh of electricity per annum.
Key Metrics
| As at or for period ending 31 December 2021 |
Total Shareholder Return1,2 | 5.8% |
NAV total return since IPO1,2,3 | 7.9% |
Share price | 103.5 pence |
Market capitalisation | £141.8m |
GAV1,4 | £220.9m |
Dividends per Ordinary share declared for FY21 | 3.5 pence |
NAV | £141.8m |
NAV per share | 103.5 pence |
Environmental Performance | Assets avoided 90,523 tonnes of CO2 and powered the equivalent of 41,973 homes |
Hugh Little, Chair, Downing Renewables and Infrastructure Trust PLC, commented:
"We are very pleased to present DORE's inaugural annual results. The Investment Manager has made great progress deploying £102m of capital in the period, and more than £140m since IPO, into a diversified portfolio of strongly performing solar, hydro and wind assets, which are projected to generate 355GWh of renewable electricity per annum. The assets owned in the period exceeded operational and financial expectations. Their performance was driven both by the Investment Manager's active management of these assets, combined with strong power prices, and has allowed the Board to increase its dividend guidance to 5p per share per annum from 30 June 2021. DORE has consequently declared dividends of 3.5 pence per share for the period ended 31 December 2021, an improvement against its original target at IPO of 3 pence per share for the period. Against a backdrop of continued increasing power prices and inflation, which are creating strong tailwinds for the Company, I am confident that our Investment Manager will continue to take a discerning approach to pursuing investment opportunities that will deliver the greatest value to shareholders."
Tom Williams, Partner, Head of Energy and Infrastructure at Downing LLP, commented:
"It has been an exceptional first period for DORE. The portfolio that we acquired has outperformed expectations from both an operational and financial perspective. The strategy of diversification by technology and geography has shown its real value and we are delighted with the three further acquisitions since the year end, particularly the first wind investment. Given the operational and financial result, favourable macro-economic conditions and strong deal flow, we believe that the Company is perfectly positioned for future growth and continued strong performance."
About us
Downing Renewables & Infrastructure Trust PLC ("DORE" or the "Company") is a closed ended investment company incorporated in England and Wales. The Company aims to provide investors with an attractive and sustainable level of income, with an element of capital growth, by investing in a diversified portfolio of renewable energy and infrastructure assets in the UK, Ireland and Northern Europe.The Company's strategy, which focuses on diversification by geography, technology, revenue and project stage, is designed to deliver the stability of revenues and the consistency of income to shareholders.The Company is an Article 9 fund pursuant to the EU taxonomy and the EU Sustainable Finance Disclosure Regulations ("SFDR"). The core sustainable Investment Objective of the Company is to accelerate the transition to net zero through its investments, compiling and operating a diversified portfolio of renewable energy and infrastructure assets to help facilitate the transition to a more sustainable future. This directly contributes to climate change mitigation.
DORE is a Green Economy Mark (London Stock Exchange) accredited company with an ESG framework that aims to provide investors with attractive returns while contributing to the successful transition to a net-zero carbon economy - resulting in a cleaner, greener future.
As at 31 December 2021, the Company had 137,008,487 ordinary shares in issue which are listed on the premium segment of the Official List and traded on the London Stock Exchange's Main Market.
DORE is managed by Downing LLP (the "Investment Manager" or "Downing").
Strategic Report
Chairman's Statement
On behalf of the Board, I am pleased to present the first annual report of Downing Renewables & Infrastructure Trust PLC covering the period since incorporation on 8 October 2020 to 31 December 2021 (the "Annual Report").
Initial Public Offering & Equity Issuance
On 10 December 2020 the Company's ordinary shares were admitted to trading on the premium segment of the main market of the London Stock Exchange following the Company's IPO. The IPO raised gross proceeds of £122.5 million through which we were delighted to welcome a very broad range of shareholders to the register.
In order to aid our continuing growth plans and to enable us to pursue value creating opportunities, we issued a further 14.5 million new ordinary shares on 19 October 2021 at a price of 102.5 pence per share, raising gross proceeds of £14.9 million.
Acquisitions
During the period, the Company and its wholly owned subsidiaries (the "Group") have successfully invested £102 million in new portfolio investments and a further £39.9 million after the year end, via DORE Hold Co Limited, the main investment vehicle for the Group. The Company now has a portfolio that is expected to generate 355 GWh of renewable electricity per year. These acquisitions have enabled us to deploy all the proceeds of equity issuance since incorporation into a portfolio diversified by technology and geography.
In my Interim report to Shareholders on the period to 30 June 2021, I commented on how our investment strategy is to invest in a diversified portfolio of hydropower, solar, wind, geothermal and other infrastructure assets across the UK, Ireland and Northern Europe. Investing in different technologies reduces our reliance on any given renewable energy resource and provides exposure to assets with different economic lives, leading to more stable returns.
I am very pleased to report that the Investment Manager has continued to make great progress in deploying the Company's equity issuance proceeds. Since the period end, the Company has completed the acquisition of a 46 MWp operational wind farm in north eastern Sweden for £19.8 million. The Company has also added to its existing hydropower portfolio with the acquisition of a 2.9 MWp portfolio of small-scale hydropower assets and 6 MWp portfolio of three hydropower plants in southern and central Sweden. The additional hydropower assets were acquired for £20.1 million.
Debt Facilities
In the interests of capital efficiency and to enhance income returns, long-term capital growth and capital flexibility, the Company is permitted to maintain a conservative level of gearing. To allow flexibility with making new investments, the Company, via wholly owned subsidiaries, entered into two separate loan facility agreements: a £25 million RCF with Santander UK plc and a seven-year EUR 43.5 million debt facility with SEB. Further information on these facilities can be found in the Investment Manager's Review.
The RCF will give the Group the additional flexibility to enable the Investment Manager to capitalise on its current investment pipeline, whilst also facilitating future growth.
Financial Results
During the period the NAV per ordinary share increased from 98 pence at admission (after costs) to 103.5 pence at 31 December 2021, an increase of 5.5 pence. Including dividends paid to date of 2.25 pence per ordinary share, gives a NAV total return since IPO of 7.9%. This increase reflects the net earnings and the valuation uplift of both our hydropower and solar assets following strong operational performance since acquisition alongside a favourable economic environment.
The portfolio companies distributed £4.7 million to the Company by way of shareholder loan repayments and interest during the period. An element of this cash, £2.6 million was retained in the Company's subsidiary DORE Hold Co and forms part of the valuation.
The Company made a profit for the period from incorporation to 31 December 2021 of £10.1 million, resulting in earnings per ordinary share of 9.4 pence. As per the accounting standards, this includes the revaluation of the assets.
Portfolio Performance
The 3,234 operating assets produced approximately 195 GWh of clean electricity during the reporting period. The Board continues to be pleased by the strong operational performance of the portfolio. Generation has exceeded expectations by 4.7% and, in addition to strong generation performance, the Company has benefited from strengthening power prices in both jurisdictions, particularly Sweden. Together, these factors have driven a significant increase in revenue and cashflows.
Dividends and Returns
As I set out in the Company's Interim Report, at IPO the Company set out a dividend target of three interim dividends totalling 3 pence per ordinary share in respect of the financial period from IPO to 31 December 2021, rising to a target annualised dividend yield of 5 pence per ordinary share against the IPO price of 100 pence per ordinary share, in respect of the financial year to 31 December 2022. Thereafter, the Company intends to adopt a progressive dividend policy.
As announced in September 2021, following the rapid deployment of the equity issuance proceeds and the continued strong trading performance since the two portfolios were acquired, the Board announced it was increasing its dividend guidance to 5 pence per share per annum from 30 June 2021 (representing a dividend per share of 1.25 pence for the quarter ending September 2021 and thereafter).
In line with the improved guidance, the Company has paid interim dividends to Shareholders of 1 penny per share for the period from IPO to 30 June 2021 and 1.25 pence per share for the quarter to 30 September 2021. I am pleased that a further dividend of 1.25 pence per share has been announced and will be paid for the quarter to 31 December 2021. The Company continues to meet the increased dividend guidance target.
The Company achieved a cash dividend cover of 1.21x for the dividends of 2.25 pence per share paid during the period. Dividend cover is presented excluding dividends paid immediately following the issuance of new shares. If these are included, the dividend cover would be 1.14x.
The NAV reflects the fair market valuation of the Company's portfolio based on a discounted cash flow analysis over the life of each of the Group's assets plus the fair value of other assets and less the Company's liabilities. The assumptions which underpin the valuation are provided by the Investment Manager and the Board has satisfied itself with the calculation methodology and underlying assumptions.
Outlook
The Board is very satisfied with the £142.8 million deployed in the five investments made to date. At a portfolio level, the Investment Manager's in-house asset management team will continue its focus on delivering continued positive operational performance, along with optimisation initiatives where appropriate. The Company will continue to leverage the expertise of the Investment Manager to deliver strong operational performance whilst placing its sustainability goals at the centre of its operational objectives.
The well-publicised increases in power prices and inflation create strong tailwinds for the Company and I am confident that the Company is well positioned to benefit from these factors as we move into a new phase of growth with intended capital raising and deployment. Our Investment Manager continues to take a discerning approach to pursuing investment opportunities that will deliver the greatest value to shareholders. The Company is actively progressing several hundreds of millions of pounds of pipeline opportunities. Opportunities span UK and Nordic hydropower, wind, solar and batteries, Nordic utilities and essential infrastructure.
Net Zero has continued to dominate the agenda during the period, with the long-awaited COP26 climate summit having taken place in Glasgow in November 2021. The size and complexity of the challenge is enormous, requiring interventions across all sectors. Despite significant headway on several fronts, national climate and financing commitments still fell short of what is needed to come to grips with the climate challenge. It remains clear that more renewable energy generation is necessary.
Countries signalled their intention at COP26 to begin the phasing out of traditional energy systems, and this means renewable energies must take the place of fossil fuels. The scale-up of renewables needed will be substantial. As economies around the world move towards this carbon neutral future, the Company is well positioned to take advantage of this transition.
In order to increase the Company's diversification, drive efficiencies of scale at the portfolio level, spread the fixed costs over a wider asset base and increase liquidity for current and future shareholders, the Board intends over time to increase the size of the Company through the issue of further shares. Any such issuance will be priced at a premium to the prevailing net asset value and will be dependent on demand from investors as well as the availability of pipeline investments.
The Company and the Investment Manager continue to monitor the ongoing conflict between Russia and Ukraine and its effect on European power markets.
I would like to thank my fellow Directors and our Investment Manager for their efforts since the Company's IPO and I would like to thank shareholders for their support of the Company, which I am confident is well placed to continue its growth and deliver on its Investment Objectives.
Hugh W M Little
Chair
4 March 2022
Downing Renewables & Infrastructure Trust PLC
Strategy and Business Model
The Board is responsible for the Company's Investment Objective and Investment Policy and has overall responsibility for ensuring the Company's activities are in line with such overall strategy. The Group's Investment Objective and Investment Policy are published below.
Corporate Summary
The Company is a closed ended investment company incorporated in England and Wales with registration number 12938740. The Company aims to provide investors with an attractive and sustainable level of income, with an element of capital growth, by investing in a diversified portfolio of renewable energy and infrastructure assets in the UK, Ireland and Northern Europe.
As at 31 December 2021, the Company had 137,008,487 ordinary shares in issue which are listed on the premium segment of the Official List and admitted to trading on the London Stock Exchange's Main Market.
Investment Objective
The Company's investment objective is to provide investors with an attractive and sustainable level of income returns, with an element of capital growth, by investing in a diversified portfolio of renewable energy and infrastructure assets in the UK, Ireland and Northern Europe.
The core sustainable investment objective of the Company is to accelerate the transition to net zero through its investments, compiling and operating a diversified portfolio of renewable energy and infrastructure assets to help facilitate the transition to a more sustainable future. The Company believes that this directly contributes to climate change mitigation.
The Company has made disclosures under the EU's Sustainable Finance Disclosure Regulation ("SFDR") as part of its commitment to sustainability. The Company is an Article 9 fund under SFDR.
Investment Policy
The Company will seek to achieve its Investment Objective through investment in a diversified portfolio of renewable energy and infrastructure assets in the UK, Ireland and Northern Europe, comprising (i) predominantly assets which generate electricity from renewable energy sources; and (ii) other infrastructure assets and investments in businesses whose principal revenues are not derived from the generation and sale of electricity on the wholesale electricity markets ('Other Infrastructure') (together 'Assets' and each project being an 'Asset'). Assets may be operational, in construction or construction-ready, at the time of purchase. In-construction or construction-ready Assets are assets which have in place the required grid access rights, land consents, planning, permitting and regulatory consents in order to commence construction. For the avoidance of doubt, the Company will not acquire or fund Assets that are at an earlier stage of development than construction ready.
The Company intends to invest in a portfolio of Assets that is diversified by: (i) the principal technology utilised to generate energy from renewable sources, for example solar photovoltaic, wind, hydropower-electric or geothermal ("Technology"); (ii) geography; and (iii) the stage of development of a project, being one of operational, construction-ready or in-construction (each a "Project Stage").
Whilst the Company intends primarily to take controlling interests, it may acquire a mix of controlling and non-controlling interests in Assets and the Company may use a range of investment instruments in the pursuit of its Investment Objective, including but not limited to equity and debt investments.
In circumstances where the Company does not hold a controlling interest in the relevant investment, the Company will seek to secure its shareholder rights through contractual and other arrangements, inter alia, to ensure that the Asset is operated and managed in a manner that is consistent with the Company's Investment Policy.
Investment Restrictions
The Company will observe the following investment restrictions when making investments:
the Company may invest no more than 60% of Gross Asset Value in Assets located in the UK;the Company may invest no more than 60% of Gross Asset Value in Assets located in Ireland and Northern Europe (combined); no more than 25% of Gross Asset Value will be invested in Assets in relation to which the Company does not have a controlling interest; no investments will be made in companies which generate electricity through the combustion of fossil fuels or derive a significant portion of their revenues from the use or sale of fossil fuels unless the purpose of the investment is to transition those companies away from the use of fossil fuels and toward sustainable sources; andthe Company will not invest in other UK listed closed-ended investment companies.
The Company will observe the following investment restrictions when making investments, with the relevant limits being calculated on the assumed basis that the Company has gearing in place of 50% of Gross Asset Value:
the Company may invest no more than 50% of Gross Asset Value in any single Technology;the Company may invest no more than 25% of Gross Asset Value in Other Infrastructure; the Company may invest no more than 35% of Gross Asset Value in Assets that are in construction or construction-ready; the Company may invest no more than 30% of Gross Asset Value in any one single Asset, and the Company's investment in any other single Asset shall not exceed 25% of Gross Asset Value; and at the time of an investment or entry into an agreement with an Offtaker, the aggregate value of the Company's investments in Assets under contract to any single Offtaker will not exceed 40% of Gross Asset Value.
Following full investment of the Net Proceeds and following the Company becoming substantially geared (meaning for this purpose by way of long-term debt of 50% of Gross Asset Value being put in place), the Company's portfolio will comprise no fewer than six Assets.
Compliance with the above restrictions will be measured at the time of investment and non-compliance resulting from changes in the price or value of Assets following investment will not be considered as a breach of the investment restrictions.
The Company will hold its investments through one or more SPVs and the investment restrictions will be applied on a look-through basis to the Asset owning SPV.
Borrowing Policy
Long-term limited recourse debt at the SPV level may be used to facilitate the acquisition, refinancing or construction of Assets. Where utilised, the Company will seek to adopt a prudent approach to financial leverage with the aim that each Asset will be financed appropriately for the nature of the underlying cashflows and their expected volatility. Total long-term structural debt will not exceed 50% of the prevailing Gross Asset Value at the time of drawing down (or acquiring) such debt.
In addition, the Company and/or its subsidiaries may make use of short-term debt, such as a revolving credit facility, to assist with the acquisition of suitable opportunities as and when they become available. Such short-term debt will be subject to a separate gearing limit so as not to exceed 10% of the prevailing Gross Asset Value at the time of drawing down (or acquiring) any such short-term debt.
The Company may employ gearing at the level of an SPV, any intermediate subsidiary of the Company or the Company itself, and the limits on total long-term structural debt and short-term debt shall apply on a consolidated basis across the Company, the SPVs and any such intermediate holding entities (disregarding for this purpose any intra-Group debt (i.e. borrowings and debt instruments between members of the Group)).
In circumstances where these aforementioned limits are exceeded as a result of gearing of one or more Assets in which the Company has a non-controlling interest, the borrowing restrictions will not be deemed to be breached. However, in such circumstances, the matter will be brought to the attention of the Board who will determine the appropriate course of action.
Currency and Hedging Policy
The Company will adopt a structured risk management approach in seeking to deliver stable cash flows and dividend yield.
This may include entering into hedging transactions for the purpose of efficient portfolio management. This could include:
foreign currency hedging on a portion of equity distributions;foreign currency hedging on construction budgets;interest and/or inflation rate hedging through swaps or other market instruments and/or derivative transactions; and power and commodity price hedging through power purchase arrangements or other market instruments and/or derivative transactions.
Any such transactions will not be undertaken for speculative purposes.
Cash management
The Company may hold cash on deposit and may invest in cash equivalent investments, which may include short-term investments in money market type funds ("Cash and Cash Equivalents"). There is no restriction on the amount of Cash and Cash Equivalents that the Company may hold and there may be times when it is appropriate for the Company to have a significant Cash and Cash Equivalents position.
Holding and Exit Strategy
It is intended that Assets will be held for the long-term. However, if an attractive offer is received or likely to be available, consideration will be given to the sale of the relevant Asset and reinvestment of the proceeds.
Changes to and Compliance with the Investment Policy
Any material changes to the Company's Investment Policy set out above will require the approval of Shareholders by way of an ordinary resolution at a general meeting and the approval of the FCA.
In the event of a breach of the investment guidelines and the investment restrictions set out above, the AIFM shall inform the Board upon becoming aware of the same and if the Board considers the breach to be material, notification will be made to a Regulatory Information Service.
Business Model
The Company was incorporated on 8 October 2020 as a public company limited by shares. The Company intends to carry on business as an investment trust within the meaning of section 1158 of the Corporation Tax Act 2010 and was listed on the premium segment of the main market of the London Stock Exchange on 10 December 2020.
The Company holds and manages its investments through a parent holding company, DORE Hold Co Limited, of which it is the sole shareholder. DORE Hold Co in turn holds investments via a number of intermediate holding companies and SPVs. The jurisdictions in which the SPVs are incorporated is typically determined by the location of the assets, and further portfolio-level holding companies may be used to facilitate debt financings.
As at 31 December 2021, the Company owns a portfolio of 3,234 Renewable Energy Assets totalling 121 MW of operational capacity. Medium term structural debt is in place for the United Kingdom solar portfolio and, as at 31 December 2021, this comprised outstanding principal amounts of £79.3 million lent by Aviva and BlackRock. Downing Hydro AB, the intermediate holding company which holds the Swedish hydropower assets has access to a seven-year EUR 43.5 million debt facility with Skandinaviska Enskilda Banken AB ("SEB"). Following the period end, EUR 27.4 million was drawn against this facility to fund the acquisition of two additional Swedish hydropower schemes. The remainder of the undrawn facility is predominately to fund future capital expenditure requirements.
Short term debt financing is available through a £25 million RCF which may be drawn on by DORE Hold Co Limited to facilitate future growth plans.
The Company has a 31 December financial year end and announces half-year results in or around September and full-year results in or around March. The Company intends to pay dividends quarterly, targeting payments in or around March, May, August and November each year.
The Company has an independent board of non-executive directors and has appointed Gallium Fund Solutions Limited as its AIFM to provide portfolio and risk management services to the Company. The AIFM has delegated the provision of portfolio management services to the Investment Manager, Downing LLP. Further information on the Investment Manager is provided in the Investment Manager's Report.
As an investment trust, the Company does not have any employees and is reliant on third party service providers for its operational requirements. Likewise, the SPVs do not have any employees and services are also provided through third party providers. Each service provider has an established track record and has in place suitable policies and procedures to ensure they maintain high standards of business conduct and corporate governance.
Objectives and Key Performance Indicators
The Company sets out below its KPIs which it uses to track the performance of the Company over time against the objectives, as described in the Strategic Report below. The Board is of the opinion that the KPIs detailed in the table below, alongside the environmental, social and governance objectives set out in the full Annual Report provide shareholders with sufficient information to assess how effectively the Company is meeting its objectives. The Board will continue to monitor these KPIs on an ongoing basis.
Financial Objectives
Objective | KPI and Definition | Relevance to Strategy | Performance | Explanation |
Attractive and sustainable level of income | Dividends per share (pence) | The dividend reflects the Company's ability to deliver a low risk but growing income stream from the portfolio. | The Company has paid dividends to date of 2.25 pence per share. The company has declared a further 1.25 pence per share to be paid in respect of the period to 31 December 2021. | The Company targeted an initial yield of 3 pps in respect of the period from IPO to 31 December 2021. The company will have paid 3.5 pps in respect of this period exceeding the initial target set at IPO. |
Cash dividend cover12 | Reflects the Company's ability to cover its dividends from the income received from its portfolio. | 1.21x excluding dividends paid immediately following the issuance of new shares
1.14x. including dividends paid immediately following the issuance of new shares
| The Company, through DORE Hold Co received distributions of £4.7m from the underlying projects enabling the Company to pay full covered dividends. £2.5 million was paid up via loan interest from DORE Hold Co in the period.
| |
Capital preservation with an element of capital growth | NAV per share (pence)12 | The NAV per share reflects our ability to preserve capital value and also provide an element of capital growth throughout the life cycle of our assets. | 103.5 pence per share | £141.8m / 103.5 pence per share as at 31 December 2021. NAV has increased since IPO (from 98p), after taking into account dividends paid and further equity issuance during the year. |
Total NAV return (%)12 | The total NAV return measure highlights the gross return to investors including dividends paid. | 7.9% | The Company's NAV has increased due to the upward revaluation of the Company's Investment in Hold Co, and its investments in a portfolio of renewable energy assets. | |
Total Shareholder return since IPO12 | The share price appreciation plus reinvested dividends over a period, is a measure of a company's capital growth over the long term. | 5.8% | The Company's closing share price as at 31 December 2021 was 103.5 pence per share. The Company's shares were issued at 100 pence per share. | |
Ongoing charges ratio12 | Ongoing charges shows the drag on performance caused by the operational expenses incurred by the Company. | 1.6% | Company level budgets are approved annually by the Board and actual spend is reviewed quarterly. Transaction budgets are approved by the Board and potential abort exposure is carefully monitored. |
12 These are alternative performance measures
Read more about the Company's approach to sustainability and ESG in the full Annual Report.
The Investment Manager
About Downing
The Company is managed by Downing LLP, an established investment manager with over 30 years' experience and a considerable track record in the core renewables space. Downing is authorised and regulated by the FCA and, as at 30 November 2021, had over £1.5 billion of assets under management.
The Investment Manager has over 180 staff and partners. The team of 39 investment and asset management specialists who focus exclusively on energy and infrastructure transactions are supported by business operations, IT systems specialists, legal, HR and regulatory and compliance professionals.
The Investment Manager is responsible for the day-to-day management of the Company's investment portfolio in accordance with the Company's Investment Objective and policy, subject to the overall supervision of the Board.
The Investment Manager has managed investments across various sectors in the UK and internationally and identified the Energy & Infrastructure sector as a core area of focus from as early as 2010. Since then, to date it has made 141 investments in renewable energy infrastructure projects and currently oversees 474 MWp of electricity generating capacity, covering five technologies across c.7,300 installations.
Portfolio Summary
At the period end, through its main subsidiary, the Company owned 121MWp of hydropower and solar assets with an annual generation of around 200GWh. The portfolio is diversified across 3,255 individual installations and across four different energy markets.
Following the period end the Group has added an additional 54 MW of wind and hydropower assets with an additional annual generation of 156 GWh. The entire portfolio now stands at 175 MWp with a combined annual generation of 355 GWh.
The Group currently has no exposure to any assets under construction.
Portfolio composition by valuation, as at the balance sheet date
Technology | %
|
Hydro
| 46.5 |
Solar
| 31.2 |
Cash
| 22.3 |
Geography/Power Market Exposure | %
|
Sweden | 46.5
|
Great Britain | 24.1
|
Cash | 22.3
|
Northern Ireland | 7.1
|
Portfolio composition by valuation, as at 31 January 2022
Technology | %
|
Hydro
| 54.2 |
Solar
| 27.9 |
Wind
| 12.5 |
Cash | 5.5
|
Geography/Power Market Exposure | %
|
Sweden | 66.7
|
Great Britain | 21.5
|
Cash | 5.5
|
Northern Ireland | 6.3
|
Investment | Technology | Date Acquired | Location | Power Market/ Subsidy | Installed Capacity (MW) | Expected annual generation (GWh) |
Ugsi | Hydropower | Feb-21 | Älvdalen, Sweden | SE3 / n/a | 1.8 | 10 |
Båthusströmmen | Hydropower | Feb-21 | Älvdalen, Sweden | SE3 / n/a | 3.5 | 14 |
Åsteby | Hydropower | Feb-21 | Torsby, Sweden | SE3 / n/a | 0.7 | 3 |
Fensbol | Hydropower | Feb-21 | Torsby, Sweden | SE3 / n/a | 3 | 14 |
Rödbjörke | Hydropower | Feb-21 | Torsby, Sweden | SE3 / n/a | 3.3 | 15 |
Väls | Hydropower | Feb-21 | Torsby, Sweden | SE3 / n/a | 0.8 | 3 |
Torsby | Hydropower | Feb-21 | Torsby, Sweden | SE3 / n/a | 3.1 | 13 |
Tvärforsen | Hydropower | Feb-21 | Torsby, Sweden | SE2 / n/a | 9.5 | 37 |
Sutton Bridge | Ground mount solar | Mar-21 | Somerset, England | UK / ROC | 6.7 | 7 |
Andover Airfield | Ground mount solar | Mar-21 | Hampshire, England | UK / ROC | 4.3 | 4 |
Kingsland Barton | Ground mount solar | Mar-21 | Devon, England | UK / ROC | 6 | 6 |
Bourne Park | Ground mount solar | Mar-21 | Dorset, England | UK / ROC | 6 | 6 |
Laughton Levels | Ground mount solar | Mar-21 | East Sussex, England | UK / ROC | 8.3 | 9 |
Deeside | Ground mount solar | Mar-21 | Flintshire, Wales | UK / FiT | 3.8 | 3 |
Redbridge Farm | Ground mount solar | Mar-21 | Dorset, England | UK / ROC | 4.3 | 4 |
Iwood | Ground mount solar | Mar-21 | Somerset, England | UK / ROC | 9.6 | 9 |
New Rendy | Ground mount solar | Mar-21 | Somerset, England | UK / ROC | 4.8 | 5 |
Redcourt | Ground mount solar | Mar-21 | Carmarthenshire, Wales | UK / ROC | 3.2 | 3 |
Oakfield | Ground mount solar | Mar-21 | Hampshire, England | UK / ROC | 5 | 5 |
Kerriers | Ground mount solar | Mar-21 | Cornwall, England | UK / ROC | 10 | 10 |
RSPCA Llys Nini | Ground mount solar | Mar-21 | Swansea, Wales | UK / ROC | 0.9 | 1 |
Commercial portfolio | Rooftop Solar | Mar-21 | Various, England | UK / FiT | 0.3 | 0 |
Commercial portfolio | Rooftop Solar | Mar-21 | Various, England & Wales | UK / ROC | 5.2 | 4 |
Commercial portfolio | Rooftop Solar | Mar-21 | Various, N. Ireland | SEM / NIROC | 0.7 | 1 |
Bombardier | Rooftop Solar | Mar-21 | Belfast, N. Ireland | SEM / ROC | 3.6 | 3 |
Residential portfolio | Residential rooftop solar | Mar-21 | Various, N. Ireland | SEM / NIROC | 13.1 | 10 |
TOTAL AS AT 31 DECEMBER 2021: |
| 121.5 | 199 | |||
| ||||||
Additions following the Balance Sheet Date: | ||||||
Lemmån | Hydropower | Jan-22 | Älvdalen, Sweden | SE3 / n/a | 0.6 | 3 |
Ryssa Övre | Hydropower | Jan-22 | Mora, Sweden | SE3 / n/a | 0.7 | 3 |
Ryssa Nedre | Hydropower | Jan-22 | Mora, Sweden | SE3 / n/a | 0.6 | 2 |
Rots Övre | Hydropower | Jan-22 | Älvdalen, Sweden | SE3 / n/a | 0.7 | 3 |
Rots Nedre | Hydropower | Jan-22 | Älvdalen, Sweden | SE3 / n/a | 0.3 | 1 |
Gabrielsberget Syd Vind | Wind | Jan-22 | Aspeå, Sweden | SE2 / n/a | 46.0 | 108 |
Vallhaga | Hydropower | Jan-22 | Edsbyn, Sweden | SE2 / n/a | 2.1 | 12 |
Österforsens Kraftstation | Hydropower | Jan-22 | Edsbyn, Sweden | SE2 / n/a | 1.9 | 12 |
Bornforsen 1 | Hydropower | Jan-22 | Edsbyn, Sweden | SE2 / n/a | 0.5 | 3 |
Bornforsen 2 | Hydropower | Jan-22 | Edsbyn, Sweden | SE2 / n/a | 1.5 | 9 |
TOTAL AS AT THE DATE OF THIS REPORT: |
| 175.4 | 355 | |||
Investment Manager's Report
Introduction
We are delighted with the progress made during the Company's inaugural year. During the reporting period, the Company announced two acquisitions deploying the majority of proceeds from the IPO. In addition to deploying capital quickly, the assets acquired by the Company are of high quality and offer the diversification of technology, geography and power market exposure that is central to the aims of the Company.
Acquisitions
We have remained busy following the period end and have invested a further £39.9 million into three acquisitions in both wind and hydropower investments. This includes a 46 MWp operational wind farm in north eastern Sweden and two additional Swedish hydropower portfolios to complement the Company's existing portfolio. All acquisitions are owned 100% by the Group. The discussion below presents further information on these acquisitions.
Downing Hydro AB
The Group completed its first investment in a portfolio of eight operational hydropower plants located in central and southern Sweden on 1 February 2021 for £59.9 million.
The eight hydropower plants are located across three different rivers in Sweden in two different price zones, with an expected annual average production of 108 GWh. The portfolio has a robust operating track record spanning more than five decades and enjoys storage capacity, in the form of dammed rivers, of 105.6 million cubic meters. This capacity regulates water flow to the turbines and allows the assets to capture periods of higher power prices through the controlled dispatch of generation.
In January 2022, the Group acquired two operational portfolios of hydropower plants located in central Sweden for £20.1 million. The acquisition consisted of a c. 12 GWh per annum portfolio of hydropower plants and a c. 36 GWh per annum portfolio. These acquisitions were largely funded through a drawdown on the Downing Hydro AB (DHAB) Swedish hydropower portfolio debt facility signed in November 2021.
The first portfolio comprises five hydropower plants located on three different rivers in central Sweden. The sites also benefit from a long operational history and are located in the county of Dalarna, which is in the attractive SE3 price area.
The second of the two new portfolios includes four run-of-river hydropower plants situated on a single river in central Sweden. The sites benefit from a long operational history and were refurbished between 2010 and 2013. The hydropower plants are located in and around the Swedish town Edsbyn in the SE2 zone.
A framework agreement is in place with Axpo (a leading Swiss energy company) which allows DHAB to lock in prices. DHAB has hedged positions in line with the requirements under the debt facility. The hydro assets do not attract government subsidy payments.
More information on the synergies within the Swedish hydropower portfolio can be seen in the Portfolio and Asset Management section below.
Chalkhill Solar Portfolio
On 19 March 2021 the Group completed its first UK investment, the acquisition of a portfolio of solar PV assets located across the UK. The portfolio was acquired for a consideration of £42 million. The acquisition target, Chalkhill Life Holdings Limited, benefits from £67.9 million senior debt from Aviva and £10.8 million debt from BlackRock.
The portfolio, described as the "Seed Assets" in the IPO Prospectus, comprises:
13 ground-mounted sites located across mainland Great Britain totalling c. 73 MWp; 28 commercial rooftop assets totalling c. 10 MWp; and 7 residential rooftop portfolios in Northern Ireland totalling c. 13MWp.
Most ground mounted PV assets have a long-term power offtake agreement with Statkraft. The Solar companies have been locking in prices due to the high-power prices in the market.
Gabriel Wind Project
On 2 February 2022 the Group completed its first onshore wind investment. The Company acquired an operational 46 MW onshore wind project located in Nordmaling, north eastern Sweden for approximately £19.8 million.
The project has been operational for c. 10 years and consists of 20 turbines with an expected annual production of 108 GWh.
Gabriel has a short-term offtake agreement with Centrica.
Portfolio Performance
The Company received the economic benefit of the portfolios acquired from 1 February 2021. For the period of operations between 1 February 2021 and 31 December 2021, operating profit for the combined portfolios was 16.9% above expectations, driven primarily by generation being 4.7% above expectations and achieving higher than anticipated power pricing.
Generation by Technology
| (MWh) |
Hydro | 108,113 |
Solar | 86,969 |
The Downing Hydro AB portfolio had a strong period with the hydropower assets generating 108.1 GWh, 9.1% above expectations.
The significant uplift in generation during the period was attributable to a combination of strong plant availability as well as a favourable combination of precipitation and reservoir levels. Operating profit was 92.8% over budget for the period, driven by favourable power prices and production exceeding expectations.
The Solar portfolio performed in line with expectations, with the solar installations generating 86.9 GWh. In terms of operating profit, the portfolio performed above expectations, generating an operating profit of £10.25m, 5.2% above budget.
Average irradiation levels across the solar portfolio were 1.9% above budget during the period. The small deviation between irradiation and generation was mainly due to DNO outages at two of the ground mounted installations. In both instances, the O&M were able to utilise these periods of downtime by conducting intrusive preventative maintenance that would otherwise have caused downtime of their own.
Portfolio and Asset Management
Downing has invested significantly in an in-house asset management team capable of providing a full scope service to a wide range of generation and storage technologies. Established in 2019, the team totals 21 and includes expertise across power markets, engineering, data analytics, finance and commercial management.
The asset management team works in parallel to the investment team and ensures work is started long before an asset is acquired. Prior to acquisition, Downing carries out a comprehensive onboarding process to ensure that new assets are transitioned smoothly into the wider energy portfolio. The plan captures all key milestones that need to be completed as part of the transition, including the collection and storage of a range of key documents including project contracts and design documents, as well as detailed historic performance data.
The onboarding process also involves a detailed review to ensure that the assets are embedded into existing processes, such as contract management and compliance, incident tracking, monitoring, and reporting. Assets are fully incorporated within the asset management team's portfolio reporting systems within 60 days of completion. This reporting environment allows real time, flexible reporting to internal stakeholders.
Health and Safety
The health and safety of contractors and the public is a fundamental part of management processes. Throughout the period, a range of workstreams were carried out by the Asset Manager in line with the Company's approach to Health and Safety management.
A dam safety framework was established to ensure effective management of the risks surrounding hydropower activities and classified dams in Sweden. The framework, which is based on industry best practice, focusses on regular inspections, the expertise of operators and the frequency and content of reporting.
Downing significantly increased its operational expertise with the appointment of Ulf Wennilsjo in January 2022. Ulf has over 25 years of experience in the operation and management of large hydropower portfolios in Sweden. As part of his experience, Ulf brings a wealth of knowledge in the management of dam safety practises and procedures.
A rolling programme of Health and Safety audits continues across the portfolio. These audits are based on a two-tier approach, where risks and procedures are audited at the site level and also the operator level. Downing has a process of continuous assessment and feedback of site and operator practices, ensuring effective management systems are in place and adhered to.
Finally, IT systems are used to thoroughly track all incidents. As well as these systems enabling performance measurement and trend analysis, they also ensure the effective communication, escalation, and management of incidents.
Optimisation
The acquisition of the Downing Hydro AB portfolio from Fortum Sweden AB required a detailed transition plan to enable a smooth shift of operations away from being deeply integrated into the vendor's processes and across to Downing.
Several new hydropower operational contracts were placed during the period, including production planning, dispatch optimisation and 24/7 control centre arrangements. Together, these contracts focus on optimising the assets and establishing a framework for the efficient growth of the hydropower portfolio in the future.
The Asset Manager has also commenced a digitalisation project for the hydro portfolio, looking at opportunities to utilise technologies to improve operational efficiencies and reduce downtime. The first step of this involves a trial at one site, which will be rolled out in March 2022. The trial will focus on automated visual monitoring, aiming to reduce workload of the dispatch centre and on call duties, as well as to reduce maintenance costs and downtime.
The Asset Manager is also exploring opportunities for implementing specialist technical performance monitoring equipment, potentially building on the capabilities added to the portfolio during 2021.
Integral to the activity of the asset management team are the data and systems analysts. Downing take a data driven approach to the portfolio and invest significant time and expertise in enabling portfolio improvements through data optimisation strategies. One of these strategies has seen Downing partner with a leading AI technology company. The project aims to leverage artificial intelligence technology from our partner and renewable energy expertise of Downing to better predict short term maintenance and long-term capital costs, enabling faster response times through predictive maintenance, optimised maintenance strategies and dynamic capital expenditure forecasting.
During the period, the Asset Manager continued to develop monitoring capabilities across the portfolio. Using specialised software, automated string analysis was implemented across the ground mounted solar installations, allowing O&M providers to complete more focussed site visits and thereby optimise performance.
An automated daily feed of half hourly satellite irradiation data was also implemented during the period, enabling greater performance monitoring across the rooftop solar installations.
Several new and optimised contracts were placed during the period. New O&M contracts were executed across the residential rooftop and hydropower portfolios. New contracts brought an improved scope of services as well as reduced pricing, while encouraging proactive monitoring of maintenance requirements which is expected to deliver cost efficiencies in the future. New supply and export contracts were also placed and the Asset Manager was able to achieve favourable pricing.
Spare parts strategies have been implemented across the portfolio to help reduce potential downtime in the event of faults, while taking advantage of the size of the portfolio to ensure spare part procurement is efficient and avoids duplication of expenditure.
A phased optimisation project continues across the ground mount solar portfolio to increase the efficiency of modules by reversing the impact of degradation. Phase 1 is complete and continued analysis is taking place, with initial results suggesting improvements to generating capacity.
The ground mount solar portfolio has also achieved compliance with the new accelerated loss of mains requirements, using the available funding from National Grid ESO. Works are underway to achieve compliance for the commercial portfolio.
Financing and Capital Structure
The Group adopts a prudent approach to leverage, with the aim that each asset will be financed appropriately for the nature of its underlying cashflows and their expected volatility. Long-term debt may be used where appropriate at the SPV level to facilitate acquisitions, refinancing, capital expenditure or construction of assets.
Total long-term structural debt will not exceed 50% of the prevailing Gross Asset Value. At 31 December 2021, including project level financing, the Group's leverage stood at 28.0%. Since the period end this has increased to 39%.
In addition, the Company and/or its subsidiaries may also make use of short-term debt, such as a revolving credit facility, to assist with the acquisition of suitable opportunities as and when they become available.
Revolving Credit Facility
The Group has entered into a loan agreement through its main subsidiary DORE Hold Co Limited for a £25 million RCF with Santander UK plc. The RCF has a four-year term, with the possibility to be extended for a further year, and also includes an uncommitted accordion allowing for an increase in its size to further assist the expected increase of the Company's investment activity.
The RCF has the additional benefit of being able to be drawn in both GBP and EUR (with the ability to also able to make use of funds in other currencies) and is priced at the Sterling Overnight Index Average ("SONIA") plus 2.25% per annum. The Group will make use of the RCF mainly to fund the acquisition of additional assets.
Refinancing of Hydropower Assets
The Group initially acquired DHAB, its Swedish hydropower portfolio, on an unlevered basis in February 2021, shortly after the Company's IPO. In light of the strong transaction pipeline and ongoing capital expenditure requirements, DHAB has entered into a seven-year EUR 43.5 million debt facility with SEB, a leading corporate bank in the Nordics. As of 31 January 2022, DHAB had utilised EUR 27.4m of the facilities, predominately as source of funding for acquiring nine further hydropower plants in Sweden from AB Edsbyn Elverk and ÄSI Kraft AB. The remainder of the undrawn facility is predominately to fund future capital expenditure requirements.
Foreign Exchange
The Group's assets in Sweden earn revenues in EUR and incur operational cost in SEK. Assets in UK operate entirely in sterling.
The Group, together with its foreign exchange advisor, has developed and implemented its foreign exchange risk management policy in line with the IPO Prospectus. The policy targets hedging the short to medium-term distributions (up to five years) from the portfolio of assets, that are not denominated in GBP on a "linear reducing basis", whereby a high proportion of expected distributions in year one are hedged and the proportion of expected distributions that are hedged reduces in a linear fashion over the following four years. This is a rolling programme and each year further hedges are expected to be put in place to maintain the profile.
In total, 77% of the Group's EUR dividend receipts from SPVs out to March 2026 were hedged as at the reporting date, meaning only a small portion of these future distributions are subject to the volatility of the spot prices.
Power markets and exposure
Through its portfolio companies, the Group adopts a medium to long-term hedging policy for its generation assets, providing an extra degree of certainty over the cash flows over the hedged periods. The fixed price generation position for the portfolio as of 31 December 2021 is set out in the full Annual Report, showing the impact of the combination of subsidy and fixed income from power sales. The hedging positions are continuously reviewed to ensure an appropriate position is maintained and new hedges are taken out as appropriate.
The Russian Conflict will have a major impact on power prices in Europe and the UK as gas supply is dominated by Russia. Consequently, the UK gas and UK power markets are likely to stay volatile as long as the uncertainty about the Russian gas supply continues. The Company is well protected from this volatility, due its high level of fixed pricing over the short to medium term.
United Kingdom
From IPO in December 2020 through to the end of July 2021, forward power prices increased gradually mostly on the back of increasing carbon prices.
In Q3 2021, global issues with coal and gas supply, combined with an increased demand, resulted in rising global gas ("LNG") and coal prices. This combined with low wind levels, outages of domestic CCGTs and nuclear generation, fears of wider issues with the nuclear fleet in France and the unexpected long-term outage of one of the cross-border interconnectors between the UK and France created a perfect storm. High spot prices and high forward prices resulted. By then gas, power and carbon were now all in unprecedented levels relative to the last 10 years, with a significant uplift in September. Given the unprecedented high prices at the time, we took action to increase the portfolio's hedges.
Power prices peaked in October 2021 before declining on the back of falling gas prices. However, the bearish sentiment was short lived and prices recovered as and carbon prices rose again. Escalating Russian action in Ukraine and associated sanctions, new carbon price records and French power supply concerns (with multiple French nuclear plants facing extended 10-year maintenance outages throughout 2022) pushed prices to unprecedented levels.
Nordics
Q4 of 2020 saw bearish sentiments in the Nordic electricity markets mostly due to reduced demand and a hydrological surplus, pushing spot prices to €0/MWh from time to time.
Market prices increased during January 2021 due to a cold spell in the Nordics as well as continental Europe. Prices came down a little after the cold spell ended but stayed at healthier levels, compared to 2020, throughout the spring and early summer of 2021. Due to a dry summer, the Nordic hydrological deficit continued to increase, which resulted in higher power prices by the end of summer 2021.
High precipitation combined with surging wind started to push down the spot and forward prices at the end of September 2021. By the beginning of November 2021, prices started to increase again mostly on the back of the price surge in the European continent due to increasing gas prices. Similar to the UK, the surge first intensified and then ended in the week leading up to Christmas. At the end of December prices came off significantly.
Dividends
The Company achieved a cash dividend cover of 1.21x for the dividends paid of 2.25 pence per share paid during the period. Dividend cover is presented excluding dividends paid to new shareholders immediately following the issuance of new shares. If these are included, the dividend cover would be 1.14x.
The Board has resolved to pay the Company's third interim dividend of 1.25 pence per share, equivalent to £1.7 million, in respect of the three months to 31 December 2021. This will bring total dividends paid in respect of the first financial year to 3.5 pence per share, which is in line with the Company's updated dividend guidance. The third interim dividend is not reflected in the accounts to 31 December 2021.
The Company has chosen to designate part of each interim dividend as an interest distribution for UK tax purposes. Shareholders in receipt of such a dividend will be treated for UK tax purposes as though they have received a payment of interest in respect of the interest distribution element of this dividend. This will result in a reduction in the corporation tax payable by the Company.
Dividends in respect of the financial year to 31 December 2021 are as follows:
Dividend Paid | For the Period | No. of Shares | Total Dividend (pence per share) | Interest Element (pence per share) | Dividend Element (pence per share) |
September 2021 | June 2021 | 122,500,000 | 1.00 | 0.50 | 0.50 |
December 2021 | September 2021 | 137,008,487 | 1.25 | 0.81 | 0.44 |
March 2022 | December 2021 | 137,008,487 | 1.25 | 0.83 | 0.42 |
The Company intends to pay dividends on a quarterly basis, with dividends typically declared in respect of the quarterly periods ending March, June, September and December. Payment of the relevant dividend declared is expected be made within three months of the relevant quarter end.
Valuation of the portfolio
Net asset value
The Company's NAV increased by 18% during the period from £120.0 million to £141.8 million. On a pence per share basis it increased by 5.5 pence from 98 pence per share to 103.5 pence per share as at 31 December 2021. The NAV increase was driven by additional fundraising, strong operational performance and increases in long term power price forecasts.
The table below shows the movement in NAV during the period, with each step explained further below.
DORE NAV Bridge - 10 December 20 to 31 December 21 | Movement in NAV (£'m) |
Opening (10-Dec-20) | 120.1 |
Dividend | (2.9) |
Management fee | (1.3) |
Other costs and charges | (0.9) |
Performance | 6.5 |
Future power prices | 4.0 |
Inflation | 1.1 |
FX | (0.7) |
Other | 1.4 |
Fundraising | 14.7 |
Closing (31 December-21) | 141.8 |
Opening
Represents the NAV at IPO net of launch costs.
Dividends
Distributions paid by the Company in the period.
Management Fee
Fees charged to the Company by the Investment Manager.
Other costs and charges
Charges incurred by the Company, and its immediate subsidiary DORE Hold Co, in its normal operations. No transaction costs are included.
Performance
Represents the balance sheet variance at the portfolio company level representing higher cashflows than anticipated in the short term.
Power Prices
The Group uses long-term, forward-looking power price forecasts from third party consultants for the purposes of asset valuations. In both the UK and Sweden, an equal blend is taken from the most recent central case forecasts from two leading consultants. Where fixed price arrangements are in place, the financial model will reflect this price for the relevant time frame. The impact of our short-term power hedging strategy is also included in this step.
Inflation
The Group uses a near-term inflation forecast of 2.75%, rising to a medium-term inflation forecast of 3.0% for the purposes of UK asset valuations. From 2030 onwards, this forecast reduces to 2.25% because of the RPI reform recently announced by the UK Government. Models are updated quarterly to reflect inflation to date.
For the Swedish asset valuations, a 2.0% inflation forecast is used, reflective of the Swedish central bank's target inflation rate.
Foreign Exchange
The impact of foreign exchange movements on foreign cash balances and on underlying investment valuations.
Other
Reflects changes to operational contracts (such as insurance) and debt terms, and other minor changes.
Key Valuation Assumptions
Asset life
Where land is leased from an external landlord, the operational life assumed for the purposes of the asset valuations is valued at the earlier of planning or lease expiry.
Where a project has an indefinite life, the land it is located on is owned and there are no constraints regarding planning, asset valuations are based on a perpetual life. This is the basis for the valuation of the hydropower assets.
The asset life assumed for each of the ground mounted solar sites was set taking into consideration the length of the respective planning consent and term of leasing agreement in place at the time of acquisition. On a capacity-weighted basis this results in an average asset life of close to 25 years. There is an ongoing process underway to extend planning and lease terms to allow the assets to operate for longer than initially expected. This project is expected to increase the weighted useful life of the ground mount portfolio to 27.8 years. The extension to asset life assumptions to this level would, if implemented on 31 December 2021, result in a valuation gain of approximately £1.1m.
Discount Rates
Discount rates used for the purpose of the valuation process are representative of the Investment Manager's and the Board's assessment of the rate of return in the market for assets with similar characteristics and risk profile.
Discount rates in use across the portfolio range from 5.5% to 7.5%, with the weighted value at 7.3%.
Foreign Exchange
Cashflows from assets that are generated in a non-sterling currency are converted in each period they are earned using the actual hedges in place, with the residual amounts converted at the relevant exchange rate.
The relevant exchange rate is taken from a forward curve provided by the Company's foreign exchange advisors for ten years, at which point the exchange rate is held constant due to the impracticalities of hedging currency further into the future.
Portfolio Valuation sensitivities
The NAV of the Company is comprised of the sum of the discounted value of future cash flows of the underlying investments in solar and hydropower assets (being the portfolio valuation), the cash balances of the Company and its holding Company and the other assets and liabilities of the Group.
The portfolio valuation is the largest component of the NAV and the key sensitivities to this valuation are considered to be discount rate and the principal assumptions used in respect of future revenues and costs.
A broad range of assumptions are used in the Company's valuation models. These assumptions are based on long-term forecasts and are generally not affected by short-term fluctuations in inputs, whether economic or technical.
The Investment Manager exercises its judgement and uses its experience in assessing the expected future cash flows from each investment.
The impact of changes in the key drivers of the valuation are set out below.
Discount Rate
The weighted average discount rate of the portfolio at 31 December 2021 was 7.3%.
The Investment Manager considers a variance of plus or minus 0.5% is to be a reasonable range of alternative assumptions for discount rates.
Energy Yield
For the solar assets, our underlying assumption set assumes the so called P50 level of electricity output based on reports by technical advisors. The P50 output is the estimated annual amount of electricity generation that has a 50% probability of being exceeded and a 50% probability of being underachieved.
For hydropower assets, the expected annual average production is applied to the valuation, similar to the P50 assumption applied to solar and wind assets. Given the long operational record of the hydropower assets, the annual production forecast is derived from historic datasets and validated by technical advisors.
The Energy Yield sensitivities uses a variance of plus or minus 5% applied to the generation.
Power Prices
The power price sensitivity assumes a 10% increase or decrease in power prices relative to the base case for each year of the asset life.
While power markets can experience volatility in excess of +/-10% on a short-term basis, the sensitivity is intended to provide insight into the effect on the NAV of persistently higher or lower power prices over the whole life of the portfolio, which is a more severe downside scenario.
Inflation
The Company's inflation assumptions are set out above. A long-term inflation sensitivity of plus and minus 0.5% is presented below.
Foreign Exchange
The Company's foreign exchange policy is set out above. A sensitivity of plus and minus 10% is applied to any non-hedged cashflows derived from non-sterling assets. The Company will also try to ensure sufficient near-term distributions from any non-sterling investments are hedged.
Market development and opportunities
Since the IPO of the Company, the demand for electricity around the globe has continued to grow, this has pushed energy prices to unprecedented levels. According to the IEA, global electricity demand grew by more than 6% in 2021 and was the largest in percentage terms since 201013.
Although electricity produced from renewable sources grew by 6%5 in 2021, this was not enough to keep up with the rising demand. There is clearly still work to be done.
The Investment Manager is progressing a significant pipeline of opportunities across technologies / sectors including wind, solar, hydro and utilities. The geographical focus of the opportunities in progress is the Nordic region and the UK, with certain further opportunities across Northern Europe.
A key message coming out of the pandemic has been that governments continue to look to "build back better" following the uncertainty of the previous years, caused by the Covid-19 pandemic. This year the UK played host to COP26, which has raised the global ambition on climate action.
The outlook continues to remain favourable for companies involved in the renewable energy and infrastructure space. In 2021, the renewable energy industry remained remarkably resilient. Decreasing costs of renewable energy technologies, along with the growth of battery storage, have made renewables one of the most competitive energy sources in many areas.
Following COP26 many countries have set ambitious clean energy goals, increasing renewable portfolio standards with many also enacting energy storage mandates. The rollout of renewable energy capacity is poised to accelerate in 2022 and beyond, as concern for climate change grow and demand for cleaner energy sources from most market segments accelerates.
The outlook for the Company is encouraging; three new acquisitions already made in 2022 (including the Company's first wind asset) and proven operational and financial performance from the Company's existing assets provide a strong foundation for future growth.
Section 172(1) Statement
The following disclosure describes how the Directors have had regard to the matters set out in section 172(1)(a) to (f) when performing their duty under s172 of the Companies Act 2006 and forms the Directors' statement required under section 414CZA of the Companies Act 2006.
Section 172(1) | Description |
(a) the likely consequences of any decision in the long term | In managing the Company, the aim of the Board and of the Investment Manager is to ensure the long-term sustainable success of the Company and, therefore, the likely long‑term consequences of any decision are a key consideration.
In managing the Company during the period since IPO, the Board and Investment Manager believe they have acted in the way which we considered, in good faith, with a view to promoting the Company's long-term sustainable success and to achieving its wider objectives for the benefit of our shareholders as a whole, having had regard to our wider stakeholders and the other matters set out in Section 172 of the Companies Act. |
(b) the interests of the company's Employees | As a closed-ended investment company, the Company does not have any employees, however the interests of any employees within project companies are considered when making decisions. |
(c) the need to foster the company's business relationships with suppliers, customers and others | The Board's approach is described under 'Stakeholder Engagement' below. |
(d) the impact of the company's operations on the community and the environment | The Board places a high value on the monitoring of ESG issues and sets the overall strategy for ESG matters related to the Company. The Board takes responsibility in managing any climate-related risks for the group, including transparent disclosure of these risks, and takes mitigating actions to reduce or eliminate them where possible.
A description of the Company's sustainable and responsible Investment Policy is set out in the full Annual Report. |
(e) the desirability of the company maintaining a reputation for high standards of business conduct | The Board's approach is described under 'Culture and Values' below.
|
(f) the need to act fairly as between members of the company | The Board's approach is described under 'Stakeholder Engagement' below. |
Culture and Values
The Directors' overarching duty is to promote the success of the Company for the benefit of investors, with due consideration of other stakeholders' interests. The Company seeks to maintain the highest standards of business conduct and corporate governance and ensures via the Investment Manager that appropriate oversight, control and suitable policies are in place to ensure the Company treats its stakeholders fairly.
The Board seeks to ensure the alignment of its purpose, values and strategy with this culture of openness, debate and integrity through continued dialogue and engagement with its key stakeholders. The Board, made up of two male and one female members, aims to achieve a supportive business culture combined with constructive challenge and to provide a regular flow of information to shareholders and other stakeholders.
Although the Company has no employees, the Company is committed to respecting human rights in its broader relationships. Both the Company and the Investment Manager have anti-corruption and bribery policies in place in order to maintain standards of business integrity, a commitment to truth and fair dealing and a commitment to complying with all applicable laws and regulations.
The Company has several policies and procedures in place to assist with maintaining a culture of good governance including those relating to diversity, antibribery (including the acceptance of gifts and hospitality), tax evasion, conflicts of interest, and Directors' dealings in the Company's shares. Further information can be seen in the Nomination Committee Report in the full Annual Report.
The Board assesses and monitors compliance with these policies regularly through Board meetings and the annual evaluation process. The Board seeks to appoint the most appropriate service providers for the Company's needs and evaluates their services on a regular basis. The Board considers the culture of the Investment Manager and other service providers through regular reporting and by receiving regular information well as through ad hoc interactions.
Stakeholder Engagement
This section describes how the Board engages with its key stakeholders, how it considers their interests and the outcome of the engagement when making its decisions, the likely consequences of any decision in the long-term, and further ensures that it maintains a reputation for high standards of business conduct.
Stakeholder | Why is it important to Engage? | How has the Company communicated and engaged? | What were the key topics of engagement? |
Key strategic decisions impacting stakeholder group during period |
Shareholders | Shareholders and their continued support is critical to the continuing existence of the business and delivery of our long-term investment strategy. | The Company makes regular market announcements where appropriate. The Company has published quarterly fact sheets available on the Company's website. Views and feedback are sought from institutional investors via the Company's corporate broker. | A large number of investor meetings were held prior to IPO in December 2020 and in respect of the subsequent fundraising in October 2021 to engage shareholders with the Company's strategy. | The Company made two acquisitions during the period which should be accretive to the NAV over the long-term. The Company increased its annual dividend guidance to 5 pence per share, continuing to position the Company as an attractive proposition for income seeking investors. |
Investment Manager | The Investment Manager is responsible for executing the Investment Objective within the bounds of the Investment Policy of the Company. | The Board maintains regular and open dialogue with the Investment Manager at Board meetings and has regular contact on operational and investment matters outside of meetings. | In addition to all matters related to the execution of the Company's Investment Objective, the Board engaged with the Investment Manager on the structure of the Group and the interpretation of investment restrictions. | Determination that the Investment Manager maintains a robust internal control environment, and that the continued appointment of the Investment Manager is in the best interests of shareholders. |
Service providers | As an externally managed Company, we are reliant on our service providers to conduct our core activities. We believe that fostering constructive and collaborative relationships with our service providers will assist in the promotion of the success of the Company. | The Board maintains regular contact with its service providers, both through Board and Committee meetings, as well as outside the regular meeting cycle. The Management Engagement Committee is responsible for conducting periodic reviews of service providers. During the period, the Management Engagement Committee assessed that the continued appointment of all service providers remained in the best interests of the Company and its shareholders. | Being the inaugural annual report for the Company the Audit and Risk Committee, in particular the Chair, have been engaged with the external auditors to ensure the process was undertaken effectively.
The Board sought advice from the Company's Broker and Legal Counsel in respect of various matters, including the interpretation of investment restrictions. | Key service providers have been retained, providing continuity of service and familiarity with the objectives of the Company.
During period, there was a non-material amendment to the Investment Policy. For the purpose of acquiring the solar assets, the Company's Investment Policy was temporarily amended to permit the Company to invest no more than 61% of Gross Asset Value in assets located in the UK. The previous limit was 60%. |
Asset-level counterparties | Asset-level counterparties are an essential stakeholder group and engagement with them is important to ensure assets are operating safely and effectively and performing as expected. | The Group made its first investment on 1 February 2021. As a result, during the reporting period communications with asset-level counterparties have been limited. As part of continual monitoring of future investments, we expect a regular dialogue with these counterparties. | The key engagement with asset-level counterparties was during the due diligence process prior to completing the investment. | Acquired two new assets during the period, increasing ongoing servicing requirements from O&M counterparties. |
Debt-providers | Providers of long-term debt are key to supporting the Company's long-term objectives through enabling the continued financing of investment opportunities. | During the period, the Company, via its unconsolidated subsidiaries, entered into an RCF and also refinanced its hydropower assets. This included a comprehensive negotiation of terms.
The Company and its unconsolidated subsidiaries provide regular updates on covenant compliance and current positioning. | Pricing and sizing of the debt was a key consideration for the Company. | Debt will be a key component of the Company's funding strategy looking forward and the portfolio will utilise the RCF debt facility in the coming months.
Following the period end, the hydropower level debt was utilised to acquire further hydropower assets. More information on these acquisitions can be found above. |
Risks and Risk Management
The Board recognises that effective risk management is key to the Group's success and that a proactive approach is critical to ensuring the sustainable growth and resilience of the Group. Risk is described as the potential for events to occur that may result in damage, liability or loss. Should any of these events occur, the Company may well be adversely impacted, potentially leading to the disruption of the Company's business model, as well as potential damage to the reputation or financial standing of the Company.
The benefit of a risk management framework is that it allows for potential risks to be identified in advance and may enable these risks to either be mitigated or possibly even converted into opportunities. The Company's IPO Prospectus, issued in November 2020 detailed the potential risks that the Directors considered were material that could occur during the process of implementing the Company's Investment Policy.
Principal Risks and Uncertainties
Procedures to identify principal or emerging risks
It is not possible to eliminate all risks that may be faced by the Company.
The objective of the Company's risk management framework and policies adopted by the Company is to identify risks and enable the Board to respond to risks with mitigating actions to reduce the potential impacts should any of the risks materialise.
The Board, through the Audit and Risk Committee, regularly reviews the Company's risk register, with a focus on ensuring appropriate controls are in place to mitigate each risk. Taking considered risk is the essence of all business and investment activity.
The Board considers the following to be the principal risks faced by the Company along with the potential impact of these risks and the steps taken to mitigate them.
Risk Identified | Risk Description | Risk Impact | Mitigation |
Exposure to wholesale electricity prices and risk to hedging power prices | The Company makes investments in Assets with revenue exposure to wholesale electricity prices. The market price of electricity is volatile and is affected by a variety of factors, including market demand for electricity, levels of electricity generation, the generation mix of power plants, government support for various forms of power generation and fluctuations in the market prices of commodities and foreign exchange. | Market demand for electricity can be impacted by many factors, including changes in consumer demand patterns, increased usage of smart grids, a rise in demand for electric vehicle charging capacity and residential participation in renewable energy generation. Such changing dynamics could have a material adverse effect on the Company's profitability, the NAV and the price of the Ordinary Shares.
To the extent that the Company or an SPV enters contracts to fix the price it receives on the electricity generated or enters into derivatives with a view to hedging against fluctuations in power prices, the Company or SPV, may be exposed to risk related to delivering an amount of electricity over a specific period.
If there are periods of non-production the Company or an SPV may need to pay the difference between the price it has sold the power at and the market price at that time.
| The Investment Manager closely monitors exposure to power price movements. Sensitivity to long term forecasts will be disclosed to investors and the Board on a regular basis.
Many assets are expected to have a significant proportion of revenue that is not linked to power price forecasts including subsidies such as feed-in-tariffs.
In addition, assets are geographically diverse, spreading exposure across different power markets and price drivers. Short- and medium-term exposure to power prices will be managed by locking power prices on a rolling basis. See chart in the full Annual Report for an illustration of the portfolio's current fixed vs merchant revenues. |
Exposure to the transactional effects of foreign exchange rate fluctuations and risks of foreign exchange hedging | To the extent the Company invests in non-sterling jurisdictions, it may be exposed to foreign exchange risk caused by fluctuations in the value of foreign currencies when the net income and valuations of those operations in non-Sterling jurisdictions are translated into Sterling for the purposes of financial reporting. | While the Company and SPVs may enter derivative transactions to hedge such foreign exchange rate exposures, there can be no guarantee that the Company and/or SPVs will be able to, or will elect to, hedge such exposures, or that were entered into, will be successful.
The Company and/or SPVs may be required to satisfy margin calls in respect of hedges and in certain circumstances may not have such collateral readily available. In these circumstances, the Company could be forced to sell an Asset or borrow further funds to meet a margin call or take a loss on a position. To the extent that the Company and/or SPVs do rely on derivative instruments to hedge exposure to exchange rate fluctuations, they will also be subject to counterparty risk. Any failure by a hedging counterparty to discharge its obligations could have a material adverse effect on the Company's profitability, the NAV and the price of the Ordinary Shares. | Natural hedging of foreign exchange exposure will occur due to an element of costs and debt (for capital structuring purposes) being linked to the local currency.
The Company will hedge expected income from foreign assets up to five years in advance.
|
Non-compliance with the investment trust eligibility conditions under sections S1158/S1159 of the CTA 2010 | As an approved investment trust, the Company is exempt from UK corporation tax on its chargeable gains and capital profits on loan relationships. | If the Company fails to maintain its investment trust status from HMRC, in such circumstances, the Company would be subject to the normal rates of corporation tax on chargeable gains and capital profits arising on the transfer or disposal of investments and other assets. Which could adversely affect the Company's financial performance, its ability to provide returns to its Shareholders or the post-tax returns received by its Shareholders. | The Company has contracted out the relevant monitoring to appropriately qualified professionals. The Investment Manager also monitors relevant qualifying conditions.
The Investment Manager and the Company Secretary report on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk management framework. |
Construction risks for certain renewable energy projects | SPVs may undertake projects that are in the Construction Phase or are construction ready which may be exposed to certain risks, such as cost overruns, construction delays and construction defects that may be outside the Company's control. | Should completion of any project overrun (both in terms of time and budget), there is a risk that payments may be required to be made to (or withheld by) a counterparty in relation to the delay. If the completion of a project overruns, it would also result in a delayed start to receipt of revenues, which could affect the Company's ability to achieve its target returns, depending on the nature and scale of such delay.
Additional costs and expenses, delays in construction or carrying out repairs, failure to meet technical requirements, lack of warranty cover and/or consequential operational failures or malfunctions may have a material adverse effect on the Company's profitability, the NAV and the price of the ordinary shares. | The Investment Manager will monitor construction carefully and report frequently to the Board and AIFM.
The Investment Manager has an experienced asset management team including technical experts to oversee construction projects. The Investment Manager will undertake an extensive due diligence process prior to investment with input from the Board (including technical expertise).
Third party experts will be used as required to enhance knowledge and experience. |
Reliance on third-party service providers | The Company, whose Board is non-executive, and which has no employees, is reliant upon the performance of third-party service providers for its executive function.
The Company relies on the Investment Manager and other service providers and their reputation in the energy and infrastructure market. | The third-party provider may prove to be insufficiently skilled for the role or perform the roles required to an inadequate level, which may cause the Company to underperform, to breach regulations, or in extremis to go into administration. | There are clear service level agreements in place for all third-party providers and provisions are in place that any provider can be replaced, subject to an initial term or a breach of the agreement occurring.
They have all been chosen for being skilled and experienced in their areas of expertise. The Board has regular oversight over all the other providers. |
Lack of availability of suitable renewable energy projects | Competition for renewable energy projects in the primary investment or secondary investment markets, may result in the Company being unable to make investments or on terms that enable the target returns to be delivered. | If the Investment Manager is unable to source sufficient opportunities within a reasonable timeframe, whether by reason of fundamental change in market conditions creating lack of available opportunities, too much competition or otherwise. A greater proportion of the Company's assets will be held in cash for longer than anticipated and the Company's ability to achieve its Investment Objective may be adversely affected. | The Company has an Investment Manager in place with a strong track record, who strengthened their team ahead of the fund launch.
Through extensive industry relationships the Investment Manager provides access to a significant pipeline of investment opportunities. |
Conflicts of interest | The Investment Manager and the AIFM may manage from time-to-time other managed Funds pursuing similar investment strategies to that of the Company and which may be in competition with the Company. | The appointment of the AIFM is on a non-exclusive basis and each of the AIFM and Investment Manager manages other accounts, vehicles and funds pursuing similar investment strategies to that of the Company.
This has the potential to give rise to conflicts of interest. The Company may also be in competition with other Downing Managed Funds for Assets. In relation to the allocation of investment opportunities. | The AIFM and the Investment Manager have clear conflicts of interest and allocation policies in place.
Transactions where it is perceived that there may be potential conflicts of interest are overseen by the Investment Manager's Conflicts Committee, an independent fairness opinion on valuation may also be commissioned where deemed necessary.
The application of allocation policy is reviewed by the Investment Managers Compliance Department, and by the Board on annual basis.
Further information on these procedures can be found in the Company's Prospectus dated 12 November 2020.
|
Risks relating to the technical performance of assets | The long-term performance of the assets acquired does not match the expectations at the time of the acquisition. | Incorrect assumptions against technical performance of assets, or the availability of natural resources may lead to additional costs and expenses, carrying out repairs, or reduced revenues.
Any delays or reduction in the production or supply of energy may have a material adverse effect on the performance of the Company, the NAV, the Company's earnings and returns to shareholders. | The Company will appoint third party technical advisors for every transaction. The advisors will undertake a review of the technology, design, installation (if applicable), and natural resource availability and provide an analysis of expected long term generation yields.
Where Assets are going through construction, appropriate contractual guarantees will be provided. Operators will often provide guarantees as to the availability or performance of Assets. |
Counterparties' ability to make contractual payments | The Company's revenue derives from the renewable energy projects in the portfolio, the Company and its SPVs will be exposed to the financial strength of the counterparties to such projects and their ability to meet their ongoing contractual payment obligations. | The failure by a counterparty to pay the contractual payments due, or the early termination of a PPA by an Offtaker due to insolvency, may materially affect the value of the portfolio and could have a material adverse effect on the performance of the Company, the NAV, the Company's earnings and returns to shareholders. | The Investment Manager will look to build in suitable mechanisms to protect the income stream from the relevant renewable energy projects, which may include parent guarantees and liquidated damages payments on termination.
Exposure to defaults may be further mitigated by contracting with counterparties who are public sector or quasi-public sector bodies or who are able to draw upon government subsidies to partly fund contractual payments.
As part of the acquisition process, the Investment Manager conducts a thorough due diligence process on all projects. |
Risks associated with Cyber Security | There exists an increasing threat of cyber-attack in which a hacker may attempt to access the Company's website or its secure data, or the computer systems that relate to one of its Assets and attempt to either destroy or use this data for malicious purposes. | Increased regulation, laws, rules and standards related to cyber security, could impact the Company's reputation or result in financial loss through the imposition of fines. Suffering a cyber breach will also generally incur costs associated with repairing affected systems, networks and devices.
If one or several Assets became the subject of a successful cyber-attack, to the extent any loss or disruption following from such attack would not be covered or mitigated by any of the Company's insurance policies, such loss or disruption could have an adverse effect on the performance of the affected Asset and consequently on the Company's profitability, the NAV and the price of the Ordinary Shares. | Cyber security policies and procedures implemented by key service providers are reported to the Board regularly to ensure conformity. Thorough third-party due diligence is carried out on all suppliers engaged to service the Company. All providers have processes in place to identify cyber security risks and apply and monitor appropriate risk plans. |
Further financial risks are detailed in Note 16 of the financial statements below.
Emerging Risks
Emerging risks are characterised by a degree of uncertainty, therefore the Investment Manager and the Board consider new and emerging risks every six months. The risk register is then updated to include these considerations. The Board has a process in place to identify emerging risks, such as climate related risks, and to determine whether any actions are required. The Board relies on regular reports provided by the Investment Manager and the Administrator regarding risks that the Company faces. When required, experts are employed to provide further advice, including tax and legal advisers.
Climate Change
Environmental laws and regulations continue to evolve as the UK, Europe and the rest of the world continue to focus their efforts on the goals laid out by the Paris Agreement. In jurisdictions where the Company's Assets are located, newly implemented laws and/or regulations may have an impact on a given Asset's activities.
These laws may impose liability whether or not the owner or operator of the Assets knew of or was responsible. There can be no assurance that environmental costs and liabilities will not be incurred in the future. In addition, environmental regulators may seek to impose injunctions or other sanctions on an Asset's operations that may have a material adverse effect on its financial condition and valuation. Climate change may also have other wide-ranging impacts such as an increased likelihood of market reform, insurance coverage availability and cost.
Climate change may also lead to increased variability in average weather patterns such as periods of increased or reduced wind speeds or rainfall as well as extreme events which may affect the performance of the Company's investments.
Physical Effects of Climate Change
While efforts to mitigate climate change continue to progress, the physical impacts are already emerging in the form of changing weather patterns. Such as the recent heatwaves experienced in North America and recent flash flooding seen throughout the UK and Europe.
Extreme weather events can result in flooding, drought, fires and storm damage, which may potentially impair the operations of existing and future portfolio companies at a certain location or impacting locations of companies within their supply chain.
Transition Risks
Much of the conversation around climate change focuses on environmental impacts, such as rising temperatures and extreme weather events. A big part of climate risk, however, involves transition risk - or the risk that results from changing policies, practices, and technologies that arise as countries and societies work to decrease their reliance on carbon. In the near and medium term, transition risks to portfolio investments may arise from any unexpected changes to existing government policies. An increase in renewables build-out ambition without sufficient demand could reduce power price forecasts. This could have a negative impact on the valuation of the Company's assets.
Going Concern and Viability Statement
Going Concern
The Board, in its consideration of the going concern position of the Company, has reviewed comprehensive cash flow forecasts prepared by the Company's Investment Manager which are based on market data and believes, based on those forecasts, the assessment of the Company's subsidiary's banking facilities and the assessment of the principal risks described in this report, that it is appropriate to prepare the financial statements of the Company on the going concern basis.
In arriving at their conclusion that the Company has adequate financial resources, the Directors were mindful that the Group had cash of £33 million as at 31 December 2021, though £39.9 million has been spent on new acquisitions since the reporting date. The Group utilised EUR 27.4 million of its facility with SEB to help fund the additional hydropower acquisitions. There is EUR 16.1 million remaining of this facility.
Through its main subsidiary, DORE Hold Co Limited, the Company has access to an undrawn RCF which is available for either, new investments or investment in existing projects and working capital. The RCF is currently undrawn.
The Company's net assets at 31 December 2021 were £141.8 million and total expenses for the period ended 31 December 2021 were £2.2 million, which represented approximately 1.6% of average net assets during the period.
In light of the ongoing COVID-19 pandemic the Directors have fully considered each of the Company's investments. Given the nature of the Company's portfolio, the Directors do not foresee any immediate material risk to the Company's investment portfolio and income from underlying SPVs.
The Directors are satisfied that the Company has sufficient resources to continue to operate for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing these financial statements.
Viability Statement
In accordance with Principle 21 of the AIC Code, the Board has assessed the prospects of the Group over a period longer than 12 months required by the relevant 'Going Concern' provisions. In reviewing the Company's viability, the Directors have assessed the viability of the Company for the period to 31 December 2026 (the 'Period'). The Board believes that the Period, being approximately five years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the long term nature of the Company's investment strategy, which is modelled over five years, and the principal risks outlined above. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the period to 31 December 2026.
In making this statement, the Directors have considered and challenged the reports of the Investment Manager in relation to the resilience of the Group, taking account of its current position, the principal risks faced in severe but reasonable scenarios, including a stressed scenario, the effectiveness of any mitigating actions and the Group's risk appetite.
Sensitivity analysis has been undertaken to consider the potential impacts of such risks on the business model, future performance, solvency and liquidity over the period, both on an individual and combined basis. In particular, this has considered the achievement of budgeted energy yields, the level of future electricity and gas prices, continued government support for renewable energy subsidy payments and the impact of a downside scenario which includes significant reduction of projects' yields under severe power price and generation volume assumptions.
The Directors have determined that a five‑year look forward to December 2026 is an appropriate period over which to provide its viability statement. This is consistent with the outlook period used in medium‑term forecasts regularly prepared for the Board by the Investment Manager and the discussion of any new strategies undertaken by the Board in its normal course of business.
These reviews consider both the market opportunity and the associated risks, principally the ability to raise third-party funds and invest capital, or mitigating actions taken, such as a reduction of dividends paid to shareholders or utilisation of additional borrowings available under the RCF.
Board approval of the Strategic Report
The Strategic Report has been approved by the Board of Directors and signed on its behalf by the Chair.
Hugh W M Little
Chair
4 March 2022
Extracts from the Directors' Report
Directors
The Directors who held office during the year and as at the date of this report were as follows:
Hugh W M Little (Chairman)
Joanna De Montgros - Non-Executive Director
Ashley Paxton - Non-Executive Director
Share Capital
At the general meeting held on 26 October 2020, the Company was granted authority to allot up to 200 million ordinary shares, such authority to expire immediately following admission of the Company's ordinary shares to trading on the premium segment of the main market of the London Stock Exchange at IPO ('Admission'). On 10 December 2020, the Company issued 122,500,000 ordinary shares at a price of 100 pence per share, with an aggregate nominal value of £1,225,000, raising gross proceeds of £122,500,000. The shares were issued to institutional and retail investors and admitted to trading on the premium segment of the main market of the London Stock Exchange on 10 December 2020. As a consequence of the above and as at the date of this report, the Company's ability to allot shares under this authority has been exhausted.
In addition to and separate from the above authority, at the general meeting held on 26 October 2020, the Company was granted authority to allot ordinary shares and/or C shares of the Company equal in aggregate to 20% of the number of ordinary shares in issue immediately following Admission, amounting to 24,500,000 shares, such authority to expire on conclusion of the Company's first AGM.
On 19 October 2021, the Company issued 14,508,487 ordinary shares at a price of 102.5 pence per share, with an aggregate nominal value of £145,084.87, raising gross proceeds of £14.87 million. The placing price of 102.50 pence represented a discount of 1.68% to the Company's closing share price of 104.25 pence per share on 28 September 2021 and a premium of 3.33% to the unaudited ex-dividend net asset value per share as at 30 June 2021. The shares were issued to institutional and retail investors and admitted to trading on the premium segment of the main market of the London Stock Exchange on 10 December 2020.
As at 31 December 2021 and the date of this report, the Company has the ability to issue a further 9,991,513 ordinary and/or C shares under this authority. This authority will expire at the conclusion of, and renewal will be sought at, the AGM to be held in April 2022.
At the general meeting held on 26 October 2020, the Company was granted authority to purchase up to 14.99% of the ordinary shares in issue immediately following Admission, amounting to 18,362,750 ordinary shares. This authority will expire at the conclusion of, and renewal will be sought at, the AGM to be held in April 2022. Shares bought back by the Company may be held in treasury, from where they could be reissued at or above the prevailing NAV quickly and cost effectively.
This provides the Company with additional flexibility in the management of its capital base. No shares were bought back or held in treasury during the period under review or at the period end.
At the period end and at the date of this report, the issued share capital of the Company comprised 137,008,487 ordinary shares. At general meetings of the Company, ordinary shareholders are entitled to one vote on a show of hands and, on a poll, to one vote for every ordinary share held.
At 31 December 2021 and at the date of this report, the total voting rights of the Company were 137,008,487.
Statement of Directors' Responsibilities
In respect of the financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the directors are required to prepare financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for the Company for that period. The Directors are also required to prepare financial statements in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;state whether applicable IFRS as issued by the IASB) have been followed, subject to any material departures disclosed and explained in the financial statements; make judgements and accounting estimates that are reasonable and prudent; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
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. The Directors are responsible for ensuring that the annual report and accounts, taken as a whole, are fair, balanced, and understandable and provides the information necessary for shareholders to assess the group's performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
Directors' responsibilities pursuant to DTR4
The directors confirm to the best of their knowledge:
The financial statements have been prepared in accordance with the applicable set of accounting standards and Article 4 of the IAS regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company.
The annual report includes a fair review of the development and performance of the business and the financial position of the Company, together with a description of the principal risks and uncertainties that they face.
On behalf of the Board.
Hugh W M Little (Chair)
4 March 2022
Non-Statutory Accounts
The financial information set out below does not constitute the Company's statutory accounts for the period from incorporation on 8 October 2020 to 31 December 2021 but is derived from those accounts. Statutory accounts for the period from incorporation on 8 October 2020 to 31 December 2021 will be delivered to the Registrar of Companies in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full Annual Report on the Company's website at www.doretrust.com
Statement of Comprehensive Income
For the Period from 8 October 2020 to 31 December 2021
|
Notes | Revenue 31 December 2021 £'000s | Capital 31 December 2021 £'000s | Total 31 December 2021 £'000s |
|
|
|
|
|
Income |
|
|
|
|
Return on investment | 5 | 4,978 | 7,327 | 12,305 |
Total income |
| 4,978 | 7,327 | 12,305 |
Expenses |
|
|
|
|
Investment management fees | 4 | (1,284) | - | (1,284) |
Directors' fees | 18 & 22 | (146) | - | (146) |
Other expenses | 6 | (745) | - | (745) |
Total expenses |
| (2,175) | - | (2,175) |
|
|
|
|
|
Profit before taxation |
| 2,803 | 7,327 | 10,130 |
|
|
|
|
|
Taxation | 7 | - | - | - |
Profit after taxation |
| 2,803 | 7,327 | 10,130 |
Profit and total comprehensive income attributable to: |
|
|
|
|
Equity holders of the Company |
| 2,803 | 7,327 | 10,130 |
|
|
|
|
|
Earnings per share - Basic & diluted (pence) | 8 | 2.6 | 6.8 | 9.4 |
The total column of this statement is the Statement of Comprehensive Income of the Company prepared in accordance with International Financial Reporting Standards (IFRS) as adopted. The supplementary revenue return and capital columns have been prepared in accordance with the Association of Investment Companies Statement of Recommended Practice (AIC SORP).
Statement of Financial Position
As at 31 December 2021
|
Notes | 31 December 2021 £'000s |
Non-current assets |
|
|
Investments at fair value through profit and loss | 9 | 131,508 |
|
| 131,508 |
Current assets |
|
|
Trade and other receivables | 10 | 280 |
Cash and cash equivalents | 15 | 11,254 |
|
| 11,534 |
|
|
|
Total assets |
| 143,042 |
|
|
|
Current liabilities Trade and other payables |
11 |
(1,201) |
|
| (1,201) |
|
|
|
Total liabilities |
| (1,201) |
|
|
|
|
|
|
Net assets |
| 141,841 |
|
|
|
Capital and reserves |
|
|
Called up share capital | 12 | 1,370 |
Share Premium | 13 | 14,506 |
Special distributable reserve | 13 | 118,435 |
Revenue reserve |
| 203 |
Capital reserve |
| 7,327 |
Shareholders' funds |
| 141,841 |
|
|
|
Net asset value per ordinary share (pence) | 14 | 103.5 |
The audited financial statements of Downing Renewables & Infrastructure Trust PLC were approved by the Board of Directors and authorised for issue on 4 March 2022 and are signed on behalf of the Board by:
Hugh W M Little
Chair
Company registration number 12938740
Statement of Changes in Equity
For the Period from 8 October 2020 to 31 December 2021
| Notes | Share Capital | Share Premium
| Capital Reserve
| Revenue Reserve
| Special Distributable Reserve | Total
|
|
| £'000s | £'000s | £'000s | £'000s | £'000s | £'000s |
Balance at the start of the period |
| - | - | - | - | - | - |
Gross proceeds from share issue | 12 | 1,370 | 136,001 | - | - | - | 137,371 |
Bonus shares | 12 | - | (52) | - | - | - | (52) |
Share issue costs | 12 | - | (220) | - | - | (2,450) | (2,670) |
Dividends | 20 | - | - | - | (2,600) | (338) | (2,938) |
Transfer to special distributable reserve | 13 | - | (121,223) | - | - | 121,223 | - |
Total comprehensive income for the period |
| -
| -
| 7,327
| 2,803
| -
| 10,130
|
Net assets attributable to shareholders at 31 December 2021 |
| 1,370 | 14,506 | 7,327 | 203 | 118,435 | 141,841 |
The Company's distributable reserves consist of the Special distributable reserve, Capital reserve attributable to unrealised gains and Revenue reserve. There have been no realised gains or losses at the reporting date.
Statement of Cash Flows
For the Period from 8 October 2020 to 31 December 2021
|
Notes | Incorporation to 31 December 2021 £000s |
|
|
|
Cash flows from operating activities |
|
|
Profit before taxation |
| 10,130 |
|
|
|
Adjusted for: |
|
|
Interest income | 5 | (4,978) |
Unrealised gains on investments at fair value | 5 | (7,327) |
Increase in receivables |
| (280) |
Increase in payables |
| 1,201 |
Net cash outflows from operating activities |
| (1,254) |
|
|
|
Cash flows from investing activities |
|
|
Purchase of investments | 9 | (121,749) |
Loan Interest Received | 9 | 2,546 |
Net cash outflows from investing activities |
| (119,203) |
|
|
|
Cash flows from financing activities |
|
|
Gross proceeds of share issue | 12 | 137,371 |
Bonus shares | 12 | (52) |
Dividends | 20 | (2,938) |
Share issue costs | 12 | (2,670) |
Net cash flows from financing activities |
| 131,711 |
|
|
|
Increase in cash and cash equivalents |
| 11,254 |
Cash and cash equivalents at the start of the period |
| - |
Cash and cash equivalents at the end of the period | 15 | 11,254 |
|
|
|
|
| |
Notes to the Financial Statements
For the Period from 8 October 2020 to 31 December 2021
1. General Information
The Company is registered in England and Wales under number 12938740 pursuant to the Companies Act 2006 and its registered office Beaufort House, 51 New North Road, Exeter, England, EX4 4EP.
The Company was incorporated on 8 October 2020 and is a Public Limited Company and the ultimate controlling party of the group. The Company's ordinary shares were first admitted to the premium segment of the Financial Conduct Authority's Official List and to trading on the Main Market of the London Stock Exchange under the ticker DORE on 10 December 2020.
The audited financial statements of the Company (the "financial statements") are for the period from incorporation on 8 October 2020 to 31 December 2021 and comprise only the results of the Company, as all of its subsidiaries are measured at fair value in line with IFRS 10 as disclosed in Note 2.
The Company's objective is to generate an attractive total return for investors comprising stable dividend income and capital preservation, with the opportunity for capital growth through the acquiring and realising value from a diverse portfolio of renewable energy infrastructure projects.
The Company currently makes its investments through its principal holding company and single subsidiary, DORE Hold Co Limited ("Hold Co"), and intermediate holding companies which are directly owned by the Hold Co. The Company controls the Investment Policy of each of the Hold Co and its intermediate holding companies in order to ensure that each will act in a manner consistent with the Investment Policy of the Company.
The Company has appointed Downing LLP as its Investment Manager (the "Investment Manager") pursuant to the Investment Management Agreement dated 12 November 2020. The Investment Manager is registered in England and Wales under number OC341575 pursuant to the Companies Act 2006. The Investment Manager is regulated by the FCA, number 545025.
2. Basis of preparation
These financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the applicable legal requirements of the Companies Act 2006. In addition to complying with international accounting standards in conformity with the requirements of the Companies Act 2006, the financial statements also comply with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
The financial statements have also been prepared as far as is relevant and applicable to the Company in accordance with the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts ("SORP") issued in October 2019 by the Association of Investment Companies ("AIC").
The financial statements are prepared on the historical cost basis, except for the revaluation of certain financial instruments at fair value through profit or loss. The principal accounting policies adopted are set out below. These policies are consistently applied.
The financial statements are presented in Sterling, which is the Company's functional currency and are rounded to the nearest thousand, unless otherwise stated.
Estimates and underlying assumptions are reviewed regularly on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future period affected. The significant estimates, judgement or assumptions for the period are set out above.
There are no comparatives as this is the Company's first accounting period.
Basis of Consolidation
The sole objective of the Company and through its subsidiary DORE Hold Co Limited is to own Renewable Energy Infrastructure Projects, via individual corporate entities. Hold Co typically will issue equity and loans to finance its investments.
The Directors have concluded that in accordance with IFRS 10, the Company meets the definition of an investment entity having evaluated the criteria that needs to be met (see below). Under IFRS 10, investment entities are required to hold subsidiaries at fair value through profit or loss rather than consolidate them on a line-by-line basis, meaning Hold Co's cash, debt and working capital balances are included in the fair value of the investment rather than in the Company's assets and liabilities. Hold Co has one investor which is the Company. However, in substance, Hold Co is investing the funds of the investors of the Company on its behalf and is effectively performing investment management services on behalf of many unrelated beneficiary investors.
Characteristics of an investment entity
There are three key conditions to be met by the Company for it to meet the definition of an investment entity. For each reporting period, the Directors will continue to assess whether the Company continues to meet these conditions:
It obtains funds from one or more investors for the purpose of providing these investors with professional investment management services; It commits to its investors that its business purpose is to invest its funds solely for the returns (including having an exit strategy for investments) from capital appreciation, investment income or both; and It measures and evaluates the performance of substantially all its investments on a fair value basis.
In satisfying the second criterion, the notion of an investment timeframe is critical. An investment entity should not hold its investments indefinitely but should have an exit strategy for their realisation. The Company intends to hold its renewable energy infrastructure assets for the remainder of their useful life to preserve the capital value of the portfolio. However, as the renewable energy infrastructure assets are expected to have no residual value after their useful lives, the Directors consider that this demonstrates a clear exit strategy from these investments.
Subsidiaries are therefore measured at fair value through profit or loss, in accordance with IFRS 13 "Fair Value Measurement2, IFRS 10 "Consolidated Financial Statements" and IFRS 9 "Financial Instruments".
The Directors believe the treatment outlined above provides the most relevant information to investors.
Going concern
The Directors have adopted the going concern basis in preparing the Annual Report. The following is a summary of the Director's assessment of going concern status of the Company. In reaching this conclusion, the Directors have considered the liquidity of the Company's portfolio of investments as well as its cash position, income and expense flows. As at 31 December 2021, the Company had net assets of £141.8 million including cash balances of £11 million which are sufficient to meet current obligations as they fall due. Since the period end £39.9 million has been spent on new acquisitions. The Group, through one of its unconsolidated subsidiaries, utilised EUR 27.4 million of its facility with SEB to help fund the additional hydropower acquisitions. Through its main subsidiary, DORE Hold Co Limited, the Company has access to an undrawn RCF of £25 million which is available for either, new investments or investment in existing projects and working capital. The RCF is currently undrawn.
In the period since incorporation, COVID-19 has continued to have a negative impact on the global economy. As the United Kingdom and the developed world continue to roll out their vaccination programmes, the outlook for both the UK and global economy is beginning to look more positive, although it should be noted, with the potential for additional variants of the virus to become more prevalent, COVID-19 continues to raise potential uncertainties and additional risks for the Company.
The Directors and the Investment Manager continue to actively monitor this and its potential effect on the Company and its investments.
In particular, they have considered the following specific key potential impacts:
Unavailability of key personnel at the Investment Manager or Administrator; and Increased volatility in the fair value of investments.
In considering the above key potential impacts of COVID-19 on the Company's operations, the Directors have assessed these with reference to the mitigation measures in place. The key personnel at the Investment Manager had successfully implemented business continuity plans prior to incorporation to ensure business disruption was minimised, including remote working, and all staff are continuing to assume their day-to-day responsibilities.
SPV revenues are derived from the sale of electricity, although approximately 89 per cent of the portfolio's revenue in 2022 is not exposed to floating power prices. Revenue is received through power purchase agreements in place with large and reputable providers of electricity to the market and also through government subsidies. In the period since acquisition and up to the date of this report, there has been no significant impact on revenue and cash flows of the SPVs. The SPVs have contractual operating and maintenance agreements in place with large and reputable providers. Therefore, the Directors and the Investment Manager do not anticipate a threat to the Group's revenue.
Based on the assessment outlined above, including the various risk mitigation measures in place, the Directors do not consider that the effects of COVID-19 have created a material uncertainty over the assessment of the Company as a going concern.
The Directors have reviewed Group forecasts and projections which cover a period of at least 12 months from the date of approval of this report, considering foreseeable changes in investment and trading performance, which show that the Group has sufficient financial resources to continue in operation for at least the next 12 months from the date of approval of this report. On the basis of this review, and after making due enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in operation and accordingly, they continue to adopt the going concern basis in preparing the financial statements.
Segmental reporting
The Chief Operating Decision Maker (the "CODM") being the Board of Directors, is of the opinion that the Company is engaged in a single segment of business, being investment in renewable energy infrastructure.
The Company has no single major customer. The internal financial information to be used by the CODM on a quarterly basis to allocate resources, assess performance and manage the Company will present the business as a single segment comprising the portfolio of investments in renewable energy infrastructure assets.
Critical accounting judgements, estimates and assumptions
In the application of the Company's accounting policies, which are described in Note 3, the Directors are required to make judgements, estimates and assumptions about the fair value of assets and liabilities that affect reported amounts. It is possible, that actual results may differ from these estimates.
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Estimates, by their nature, are based on judgement and available information, hence actual results may differ from these judgements, estimates and assumptions.
The key assumptions that have a significant impact on the carrying value of investments that are valued by reference to the discounted value of future cashflows are the useful life of the assets, the discount rates, the rate of inflation, the price at which the power and associated benefits can be sold and the amount of electricity the assets are expected to produce. The sensitivity analysis of these key assumptions is outlined in note 9 to the financial statements below.
Useful lives are based on the Investment Manager's estimates of the period over which the assets will generate revenue which are periodically reviewed for continued appropriateness. Where land is leased from an external landlord, the operational life assumed for the purposes of the asset valuations is valued at the earlier of planning or lease expiry. Where a project has an indefinite life, the land it is located on is owned and there are no constraints regarding planning, asset valuations are based on a perpetual life including long term capital expenditure assumptions. This is the basis for the valuation of the hydropower assets. The actual useful life may be a shorter or longer period depending on the actual operating conditions experienced by the asset.
The discount rates are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different value. The discount rates applied to the cashflows are reviewed regularly by the Investment Manager to ensure they are at the appropriate level. The Investment Manager will take into consideration market transactions, where of similar nature, when considering changes to the discount rates used.
The revenues and expenditure of the investee companies are frequently partly or wholly subject to indexation and an assumption is made as to near term and long-term rates.
The price at which the output from the generating assets is sold is a factor of both wholesale electricity prices and the revenue received from the Government support regimes. Future power prices are estimated using external third-party forecasts which take the form of specialist consultancy reports, which reflect various factors including gas prices, carbon prices and renewables deployment, each of which reflect the UK and global response to climate change.
The Company's investments in unquoted investments are valued by reference to valuation techniques approved the Directors and in accordance with the International Private Equity and Venture Capital ("IPEV") Guidelines.
As noted above, the Board have concluded that the Company meets the definition of an investment entity as defined in IFRS 10. This conclusion involved a degree of judgement and assessment as to whether the Company meets the criteria outlined in the accounting standards.
New, revised and amended standards applicable to future reporting periods
There were no new standards or interpretations effective for the first time for periods beginning on or after incorporation that had a significant effect on the Company's financial statements. Furthermore, none of the amendments to standards that are effective from that date had a significant effect on the financial statements.
New and revised standards not applied
At the date of authorisation of these financial statements, the following amendments had been published and will be mandatory for future accounting periods. Effective for accounting periods beginning on or after 1 January 2022:
a number of narrow-scope amendments to IFRS 3 "Business combinations", IAS 16 "Property, plant and equipment", IAS 37 "Provisions, contingent liabilities and contingent assets" and annual improvements on IFRS 1 "First-time Adoption of IFRS", IFRS 9 "Financial instruments", IAS 41 "Agriculture" and the Illustrative Examples accompanying IFRS 16 "Leases".
Effective for accounting periods beginning on or after 1 January 2023:
Narrow-scope amendments to IAS 1 "Presentation of Financial Statements", Practice statement 2 and IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors".
Amendments to IAS 12, "Income Taxes" - deferred tax related to assets and liabilities arising from a single transaction.
Amendments to IFRS 17, "Insurance contracts" - this standard replaces IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts.
Effective for accounting periods beginning on or after 1 January 2024:
Amendments to IAS 1 on classification of liabilities clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period.
The impact of these standards is not expected to be material to the reported results and financial position of the Company.
3. Significant Accounting Policies
Financial Instruments
Financial assets and financial liabilities are recognised on the Company's Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. Financial assets are to be de-recognised when the contractual rights to the cash flows from the instrument expire or the asset is transferred, and the transfer qualifies for de-recognition in accordance with IFRS 9 Financial Instruments and IFRS 13 Fair Value Measurement.
Financial assets
The Company classifies its financial assets as either investments at fair value through profit or loss or financial assets at amortised cost. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of its financial assets at initial recognition.
Investments at fair value through profit or loss ("FVTPL")
The fair value of investments in renewable energy infrastructure projects is calculated by discounting at an appropriate discount rate future cash flows expected to be received by the Company's intermediate holdings, from investments in both equity (dividends and equity redemptions), shareholder and inter-company loans (interest and repayments).
Investments are designated upon initial recognition as held at fair value through profit or loss. Gains or losses resulting from the movement in fair value are recognised in the Statement of Comprehensive Income at each valuation point. As shareholder loan investments form part of a managed portfolio of assets whose performance is evaluated on a fair value basis, loan investments are designated at fair value in line with equity investments. The Company's loan and equity investments in Hold Co are held at fair value through profit or loss. Gains or losses resulting from the movement in fair value are recognised in the Company's Statement of Comprehensive Income at each valuation point.
Financial assets are recognised/derecognised at the date of the purchase/disposal. Investments are initially recognised at cost, being the fair value of consideration given. Transaction costs are recognised in the Statement of Comprehensive Income as incurred. Fair value is defined as the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. Fair value is calculated on an unlevered, discounted cashflow basis in accordance with IFRS 13 and IFRS 9.
Financial assets at amortised cost
Loans and other receivables are measured at amortised cost using the effective interest method, less any impairment. They are included in current assets, except where maturities are greater than 12 months after the reporting date, in which case they are to be classified as non-current assets. The Company's financial assets held at amortised cost comprise "other receivables" and "cash and cash equivalents" in the statement of financial position.
Impairment
Impairment provisions for loans and receivables are recognised based on a forward-looking expected credit loss model. All financial assets assessed under this model are immaterial to the financial statements.
Financial liabilities
Financial liabilities are classified as other financial liabilities, comprising:
other non-derivative financial instruments, including trade and other payables, which are to be measured at amortised cost using the effective interest method.Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.
Equity instruments
The Company's Ordinary Shares are classified as equity and are not redeemable. Costs associated or directly attributable to the issue of new equity shares are recognised as a deduction in equity and are charged either from the share premium account or the special distributable reserve, created on court cancellation of share premium account.
Taxation
The Company is approved as an Investment Trust Company ("ITC") under sections 1158 and 1159 of the Corporation Taxes Act 2010 and part 2 Chapter 1 Statutory Instrument 2011/2999. The approval is subject to the Company continuing to meet the eligibility conditions of the Corporation Tax Act 2010. The Company intends to ensure that it complies with the ITC regulations on an ongoing basis and regularly monitors the conditions required to maintain ITC status.
Under the current system of taxation in the UK, the Company is liable to taxation on its operations in the UK. Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted at the date of the Statement of Financial Position.
Dividends
Dividends to the Company's shareholders are recognised when they become legally payable. In the case of interim dividends, this is when they are paid. In the case of final dividends, this is when they are approved by the shareholders at the Annual General Meeting.
Income
Income includes investment income from financial assets at FVTPL and finance income.
Investment income from financial assets at FVTPL is recognised in the Statement of Comprehensive Income within income when the Company's right to receive payments is established.
Finance income comprises interest earned on intercompany loans and is recognised on an accruals basis.
Expenses
Expenses are accounted for on an accruals basis. Share issue expenses directly attributable to the listing of shares are charged through profit and loss with incremental costs associated with raising capital charged through the Special Distributable Reserve or Share Premium Account. The Company's investment management fee, administration fees and all other expenses are charged through the Statement of Comprehensive Income. In respect of the analysis between revenue and capital these items are presented and charged 100% as revenue items.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held on call with banks and other short-term highly liquid deposits with original maturities of three months or less.
Deposits to be held with original maturities of greater than three months are included in other financial assets. There are no expected credit losses as the bank institutions will have high credit ratings assigned by international credit rating agencies.
Seasonal and cyclical variations
The Company's results do not vary significantly during reporting periods.
4. Investment management fees
Under the terms of the Investment Management Agreement, the Investment Manager is entitled to a management fee from the Company, which is calculated quarterly in arrears at 0.95% of NAV per annum up to £500 million and 0.85% per annum of NAV in excess of £500 million.
The Company paid £353,135 of management fees during the period, investment management fees of £933,414 were accrued at the period end.
No performance fee is payable to the Investment Manager under the Investment Management Agreement and there are no provisions that would entitle the Investment Manager to a performance fee in respect of future periods.
5. Return on investment
|
|
| 31 December 2021 £'000s |
|
Unrealised movement in fair value of investments (Note 9) |
|
| 7,327 |
|
Interest due on loans to investment (Note 9) |
|
| 4,978 |
|
|
|
| 12,305 |
|
6. Other expenses
|
|
| 31 December 2021 £'000s |
|
Alternative investment fund manager fee |
|
| 110 |
|
Fees payable to the Company's auditor for the audit of the Company's annual accounts |
|
| 96 |
|
Fees payable to the Company's auditor for other services |
|
| 89 |
|
Company secretarial fee |
|
| 62 |
|
Legal fees |
|
| 87 |
|
Depositary fee |
|
| 48 |
|
Hedging advisory |
|
| 39 |
|
Marketing fee |
|
| 53 |
|
Broker fee |
|
| 53 |
|
Retainer fee |
|
| 34 |
|
Other fees |
|
| 74 |
|
|
|
| 745 |
|
Total fees payable to BDO for non-audit services during the year were £88,500 for the audit of the Company's initial accounts and interim review. These services were pre-approved by the Audit and Risk Committee and are not subject to the fee cap.
During the Company's IPO professional fees paid to BDO relating to reporting accountant services and tax structuring advice of £101,000 were charged. Professional fees of £27,000 were also charged for the review of the Company's financial model. These IPO costs were allocated against the Company's capital reserves.
7. Taxation
Taxable income during the period was offset by expenses and the tax charge for the period ended 31 December 2021 is £Nil.
As described above, the Company is recognised as an ITC for accounting periods and is taxed at the current main rate of 19%. To the extent that there is insufficient group tax relief available to eliminate taxable profits, the Company may make interest distributions to reduce taxable profits to nil.
(a) Analysis of charge in the period
| Revenue | Capital | Total |
| £'000 | £'000 | £'000 |
Analysis of tax charge / (credit) in the period: |
|
|
|
Current tax: |
|
|
|
UK corporation tax on profits of the period | - | - | - |
Adjustments in respect of previous periods | - | - | - |
| - | - | - |
|
|
|
|
Deferred tax: |
|
|
|
Origination & reversal of timing differences | - | - | - |
Adjustments in respect of previous periods | - | - | - |
|
|
|
|
Tax charge / (credit) on profit on ordinary activities | - | - | - |
(b) Factors affecting total tax charge for the period
The effective UK corporation tax rate applicable to the Company for the period is 19%. The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company. The differences are explained below.
| Revenue | Capital | Total |
| £'000 | £'000 | £'000 |
Profit / (Loss) on ordinary activities before tax | 2,803 | 7,327 | 10,130 |
|
|
|
|
Profit on ordinary activities multiplied by standard rate |
|
|
|
of corporation tax in the UK of 19% | 533 | 1,392 | 1,925 |
|
|
|
|
Effect of: |
|
|
|
Capital profits not taxable | - | (1,392) | (1,392) |
Non-taxable income | - | - | - |
Expenses non deductible | 10 | - | 10 |
Interest distributions | (543) | - | (543) |
Timing differences | - | - | - |
Group relief | - | - | - |
Excess management expenses | - | - | - |
Total charge / (credit) for the period | - | - | - |
HM Revenue & Customs ("HMRC") has granted approval to the Company's status as an investment trust, and it is the Company's intention to continue meeting the conditions required to obtain approval in the foreseeable future. Investment companies which have been approved by HMRC under section 1158 of the Corporation Tax Act 2010, as amended are exempt from tax on capital gains.
The March 2021 Budget announced a further increase to the main rate of corporation tax to 25% from 1 April 2023. This rate has been substantively enacted at the balance sheet date.
There is no unrecognised deferred tax asset or liability at 31 December 2021.
8. Earnings per share
|
| Revenue £'000 | Capital £'000 | Total £'000s |
|
Revenue and capital profit attributable to equity holders of the Company |
| 2,803 | 7,327 | 10,130 |
|
Weighted average number of ordinary shares in issue |
| 107,864 | 107,864 | 107,864 |
|
Basic and diluted earnings per share (pence) |
| 2.6 | 6.8 | 9.4 |
|
Basic and diluted earnings per share are the same as there are no arrangements which could have a dilutive effect on the Company's ordinary shares.
9. Investments at fair value through profit and loss
|
|
| Total £'000s |
Fair value at start of the period | - |
Loan advanced to DORE Hold Co Limited | 113,749 |
Shareholding in DORE Hold Co limited | 8,000 |
Unrealised gain on investments at FVTPL | 7,327 |
Loan Interest | 2,432 |
Fair value at end of the period | 131,508 |
There is a loan agreement between the Company and DORE Hold Co Limited for £120,000,000. At the reporting date £113,748,641 had been advanced. The rate of interest on the loan is a rate agreed between DORE Hold Co Limited and the Company and has been set at 6% per annum. Interest accrued at the period end and outstanding at the reporting date amounted to £2,432,398. Interest is repayable at the repayment date of 31 December 2030 unless otherwise agreed between the parties to repay earlier.
The company received interest payments of £2,546,000 during the period. Included in the fair value are cash balances at DORE Hold Co of £21.8 million.
The Company owns nine shares in DORE Hold Co Limited that were allotted for a consideration of £8,000,000.
Fair value measurements
IFRS 13 "Fair Value Measurement" requires disclosure of fair value measurement by level. The level of fair value hierarchy within the financial assets or financial liabilities ranges from level 1 to level 3 and is determined on the basis of the lowest level input that is significant to the fair value measurement.
The fair value of the Company's investments is ultimately determined by the underlying net present values of the SPV ("Special Purpose Vehicle") investments. Due to their nature, they are always expected to be classified as level 3 as the investments are not traded and contain unobservable inputs.
The fair value hierarchy consists of the following three levels:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The following table analyses the Company's assets at 31 December 2021:
|
|
|
|
|
| Level 1 £'000s | Level 2 £'000s | Level 3 £'000s | Total £'000s |
Investment portfolio summary |
|
|
|
|
Unlisted investments at fair value through profit and loss | - | - | 131,508 | 131,508 |
Total | - | - | 131,508 | 131,508 |
The determination of what constitutes 'observable' requires significant judgement by the Company. Observable data is considered to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The only financial instruments held at fair value are the instruments held by the Group in the SPVs, which are fair valued at each reporting date. The investments have been classified within level 3 as the investments are not traded and contain unobservable inputs. The Company's investments are all considered to be level 3 assets.
As the fair value of the Company's equity and loan investments in Hold Co is ultimately determined by the underlying fair values of the SPV investments, the Company's sensitivity analysis of reasonably possible alternative input assumptions is the same as for the Group.
There have been no transfers between levels during the period.
Valuations are derived using a discounted cashflow methodology in line with IPEV Valuation Guidelines and take into account, inter alia, the following:
i. due diligence findings where relevant;
ii. the terms of any material contracts including PPAs;
iii. asset performance;
iv. power price forecasts from leading market consultants; and
v. the economic, taxation or regulatory environment.
The DCF valuation of the Group's investments represents the largest component of GAV and the key sensitivities are considered to be the discount rate used in the DCF valuation and assumptions in relation to inflation, energy yield, foreign exchange and power price.
The shareholder loan and equity investments are valued as a single class of financial asset at fair value in accordance with IFRS 13 Fair Value Measurement.
Sensitivity
Sensitivity analysis is produced to show the impact of changes in key assumptions adopted to arrive at the valuation. For each of the sensitivities, it is assumed that potential changes occur independently of each other with no effect on any other base case assumption, and that the number of investments in the portfolio remains static throughout the modelled life. Accordingly, the NAV per share impacts shown below assume the issue of further shares to fund these commitments.
Information on climate related sensitivities can be found in the full Annual Report.
The analysis below shows the sensitivity of the portfolio value (and its impact on NAV) to changes in key assumptions as follows:
Discount rate
The weighted average valuation discount rate applied to calculate the portfolio valuation is 7.3%.
An increase or decrease in this rate by 0.5% points has the following effect on valuation.
Discount rate | NAV per share impact | -0.5% change | Total portfolio Value | +0.5% change | NAV per share impact |
|
| £'000 | £'000 | £'000 |
|
Directors' valuation - Dec 2021 | 4.05 | 5,547 | 131,508 | (5,072) | (3.70) |
Energy yield
The table below shows the sensitivity of the portfolio valuation to a sustained decrease or increase of energy generation by minus or plus 5% on the valuation, with all other variables held constant. The fair value of the solar investments is based on a 'P50' level of electricity generation for the renewable energy assets, being the expected level of generation over the long term. For hydropower assets, the expected annual average production is applied to the valuation, similar to the P50 assumption applied to solar and wind assets.
A change in the forecast energy yield assumptions by plus or minus 5% has the following effect.
Energy Yield | NAV per share impact | -5% change | Total portfolio Value | +5% change | NAV per share impact |
|
| £'000 | £'000 | £'000 |
|
Directors' valuation - Dec 2021 | (6.36) | (8,718) | 131,508 | 8,750 | 6.39 |
Power prices
The sensitivity considers a flat 10% movement in power prices for all years, i.e. the effect of adjusting the forecast electricity price assumptions in each of the jurisdictions applicable to the portfolio down by 10% and up by 10% from the base case assumptions for each year throughout the operating life of the portfolio.
A change in the forecast electricity price assumptions by plus or minus 10% has the following effect.
Power Prices | NAV per share impact | -10% change | Total portfolio Value | +10% change | NAV per share impact |
|
| £000 | £000 | £000 |
|
Directors' valuation - Dec 2021 | (5.89) | (8,070) | 131,508 | 8,079 | 5.90 |
Inflation
The projects' income streams are principally a mix of subsidies, which are amended each year with inflation, and power prices, which the sensitivity assumes will move with inflation. The projects' operating expenses typically move with inflation, but debt payments are fixed. This results in the portfolio returns and valuation being positively correlated to inflation. The weighted average long-term inflation assumption across the portfolio is 2.4%.
The sensitivity illustrates the effect of a 0.5% decrease and a 0.5% increase from the assumed annual inflation rates in the financial model for each year throughout the operating life of the portfolio.
Inflation | NAV per share impact | -0.5% change | Total portfolio Value | +0.5% change | NAV per share impact |
|
| £'000 | £'000 | £'000 |
|
Directors' valuation - Dec 2021 | (2.12) | (2,899) | 131,508 | 3,108 | 2.27 |
Foreign exchange
The Company, where appropriate, seeks to manage its exposure to foreign exchange movements, the objective being, ensuring that the Sterling value of known future investment commitments is fixed. The portfolio valuation assumes foreign exchange rates based on the relevant foreign exchange rates against GBP at the reporting date. A change in the foreign exchange rate by plus or minus 10% (Euro against Swedish Krona, has the following effect on the NAV, with all other variables held constant. The effect is shown after the effect of current level of hedging which reduces the impact of foreign exchange movements on the Company's NAV.
Foreign Exchange | NAV per share impact | -10% change | Total portfolio Value | +10% change | NAV per share impact |
|
| £'000 | £'000 | £'000 |
|
Directors' valuation - Dec 2021 | (1.55) | (2,130) | 131,508 | 1,728 | 1.26 |
10. Trade and other receivables
|
|
| 31 December 2021 £'000s |
|
Prepayments |
|
| 14 |
|
VAT |
|
| 266 |
|
|
|
| 280 |
|
11. Trade and other Payables
|
|
| 31 December 2021 £'000s |
|
Accounts Payable |
|
| 51 |
|
Accruals |
|
| 1,150 |
|
|
|
| 1,201 |
|
Included in the accruals amount at the period end, £933,042 relates to the management fee charged by Downing LLP during the period.
12. Called up share capital
Allotted, issued and fully paid: |
| Number of Shares |
|
|
|
Opening Balance at 8 October 2020 |
|
|
Allotted upon Incorporation |
|
|
Ordinary Shares of 1p each |
| 1.00 |
Management Shares |
| 50,000 |
Allotted /redeemed following admission to LSE |
|
|
Ordinary Shares issued - IPO |
| 122,499,999 |
Management Shares redeemed |
| (50,000) |
Ordinary Shares issued - 19 October 2021 |
| 14,508,487 |
Closing Balance of Ordinary Shares at 31 December 2021 |
| 137,008,487 |
The initial placing of 122,500,000 ordinary shares took place on 10 December 2020, raising gross proceeds of £122,500,000. Each ordinary share has equal rights to dividends and has equal rights to participate in a distribution arising from a winding up of the Company.
Following the Court approval on 20 April 2021, the share premium cancellation was effective. Bonus shares with a consideration of £52,123 were issued and allocated to the Share Premium account.
The share premium account of £121,223,000 at 20 April 2021 was transferred to a special distributable reserve account. The issue costs of £2,450,000 relating to the initial listings were offset against the special distributable reserve account.
The Company issued 14,508,487 additional ordinary shares on 19 October 2021 raising gross proceeds of £14,871,199.
At 31 December 2021 the special distributable reserve account was £118,435,271.
13. Special distributable reserve
As indicated in the Company's Prospectus dated 12 November 2020, following admission of the Company's Ordinary Shares to trading on the London Stock Exchange, the Directors applied to the Court and obtained a judgement on 20 April 2021 to cancel the amount standing to the credit of the share premium account of the Company.
As stated by the Institute of Chartered Accountants in England and Wales ("ICAEW") and the Institute of Chartered Accountants in Scotland ("ICAS") in the technical release TECH 02/17BL, The Companies (Reduction of Share Capital) Order 2008 SI 2008/1915 ("the Order") specifies the cases in which a reserve arising from a reduction in a company's capital (i.e., share capital, share premium account, capital redemption reserve or redenomination reserve) is to be treated as a realised profit as a matter of law.
The Order also disapplies the general prohibition in section 654 on the distribution of a reserve arising from a reduction of capital. The Order provides that if a limited company having a share capital reduces its capital and the reduction is confirmed by order of court, the reserve arising from the reduction is treated as a realised profit unless the court orders otherwise.
The amount of the share premium account cancelled and credited to the Company's special reserve is £121.2 million which can be utilised to fund distributions by way of dividends to the Company's shareholders.
The share premium created on the issue of additional ordinary shares on 19 October 2021 has yet to be cancelled. At the reporting date, the amount standing to the credit of the share premium account was £14,506,291.
At 31 December 2021 the special distributable reserve account was £118,435,271.
14. Net asset value per ordinary share
The basic total net assets per ordinary share is based on the net assets attributable to equity shareholders as at 31 December 2021 of £141,841,774 and ordinary shares of 137,008,487 in issue at 31 December 2021.
There is no dilution effect and therefore no difference between the diluted total net assets per ordinary share and the basic total net assets per ordinary share.
15. Cash and Cash equivalents
At the period end, the Company had cash of £11.3 million. This balance was held by the Royal Bank of Scotland.
16. Financial Risk Management
The Company's investment activities expose it to a variety of financial risks, including, interest rate risk, foreign exchange risk, power price risk, credit risk and liquidity risk. The Board of Directors has overall responsibility for overseeing the management of financial risks, however the review and management of financial risks are delegated to the AIFM.
Each risk and its management are summarised below.
Foreign exchange risk
Foreign exchange risk is defined as the risk that the fair value of future cash flows will fluctuate because of changes in foreign exchange rates. The Company monitors its foreign exchange exposures using its near-term and long-term cash flow forecasts. Its policy is to use foreign exchange hedging to provide protection to the level of sterling distributions that the Company aims to receive from portfolio companies over the medium-term, where considered appropriate. This may involve the use of forward exchange. The Company's sensitivity to foreign exchange risk can be seen in Note 9.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The Company is exposed to interest rate risk on its cash balances held with counterparties, bank deposits, advances to counterparties through loans to its subsidiaries. The Company may be exposed to changes in variable market rates of interest as this could impact the discount rate and therefore the valuation of the projects as well as the fair value of the loan receivables. The Company is not considered to be materially exposed to interest rate risk.
The Company's interest and non-interest bearing assets and liabilities as at 31 December 2021 are summarised below:
| Interest Bearing | Non-Interest bearing | Total |
Assets | £'000 | £'000 | £'000 |
Cash and cash equivalents | - | 11,254 | 11,254 |
Trade and other receivables | - | 280 | 280 |
Investments at fair value through profit and loss | 113,749 | 17,759 | 131,508 |
Total assets | 113,749 | 29,293 | 143,042 |
Liabilities |
|
|
|
Accrued expenses | - | (1,201) | (1,201) |
Total liabilities | - | (1,201) | (1,201) |
Liquidity risk
Liquidity risk is the risk that the Company may not be able to meet its financial obligations as they fall due. The Investment Manager, AIFM and the Board continuously monitor forecast and actual cash flows from operating, financing, and investing activities to consider payment of dividends, repayment of trade and other payables or funding further investing activities.
The Company ensures it maintains adequate reserves and will put in place banking facilities and it will continuously monitor forecast and actual cash flows to seek to match the maturity profiles of financial assets and liabilities.
At the period end, the Company's investments were in secured loan and equity investments in private companies, in which there is no listed market and therefore such investments would take time to realise, and there is no assurance that the valuations placed on the investments would be achieved from any such sale process. The Company's Hold Co is the entity through which the Company holds its investments, the liquidity of Hold Co is reflective of the investments in which it holds. The Company's main subsidiary holds an RCF, which has currently been undrawn.
| Less than 1 year | 1-5 years | More than 5 years | Total |
| £'000 | £'000 | £'000 | £'000 |
Assets |
|
|
|
|
Investments at fair value through profit and loss (note 9) | - | - | 131,508 | 131,508 |
Trade and other receivables | 280 | - | - | 280 |
Cash and cash equivalents | 11,254 | - | - | 143,042 |
Liabilities |
|
|
|
|
Trade and other payables | (1,201) | - | - | (1,201) |
| 10,333 | - | 131,508 | 141,841 |
Credit risk
Credit risk is the risk that a counterparty of the Company will be unable or unwilling to meet a commitment that it has entered into with the Company. It is a key part of the pre-investment due diligence. The credit standing of the companies which the Company intends to lend or invest is reviewed, and the risk of default estimated for each significant counterparty position. Monitoring is on-going, and period end positions are reported to the Board on a quarterly basis.
Credit risk may also arise from cash and cash equivalents and deposits with banks and financial institutions. The Company and its subsidiaries may mitigate their risk on cash investments by only transacting with major international financial institutions with high credit ratings assigned by international credit rating agencies.
The carrying value of the investments and cash represent the Company's maximum exposure to credit risk.
The Company's credit risk exposure as at 31 December 2021 is summarised below:
| As at 31 December 2021 |
| £'000 |
Loan Investment | 113,749 |
Cash and cash equivalents | 11,254 |
Total | 125,003 |
Price risk
Price risk is defined as the risk that the fair value of a financial instrument held by the Company will fluctuate. Investments are measured at FVTPL. As at 31 December 2021, the Company held two investments through its intermediate holding company. The value of the underlying renewable energy investments held by Hold Co will vary according to a number of factors including: discount rate used, asset performance and forecast power prices.
Capital risk management
The capital structure of the Company at the year-end consists of equity attributable to equity holders of the Company, comprising issued capital and reserves. The Board continues to monitor the balance of the overall capital structure so as to maintain investor and market confidence. The Company is not subject to any external capital requirements.
Market risk
Returns from the Company's investments are affected by the price at which the investments are acquired. The value of these investments will be a function of the discounted value of their expected future cash flows, and as such will vary with, inter alia, movements in interest rates, market prices and the competition for such assets. The Investment Manager carries out a full valuation quarterly and this valuation exercise takes into account changes described above.
17. Unconsolidated subsidiaries, associates and joint ventures
The following table shows subsidiaries of the Group. As the Company is regarded as an Investment Entity as referred to in note 2, these subsidiaries have not been consolidated in the preparation of the financial statements:
Investment | Place of Business | Ownership Interest as at 31 December 2021 |
DORE Hold Co Limited17 | England15 | 100% |
DORE Sweden Hold Co Limited18 | England17 | 100% |
Downing Hydro AB19 | Sweden6 | 100% |
Abercomyn Solar Ltd21 | England17 | 100% |
Andover Airfield Solar Developments Ltd20 | England17 | 100% |
Appleton Renewable Energy7 | England17 | 100% |
Appleton Renewables21 | England17 | 100% |
Beeston Solar Energy Ltd22 | England17 | 100% |
Beeston Solar Ltd21 | England17 | 100% |
Bourne Park Solar Ltd23 | England17 | 100% |
Brookside Solar Ltd21 | England17 | 100% |
Brown Argus Trading Ltd23 | England17 | 100% |
Chalkhill Commercial PV Ltd23 | England17 | 100% |
Chalkhill Life Holdings Ltd18 | England17 | 100% |
Deeside Solar Farm Ltd24 | England17 | 100% |
Emerald Isle Solar Energy Ltd8 | Northern Ireland17 | 100% |
Emerald Isle Solar Ltd21 | Northern Ireland17 | 100% |
Greenacre Redbridge Ltd25 | England17 | 100% |
Greenacre Solar Energy Ltd9 | England17 | 100% |
Greenacre Solar Ltd21 | England17 | 100% |
Heulwen Solar Ltd21 | England17 | 100% |
Hulse Energy Ltd21 | Northern Ireland17 | 100% |
Hulse Renewable Energy Ltd10 | Northern Ireland17 | 100% |
KPP132 Ltd27 | England17 | 100% |
KPP141 Ltd33 | Northern Ireland17 | 100% |
Moray Energy Ltd24 | Northern Ireland17 | 100% |
Moray Power (UK) Ltd27 | Northern Ireland17 | 100% |
Moray Power Ltd21 | Northern Ireland17 | 100% |
Newton Solar Energy Ltd11 | England17 | 100% |
Newton Solar ltd21 | England17 | 100% |
Penarth Energy Ltd21 | England17 | 100% |
Ridgeway Solar Energy Ltd12 | England17 | 100% |
Ridgeway Solar ltd21 | England17 | 100% |
Ringlet Trading Ltd23 | England17 | 100% |
ROC Solar (UK) Ltd13 | Northern Ireland17 | 100% |
ROC Solar ltd21 | Northern Ireland17 | 100% |
Solar Finco 1 Limited14 | England17 | 100% |
Solar Finco 2 Limited15 | England17 | 100% |
Solar Finco 3 Limited23 | England17 | 100% |
TGC Solar Oakfield Ltd29 | England17 | 100% |
Triumph Renewable Energy Ltd33 | Northern Ireland17 | 100% |
Triumph Solar Energy ltd16 | Northern Ireland17 | 100% |
Triumph Solar ltd21 | Northern Ireland17 | 100% |
Voltaise (UK) Ltd 35 | England17 | 100% |
Voltaise ltd21 | Northern Ireland17 | 100% |
Wakehurst Renewable Energy Ltd36 | Northern Ireland17 | 100% |
Wakehurst Renewables Ltd21 | Northern Ireland17 | 100% |
York NIHE Ltd36 | Northern Ireland17 | 100% |
York Renewable Energy Ltd37 | England17 | 100% |
York Renewables Ltd21 | Northern Ireland10 | 100% |
18. Employees and Directors
The Company is governed by a Board of Directors, all of whom are independent and non-executive. During the period, they received fees for their services of £145,833. The Company has 3 non-executive Directors.
Other than the Directors, the Company had no employees during the period.
19. Contingencies and commitments
The Company has no commitments or contingencies.
20. Dividends declared
As outlined above in the Chairman's statement, in the IPO Prospectus on 12 November 2020, the Company was targeting an initial annualised dividend yield of 3% by reference to the IPO price of £1.00, in respect of the financial period from IPO on 10 December 2020 to 31 December 2021 (equating to 3.0 pence per share), rising to a target annualised dividend yield of 5% by reference to the IPO price in respect of the financial year to 31 December 2022.
| Dividend per share | Total dividend |
Interim dividends paid during the period ended 31 December 2021 | pence | £'000 |
With respect to the quarter ended 30 June 2021 | 1.00 | 1,225 |
With respect to the quarter ended 30 September 2021 | 1.25 | 1,713 |
| 2.25 | 2,938 |
| Dividend per share | Total dividend |
Interim dividends declared after 31 December 2021 and not accrued in the year | pence | £'000 |
With respect to the quarter ended 31 December 2021 | 1.25 | 1,713 |
| 1.25 | 1,713 |
On 24 February 2022, The Board declared an interim dividend of 1.25 pence per share with respect to the period ended 31 December 2021.
The Dividend is expected to be paid on or around 31 March 2022 to shareholders on the register on 4 March 2022. The ex-dividend date is 3 March 2022.
As announced in September 21, following the rapid deployment equity issuance proceeds and the continued strong trading performance since the two portfolios were acquired, the Board announced it is increasing its dividend guidance. The Company intends to increase the dividend to 5 pence for the year to 30 June 2022 (representing a dividend per share of 1.25 pence for the quarter ending September 2021 and thereafter).
During the period, The Board declared two interim dividends of 1 pence per share on 1 September 2021 and 1.25 pence per share on 25 November 2021, with respect to the periods ending 30 June 2021 and 31 December 2021. As outlined in the Company's Prospectus, the Company has chosen to designate part of these interim dividends as an interest distribution.
The dividend for the period to 30 June 2021, was paid as 0.50 pence per share as an interest payment and 0.50 as an ordinary dividend. The dividend paid for the period to 31 December 2021 was paid as 0.8125 pence per share as an interest payment and 0.4375 as an ordinary dividend.
Shareholders in receipt of such a dividend will be treated for UK tax purposes as though they have received a payment of interest in respect of the interest distribution element of this dividend. This will result in a reduction in the corporation tax payable by the Company.
21. Events after the balance sheet date
Dividends
On 24 February 2022, The Board declared an interim dividend of 1.25 pence per share with respect to the period ended 31 December 2021.
The dividend is expected to be paid on or around 31 March 2022 to shareholders on the register on 4 March 2022. The ex-dividend date is 3 March 2022.
Acquisitions
The Company, through its main subsidiary acquired two operational portfolios of hydropower plants, located in central Sweden for £20.1 million and also completed the acquisition of an operational 46 MW onshore wind project located in north eastern Sweden for £19.8 million. EUR 27.4 million was drawn against the facility with SEB to help fund the hydropower acquisitions.
22. Related party transactions
The amounts incurred in respect of the Investment Management fees during the period to 31 December 2021 was £1,284,177. Of this amount, £933,042 were unpaid at 31 December 2021.
The placing agreement entered into on 12 November 2020 between the Company, the Directors, the AIFM, the Investment Manager, Singer Capital Markets Advisory LLP and Singer Capital Markets Securities Limited provided, amongst other things, that the Investment Manager (i) would contribute to the costs of the IPO such that the Net Asset Value per Ordinary Share at Admission would not be less than 98 pence and (ii) would be paid commission in respect of investors introduced by it to the IPO. The net effect of this receipt from, and payment to, the Investment Manager was a payment made by the Company of £648,290. These terms of the placing agreement were disclosed in the IPO Prospectus.
Each of the underling investments of the Group entered into an asset management agreement with the Asset Manager. The total value of recurring services Invoiced to the companies during the period was £370,635 with a further £222,801 accrued. The £222,801 which has been accrued remained unpaid at the period end.
The amounts incurred in respect of Directors fees during the period to 31 December 2021 was £145,833. These amounts had been fully paid at 31 December 2021. The amounts paid to individual directors during the period were as follows:
Hugh W M Little (Chair) - £58,333
Jo De Montgros - £40,833
Ashley Paxton - £46,667
Tony McGing and Tom Williams were Directors of the Company from 8 October 2020 to 28 October 2020, they received no remuneration during the period.
Due to the Company being an externally managed investment company, there are no other fees due to key management personnel.
Transactions with a Shareholder - Acquisition of the Seed Assets
Bagnall Energy Limited is a shareholder in the Company. Its shareholding can be seen in the full Annual Report.
As identified in the Company's Prospectus dated 12 November 2020, the Company benefited from an option to acquire a portfolio of c.96 MWp of operational solar PV projects located in the UK. The Seed assets were previously owned by Bagnall Energy Limited, a Downing Managed Fund, managed by the Investment Manager on a discretionary basis. This acquisition of the Seed Assets represented a conflict of interest as the Investment Manager provided investment management services to both the Company and Bagnall Energy Limited.
To mitigate this conflict, the Investment Manager put in place several procedures, including disclosure of the relevant conflicts to the independent boards of both the Company and Bagnall Energy Limited, separate buy and sell side external legal advisers and a fairness opinion, addressed to the Company, on the value of the Asset to be acquired was sought from an independent expert.
Intercompany Loans
During the period interest totalling £4.98 million was charged on the Company's long-term interest-bearing loan between the Company and its subsidiary. At the period end, £2.4 million remained unpaid.
The loan to DORE Hold Co Limited is unsecured. As at the balance sheet date, the loan balance stood at £113.7 million.
Company Information
Directors (all non-executive) | Hugh W M Little (Chair) Joanna de Montgros Ashley Paxton
|
Registered Office | Beaufort House 51 New North Road Exeter EX4 4EP
|
AIFM and Administrator | Gallium Fund Solutions Limited Gallium House Unit 2 Station Court Borough Green Sevenoaks Kent TN15 8AD
|
Investment Manager | Downing LLP 6th Floor St Magnus House 3 Lower Thames Street London EC3R 6HD
|
Sponsor and Financial Adviser | Singer Capital Markets LLP One Bartholomew Lane London EC2N 2AX
|
Company Secretary | Link Company Matters Limited Beaufort House 51 New North Road Exeter EX4 4EP
|
Solicitors to the Company | Gowling WLG (UK) LLP 4 More London Riverside London SE1 2AU
|
Registrar | Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL email: enquiries@linkgroup.co.uk
|
Depositary | Gallium P E Depositary Limited Gallium House Unit 2 Station Court Borough Green Sevenoaks Kent TN15 8AD
|
Auditor | BDO LLP 55 Baker Street London W1U 7EU |
National Storage Mechanism
A copy of the Annual Report will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
Legal Entity Identifier: 2138004JHBJ7RHDYDR62
[1] These are alternative performance measures
1 These are alternative performance measures.
[2] Total returns in sterling, including dividend reinvested.
[3] Based on NAV at IPO of £0.98/share.
[4] A measure of total asset value including debt held in unconsolidated subsidiaries.
[6] The registered office is c/o Cirio Advokatbyra Box 3294, 103 65 Stockholm
[7] Appleton Renewable Energy Ltd is 100% owned by Appleton Renewables, Appleton Renewable Energy Ltd, in turn owns 100% of Andover Airfield Solar Developments Ltd
[8] Emerald Isle Solar Energy Limited is 100% owned by Emerald Isle Solar Ltd
[9] Both companies are 100% owned by Greenacre Solar Ltd
[10] Hulse Renewable Energy Ltd is 100% owned by Hulse Energy Ltd
[11] Newton Solar Energy is 100% owned by Newton Solar Ltd
[12] Both companies are 100% owned by Ridgeway Solar Ltd
[13] ROC Solar (UK) ltd is 100% owned by ROC Solar Ltd
[14] Solar Finco 1 Ltd is 100% owned by Solar Finco 2 Ltd
[15] Solar Finco 2 Ltd is 100% owed by Solar Finco 3 Ltd
[16] Triumph Solar Energy is 100% owned by Triumph Solar Ltd, Triumph Solar Energy Ltd in turn owns 100% of Triumph Renewable Energy Ltd and KPP 141 Ltd.