GCP Infrastructure Investments Regulatory News (GCP)

15 December 2022

GCP Infrastructure Investments Limited

("GCP Infra" or the "Company")

LEI: 213800W64MNATSIV5Z47

Annual report and financial statements for the year ended 30 September 2022

The Directors are pleased to announce the Company's annual results for the year ended 30 September 2022. The full annual report and financial statements can be accessed via the Company's website at www.graviscapital.com/funds/gcp-infra/literature and will be posted to shareholders who elected to receive full copy statutory documents on 9 January 2023.

About the Company

GCP Infrastructure Investments Limited ("GCP Infra" or the "Company")

The Company seeks to provide shareholders with regular, sustained, long-term dividend income and to preserve the capital value of its investments over the long term by generating exposure to infrastructure debt and/or similar assets. It is currently invested in a diversified, partially inflation-protected portfolio of investments, primarily in the renewable energy, social housing and PPP/PFI sectors.

The Company is a FTSE 250, closed-ended investment company incorporated in Jersey. It was admitted to the Official List and to trading on the London Stock Exchange's Main Market in July 2010. It has a market capitalisation of £865.3 million at 30 September 2022.

At a glance - 30 September 2022

Highlights for the year

- Dividends of 7.0 pence per share for the year to 30 September 2022 (30 September 2021: 7.0 pence per share). For the forthcoming financial year, the Company has set a dividend target1 of 7.0 pence per share.

- Total shareholder return2 for the year of 3.8% (30 September 2021: -7.9%) and total shareholder return2 of 109.9% since IPO in 2010. Total NAV return2 for the year of 15.8% (30 September 2021: 7.2%).

- Profit for the year of £140.3 million (30 September 2021: profit of £62.4 million) primarily due to revaluations in respect of high near-term electricity futures prices. For information on financial performance for the year, refer to the financial review below.

- Entered into a new arrangement to partially hedge its financial exposure to electricity prices for the 2022/23 winter period.

- Extension of the Company's revolving credit facility for an aggregate amount of £190.0 million, from £165.0 million.

- Loans advanced totalling £127.4 million3, secured against UK renewables, social housing and PPP/PFI projects. The Company also received loan repayments of £219.2 million3.

- Disposal of loan notes issued in respect of its investment in an offshore wind farm. The disposal proceeds, representing a c.12% premium to the holding fair value at the prior year end, demonstrate the Company's conservative approach to renewables valuation. Further information on valuation methodology can be found below.

- NAV per share at 30 September 2022 of 112.80 pence (30 September 2021: 103.92 pence).

- Third party independent valuation of the Company's partially inflation-protected investment portfolio at 30 September 2022 of £1.1 billion (30 September 2021: £1.1 billion).

- Post year end, further advances made of £12.6 million and repayments received of £1.5 million.

- In November 2022, the UK Government announced a profits levy on electricity generators. Whilst the implementation of this remains uncertain, the Investment Adviser has estimated the downside impact of the levy to be c.1.5 pence per share on the NAV at 30 September 2022. It is expected that the impact will be offset by higher long-term electricity prices and inflation.

Andrew Didham, Chairman of GCP Infra, commented:

"This is my first set of financial results as Chairman of the Company, and I look forward to assisting with the Company's long-term success in the interest of shareholders and other stakeholders. The past twelve months have seen a period of significant volatility in UK politics and finance, with clear linkages in cause and effect across both areas. Gilt yields have seen material movements in the period, driven by political instability, the aftermath of the Covid-19 pandemic, and the war in Ukraine.

It has been a strong financial year for the Company, with material revaluations associated with higher electricity prices and inflation positively impacting profitability. The Company generated total income of £157.5 million (30 September 2021: £76.9 million) and profit for the period of £140.3 million (30 September 2021: £62.4 million). In November 2022, the Chancellor confirmed the introduction of a profits levy on electricity generators. Whilst the implementation of this remains uncertain, the Investment Adviser has estimated the downside impact of the levy to be c.1.5 pence per share on the NAV at 30 September 2022. It is expected the impact of the profits levy will be offset by higher long-term electricity prices and inflation. The Company continues to deliver regular, sustained, long-term dividends to its shareholders, paying a dividend of 7.0 pence per share for the year, in line with the target1 established for this financial year. The same target1 is reaffirmed for the forthcoming financial year.

This annual report is published at a critical point for the infrastructure sector. The need to respond to long-term trends including decarbonisation, a growing and ageing population and digitalisation are being balanced with the immediate responses to war in Europe and associated focus on energy security, the aftermath of the Covid-19 pandemic and adapting to the real impacts of climate change. The UK, alongside a large proportion of the developed world, has embarked on an aggressive decarbonisation agenda. Achieving a net zero electricity system by 2035, and a net zero economy as a whole by 2050, will require significant investment in new infrastructure. The Board remains optimistic about future investment opportunities and the Company has an active pipeline of c.£473.0 million of investment opportunities under consideration.

The Company's portfolio continues to make a positive impact, through contributing towards the generation of renewable energy and financing infrastructure that has clear benefits to end users through fulfilling core environmental and social purposes"

1. The dividend target set out above is a target only and not a profit forecast or estimate and there can be no assurance that it will be met.

2. APM - for definition and calculation methodology, refer to the APMs section below.

3. Inclusive of non-cash items as disclosed in note 11 to the financial statements.

Investment objectives and KPIs

The Company's purpose is to primarily invest in UK infrastructure debt and/or similar assets to meet the following key objectives:

Further information on Company performance can be found in the financial review below.

1. The dividend target set out above is a target only and not a profit forecast or estimate and there can be no assurance that it will be met.

2. The Cardale PFI loan is secured on a cross‑collateralised basis against 18 separate operational PFI projects, with no exposure to any individual project being in excess of 10% of the total portfolio.

3. APM - for definition and calculation methodology, refer to the APMs section below.

4. At the year end, the Company's shares were trading at a discount3 of 13.3%.

5. The LSE Green Economy Mark recognises London-listed companies generating more than half their revenues from green environmental products and services. The Company's portfolio is 65% invested in the renewable energy sector.

6. The Company's portfolio is 35% invested in the PPP/PFI and social housing sector.

7. At the date of the report.

Portfolio at a glance

The Company's portfolio comprises underlying assets across the UK falling under the following classifications:

Senior ranking security

40%

Weighted average annualised yield1

7.9%

Average life

10 years

Partially inflation protected

50%

1. APM - for definition and calculation methodology, refer to the APMs section below.

Chairman's statement

I am pleased to present the Company's annual report for the year ended 30 September 2022.

Introduction

The past twelve months have seen a period of significant volatility in UK politics and finance, with clear linkages in cause and effect across both areas. This political instability has led to a third prime minister appointed within a two month period. Gilt yields have seen material movements driven by UK Government budgets (and subsequent reversals of policy announcements), recovery from the Covid-19 pandemic and the war in Ukraine. This backdrop has led to a number of revaluations during the year, with the weighted average discount rate applied to value the Company's investments increasing from 7.32% to 7.47% over the twelve month period.

The Company has benefitted from positive revaluations associated with higher electricity prices over the year. An increase in short-term electricity futures prices has been driven by the increased cost of gas and a risk premium associated with wider European political instability. Further, the longer-term price expectations published by Afry, an independent market consultant, have also increased during the year. In the third quarter of 2022, the Valuation Agent reflected the expectation of an electricity price cap being applied to generators, capping the price for 2023 and 2024 at £150 per MWh. The aggregate impact of these changes has contributed 9.15 pence per share to the NAV in the year.

Post year end, in the Autumn Statement in November 2022, the Chancellor confirmed the introduction of a profits levy on electricity generators. Whilst the implementation of this remains uncertain, the Investment Adviser has estimated the downside impact of the levy to be c.1.5 pence per share on the NAV at 30 September 2022. It is expected the impact will be offset by higher long-term electricity prices and inflation.

The Company paid a 7.0 pence per share dividend for the year, in line with the target1 established for this financial year. The same target1 is reaffirmed for the forthcoming financial year. The Company seeks to pay regular, sustained, long-term dividends to shareholders. A higher interest rate environment is expected to create investment opportunities for the Company that support the sustainability of the dividend at this level. Further detail on the Board's assessment of dividend coverage is provided on below.

The Board remains optimistic about future investment opportunities. A heightened interest rate environment means that the Company can take reduced risk to achieve the same level of return, through increasing loan coverage, focusing on operational assets and/or senior (rather than subordinated) investment structures. Further, the need for new infrastructure has not diminished.

The UK, alongside a large proportion of the developed world, has embarked on an aggressive decarbonisation agenda. Achieving a net zero electricity system by 2035, and a net zero economy as a whole by 2050, will require significant investment in new infrastructure. This will include investment in sectors with which the Company is familiar, including wind and solar, but will also require investment in new areas across heat, transport, industry and agriculture. The Company made its first commitments to the electric vehicle and flexible generation sectors in the year, detailed further below.

With the macro environment constraining liquidity in the banking sector, and the Company's track record of investing early into new sectors, the Company is well placed to compete for attractive investment opportunities.

1. The dividend target set out above is not a profit forecast or estimate and there can be no assurance that it will be met.

Financial performance

It has been a positive financial year for the Company, generating total profit and comprehensive income of £140.3 million. Further information on profitability and financial performance can be found below.

The net assets of the Company increased to £998.1 million (112.80 pence per share) from £916.8 million the previous year (103.92 pence per share). At the year end, the Company's share price was 97.80 pence, representing a 13.3% discount1 to NAV (30 September 2021: 100.40 pence, representing a 3.4% discount1 to NAV).

The dividend of 7.0 pence per share for the year was 2.27 times covered on an earnings cover1 basis under IFRS, and 1.19 times covered on an adjusted earnings cover1 basis, calculated on the Investment Adviser's assessment of adjusted net earnings1 in the year; further information can be found below.

Investment activity

Investments made in the year totalled £127.4 million, of which £99.2 million were new investments and £28.2 million was advanced to the existing portfolio. The new investments of note included the financing of a portfolio of electric taxis for a London-based fleet operator and the Company's first investment in flexible generation supporting a borrower developing a portfolio of gas peaking and battery storage assets.

The year also saw refinancing activity, including a portfolio of the Company's supported living assets, resulting in a reduction in the exposure to this sector from c.14% to c.11%, and the refinancing of the Company's subordinated exposure to an operational waste wood biomass project in Northern Ireland, through which the Company increased its exposure as part of a first ranking senior secured structure.

The Company disposed of its interest in an offshore wind farm in the year, realising a c.12% premium to the holding fair value at the prior year end. A further disposal of a small anaerobic digestion project in Northern Ireland to the landowner also occurred. The Company will continue to seek attractive disposal opportunities where it can efficiently make use of the capital repaid.

Financing

The Company maintains a revolving credit facility with a number of lenders, intended to support the management of working capital requirements, with total commitments of £190.0 million maturing in March 2024. At the year end, £99.0 million of this facility was drawn. The margin and commitment fees payable under the revolving credit facility remain unchanged from prior years. Further details on the Company's financing activity are provided below and details of the revolving credit facility can be found in note 15.

ESG

The Company's portfolio continues to make a positive impact, through contributing towards the generation of renewable energy and financing infrastructure that has clear benefits to end users within society. In recognition of the increasing role of ESG, the Board established an ESG committee during the year, chaired by Dawn Crichard.

The Company has made good progress this year with the ESG objectives set out in the 2021 annual report, including voluntarily reporting under TCFD, refer below. Of particular note has been the data collection project undertaken by the Investment Adviser, to develop, quantify and report material ESG metrics from the underlying portfolio.

This has commenced a journey of data capture, validation and reporting on ESG-related matters, as well as identifying and measuring climate risks, that will continue to develop over the coming years. Certain outputs from this project are set out below.

Share repurchases

The Board is monitoring recent market volatility and its impact on share prices, including the Company's share price. The Company's shares have traded at an average discount1 of 0.7% during the year and a premium1 of 8.8% since IPO. At 30 September 2022, the share price was 97.80 pence, representing a discount1 to NAV of 13.3%.

The Board keeps the use of share repurchases under review and believes in the benefits as a means of addressing unusual imbalances in supply and demand, which may otherwise create volatility in the rating at which the Company's shares trade relative to its NAV.

The Board also keeps the possibility of larger repurchases under consideration, when it believes that the repurchase of shares is an attractive use of shareholders' funds, relative to the pipeline of new potential investments, and is expected to enhance earnings per share and dividend cover.

Any repurchases will be subject to the availability of cash resources at the relevant time relative to existing commitments.

1. APM - for definition and calculation methodology, refer to the APMs section below.

Market outlook

This annual report is published at a critical point for the infrastructure sector. The need to respond to long-term trends including decarbonisation, a growing and ageing population and digitalisation are being balanced with the immediate responses to war in Europe, the Covid-19 pandemic and adapting to the real impacts of climate change. Infrastructure development, maintenance and renewal has a key role to play in these areas. At the same time, the cost of financing infrastructure is rising and supply chains to provide the parts, equipment and labour needed to build and operate new infrastructure are under increasing pressure.

The recent high energy prices and the war in Ukraine have driven a shift in government energy policy from pursuing aggressive decarbonisation pathways to more emphasis on security of supply. The most recent UK energy strategy, published in April 2022, has a clear focus on security of supply, in contrast to the Energy White Paper (December 2020), titled 'Powering our net zero future'. In my mind, this is reflective of an overdue realisation by policymakers that, whilst we need more wind and solar generation, significant investment in other areas is also required to support decarbonisation whilst also ensuring affordable, reliable energy supplies.

This includes upgrades to the grid infrastructure, low carbon flexible (rather than intermittent) generation, and support for other areas of decarbonisation including heat, transport, industry, agriculture and carbon sequestration. In addition to the contract-for-difference scheme, the Company is closely watching the evolution of other support mechanisms such as the Green Gas Support Scheme and the Net Zero Hydrogen Fund.

The Company does not see material investment opportunities in the wider social infrastructure sector. UK Government procurement for private sector finance through PPP/PFI mechanisms has largely ceased, with some residual opportunities in the devolved administrations under the mutual investment model scheme. The Board, together with the Investment Adviser, is also closely monitoring the development of the regulated asset base, competitively appointed transmission owner ("CATO") regime and direct procurement for customers scheme in the water industry that may all provide attractive future opportunities for the Company.

The Board

The year has seen a number of changes to the Board of Directors of the Company. I took over the Chairmanship from Ian Reeves CBE on 20 June 2022, and Mr Reeves retired as a Director on 31 October 2022. I would like to take this opportunity to acknowledge the significant contribution Mr Reeves made to the Company over a period of twelve and a half years, and to thank him for his role in the Company's success. Ian Reeves CBE was replaced on the Board by Alex Yew, a UK resident and former senior executive at John Laing group.

Andrew Didham

Chairman

14 December 2022

For more information, please refer to the strategic report below.

Company performance

The Company continues to deliver regular, sustained, long-term dividends to its shareholders.

Dividends paid in respect of the year

Relevance to strategy

The dividend reflects the Company's aim to deliver regular, sustained, long-term dividends and is a key element of total shareholder return.

Earnings cover1

Relevance to strategy

Earnings cover measures the Company's ability to pay dividends from the income generated from its investment portfolio under IFRS.

Adjusted net earnings cover1

Relevance to strategy

Adjusted earnings cover measures the Company's ability to pay dividends from loan interest accrued1 by the portfolio less expenses and finance costs.

Dividend yield1

Relevance to strategy

Dividend yield measures the Company's aim to deliver on its investment strategy of generating regular, sustained, long‑term dividends.

NAV per share

Relevance to strategy

NAV per share measures the Company's aim to preserve the capital value of its investments over the long term.

Total shareholder return since IPO1

Relevance to strategy

Total shareholder return measures the delivery of the Company's strategy, to provide shareholders with attractive total returns in the longer term.

1. APM - for definition and calculation methodology, refer to the APMs section below.

2. Total dividend paid for the year, relative to the closing share price at the year end, expressed as a percentage.

Strategic overview

The Company's purpose is to primarily invest in UK infrastructure debt and/or similar assets to provide regular, sustained, long-term dividends and to preserve the capital value of its investments over the long term.

Investment strategy

The Company's investment strategy is set out in its investment objective, policy and strategy below. It should be considered in conjunction with the Chairman's statement and the strategic report which provide an in-depth review of the Company's performance and future strategy. Further information on the business model and purpose is set out below.

Investment objective

The Company's investment objective is to provide shareholders with regular, sustained, long-term dividends and to preserve the capital value of its investment assets over the long term.

Investment policy and strategy

The Company seeks to generate exposure to the debt of UK infrastructure project companies, their owners or their lenders and related and/or similar assets which provide regular and predictable long‑term cash flows.

Core projects

The Company will invest at least 75% of its total assets, directly or indirectly, in investments with exposure to infrastructure projects with the following characteristics (core projects):

pre-determined, long-term, public sector backed revenues;

no construction or property risks; and

benefit from contracts where revenues are availability based.

In respect of such core projects, the Company focuses predominantly on taking debt exposure (on a senior or subordinated basis) and may also obtain limited exposure to shareholder interests.

Non-core projects

The Company may also invest up to an absolute maximum of 25% of its total assets (at the time the relevant investment is made) in non-core projects, taking exposure to projects that have not yet completed construction, projects in the regulated utilities sector and projects with revenues that are entirely demand based or private sector backed (to the extent that the Investment Adviser considers that there is a reasonable level of certainty in relation to the likely level of demand and/or the stability of the resulting revenue).

There is no, and it is not anticipated that there will be any, outright property exposure of the Company (except potentially as additional security).

Diversification

The Company will seek to maintain a diversified portfolio of investments and manage its assets in a manner which is consistent with the objective of spreading risk. No more than 10% in value of its total assets (at the time the relevant investment is made) will consist of securities or loans relating to any one individual infrastructure asset (having regard to risks relating to any cross default or cross-collateralisation provisions). This objective is subject to the Company having a sufficient level of investment capital from time to time, the ability of the Company to invest its cash in suitable investments and the investment restrictions in respect of 'outside scope' projects described above.

It is the intention of the Directors that the assets of the Company are (as far as is reasonable in the context of a UK infrastructure portfolio) appropriately diversified by asset type (e.g. PPP/PFI healthcare, PPP/PFI education, solar power, social housing, biomass etc.) and by revenue source (e.g. NHS Trusts, local authorities, FiT, ROCs etc.).

Non-financial objectives of the Company

The key non-financial objectives of the Company are:

to build and maintain strong relationships with all key stakeholders of the Company, including (but not limited to) shareholders and borrowers;

to continue to focus on creating a long‑term, sustainable business relevant to the Company's stakeholders;

to develop and increase the understanding of the investment strategy of the Company and infrastructure as an investment class; and

to focus on the long-term sustainability of the portfolio and make a positive impact; through contributing towards the generation of renewable energy and financing infrastructure that is integral to society.

Key policies

Distribution

The Company seeks to provide its shareholders with regular, sustained, long-term dividend income. The Company has previously offered a scrip dividend alternative and anticipates that it will continue to do so whilst the shares typically trade at a premium at NAV.

Leverage and gearing

The Company intends to make prudent use of leverage to finance the acquisition of investments and enhance returns for shareholders. Structural gearing of investments is permitted up to a maximum of 20% of the Company's NAV immediately following drawdown of the relevant debt.

The calculation of leverage under the UK AIFM Regime in note 15 to the financial statements includes derivative financial instruments as is required by the applicable regulation.

Business model

The Company's purpose is to primarily invest in UK infrastructure debt and/or similar assets to provide regular, sustained, long-term dividends and to preserve the capital value of its investments over the long term.

1. Twelve month period to 30 June 2022 to facilitate data inclusion in the annual report.

Investment Adviser's report

The Company's focus remains on investing in UK infrastructure debt in project companies that have the specific purpose to build, own and operate assets that benefit from public sector backed revenues.

UK infrastructure market

Infrastructure investments are typically characterised by high upfront capital costs, paid back in consideration for the provision of a service over long asset lives. Asset lives are often longer than political and economic cycles, and therefore investors favour infrastructure as an asset class as it provides services that will be required regardless of such cycles. Infrastructure investment has broad cross-party political backing to support economic, social and fiscal outcomes.

In the last year, there has been a significant increase in political and economic uncertainty driven by the war in Ukraine, the Covid-19 pandemic, high inflation, a cost-of-living crisis, and the rapid change of personnel in Government. This does not provide the stability long-term investors favour. At the same time, infrastructure has a core role in addressing these challenges.

The Covid-19 pandemic has only served to emphasise the role that social infrastructure can play in supporting local communities. Indeed, it is arguably historic underinvestment in infrastructure that has contributed to certain aspects of the current challenges. The UK is at a critical point in its infrastructure journey, with an opportunity to commence correction of its previous underinvestment and to go further and ensure investment in infrastructure that supports the UK's realigned and future priorities.

Challenges and opportunities

The table below sets out some of the challenges and associated opportunities for infrastructure investment.

Company position

The Company has a well-diversified portfolio across a wide range of renewable projects, social infrastructure (through PPP/PFI schemes), and supported living social housing. Having the explicit objective of diversifying has historically enabled the Company to respond to more challenging conditions in any one asset class (such as decreasing yields and/or more competition) by diversifying into other areas.

Over the life of the Company, the Investment Adviser has seen several sectors, in which the Company has historically been invested, mature over time. PFI, PPP, certain renewable asset classes, and supported social housing have all seen increased demand for investment, and risks become better understood and accepted by investors.

The Company's response to the current market environment is threefold:

1. Continue to invest in existing sectors:

- those sectors that do not yet suffer from increased competition and decreasing risk‑adjusted yields, and where the Company and the Investment Adviser can leverage their experience of investing into the sector. The Investment Adviser sees a number of opportunities in solar, anaerobic digestion and biomass that fit these criteria.

2. Diversify into new areas as these become available:

- the Investment Adviser considers that the net zero agenda necessitates the emergence of new infrastructure asset classes in areas including heat, transport, industrial and agricultural decarbonisation and carbon capture that are likely to produce attractive opportunities over the coming years.

3. Maximise the investment opportunity to optimise the portfolio:

- the Company is invested in infrastructure projects that are likely to continue to provide essential services beyond their currently assumed economic lives: indeed, the Investment Adviser believes certain government targets will require the lives of infrastructure assets to be extended.

- the Investment Adviser has identified a number of opportunities to further invest in to extend the lives of assets, or to enable assets to provide additional services that create supporting revenue streams.

Differentiation

The Company retains some key differentiators that means it is well positioned to take advantage of attractive risk-adjusted returns, despite infrastructure investment opportunities remaining competitive. These include:

Key investment activity

During the year the Company made a number of investments in existing portfolio companies, as well as new sectors. A full summary of investments and repayments is shown below. In December 2021, the Company completed the long-planned restructure of its subordinated investment in a 15.8 Mwe waste wood biomass project in Northern Ireland. The Company advanced a senior loan of £52.1 million to repay the existing senior loans and refinance the Company's mezzanine loans, representing a net new investment of £23.1 million. This improved the Company's security position and cash yield from a well-performing operational project to which the Company has been exposed since 2013.

In June 2022, the Company refinanced a portion of its social housing portfolio, with a net return of capital of £45.5 million from the introduction of institutional senior debt. This reduced the Company's exposure to this sector from c.14% at the prior year end to c.11% at the year end.

Following a number of successful senior loans to finance the acquisition of portfolios of operational anaerobic digestion projects, the Company extended loans of £5.9 million to support the purchase of a portfolio of farm-based anaerobic digestion projects by representatives of the original developer. A further investment of £2.6 million was made into an existing portfolio of four anaerobic digestion projects in Lincolnshire and Norfolk to finance the acquisition of land by the borrower, which will support crop production for the projects. Furthermore, follow-on investments of £1.0 million were made as part of an existing commitment secured against new rooftop solar installations.

New investments were made into the Company's first flexible generation project through a senior loan of £2.5 million secured against a construction-stage gas peaking project in the North West of England. This forms part of a portfolio of flexible generation and storage projects being developed by the relevant borrower.

In September 2022, the Company made its first commitment to the electric vehicle sector through a senior loan to finance the purchase of a fleet of 50 electric taxis by a London-based operator.

Whilst these opportunities sit within the Company's 25% non-core projects (due to construction risk and nature of public sector support respectively), the Investment Adviser is pleased to have identified these attractive investment opportunities in sectors that further diversify the Company's portfolio.

Investment risk

The table below details the Investment Adviser's view of the changes to the risk ratings for sectors where changes have been observed in the past year.

Interest capitalised

During the year, £90.4 million (30 September 2021: £83.6 million) of loan interest accrued1 on the underlying investment portfolio for the benefit of the Company. Of this, £74.5 million (30 September 2021: £75.3 million) was received in cash or capitalised in the year. The capitalisation of interest occurs for three reasons:

1. Where interest has been paid to the Company late (often as a result of moving cash through the Company and borrower corporate structures), a capitalisation automatically occurs from an accounting point of view.

2. On a scheduled basis, where a loan has been designed to contain an element of capitalisation of interest due to the nature of the underlying cash flows.

Examples include projects in construction that are not generating operational cash flows, or subordinated loans where the bulk of subordinated cash flows are towards the end of the assumed life of a project, after the repayment of senior loans.

Planning future capital investment commitments in this way forms an effective way of reinvesting repayments received from the portfolio back into other portfolio projects.

3. Loans are not performing in line with the financial model, resulting in:

(i) lock-up of cash flows to investors who are junior to senior lenders; and

(ii) cash generation is not sufficient to service debt.

During the year, the Investment Adviser has resolved the lock-up on two biomass projects, which are now both distributing cash in line with forecasts. Other unscheduled capitalisations relate to:

- the lock-up of distributions resulting from the ongoing audit of a portfolio of solar assets by Ofgem (see below for further information). The Investment Adviser is actively working to resolve the lock‑up ahead of the resolution of the audits; and

- the re-direction of cash flows into three gas-to-grid anaerobic digestion projects in Scotland to address performance issues encountered in the period.

The table below shows a breakdown of interest capitalised during the year and amounts paid as part of final repayment or disposal proceeds:

The table below illustrates the forecast component of interest capitalised that is planned and unscheduled.

The Investment Adviser and the independent Valuation Agent review any capitalisation of interest and associated increase to borrowings to confirm that such increase in debt, and associated cost of interest, can ultimately be serviced over the life of the asset. To the extent an increase in loan balance is not serviceable, a downward revaluation is recognised, notwithstanding that such amount remains due and payable by the underlying borrower and where capitalisation has not been scheduled, it attracts default interest payable.

1. APM - for definition and calculation methodology, refer to the APMs section below

Sector background and update

Renewables

Renewables generate renewable energy across the heat, electricity and transport sectors and benefit from long‑term Government subsidies.

65%

Percentage of portfolio by value

£718.0m

Valuation of sector

Background

Renewable energy includes the sustainable production of energy in electricity and heat production and transport. To date, public sector support in the UK has focused on the decarbonisation of the electricity system. To achieve the UK's ambitions to achieve net zero emissions by 2050 and decarbonise the electricity generation system by 2035, significantly more support will be required across all of the electricity, heat production and transport sectors.

Current position

The UK Government remains committed to aggressive decarbonisation targets. However, in a recent progress report to parliament, the Climate Change committee identified that 'tangible progress is lagging the policy ambition', and that credible policies in place or planned will not be sufficient to reach the Government's targets. More policy support is therefore required.

The contract-for-difference scheme remains the key support mechanism for low-carbon generation. The UK Government has committed to run auctions annually, previously biennial. The fourth auction round completed in July 2022 and saw the largest allocation of support to the widest range of technologies that has been seen under this scheme. For the first time since the first auction round in 2014/15, support was provided to a number of solar photovoltaic and onshore wind projects. Offshore wind continues to be a significant beneficiary, competing in its own budget allocation for the first time and achieving record low strike prices of £37.35 per MWh (2012 prices). Tidal stream, remote island wind, floating offshore wind and energy-from-waste were sectors that also received support.

Other support mechanisms include the Green Gas Support Scheme and the Net Zero Hydrogen Fund, both of which the Company is reviewing alongside existing borrowers and as part of pipeline investment opportunities.

Future outlook

In response to an electricity system with a rapidly evolving generation mix and demand profile, the UK Government has announced a fundamental review of the operation of all wholesale electricity markets, as part of the 'Review of Electricity Market Arrangements ("REMA")'. This consultation has the potential to result in the introduction of some of the most material market changes since the liberalisation of energy markets in the UK in the 1990s.

Some changes under consideration include:

- separating the wholesale electricity price into 'on-demand' and 'as-available' prices, based on the short-run marginal cost (as is currently) and long-run marginal cost (applicable to intermittent renewables) respectively;

- locational pricing, either by zone (regional areas) or node (multiple points on the transmission grid) to ensure efficiency in system costs as new demand and generation are developed;

- a reform of the contract-for-difference scheme, with a number of proposals on the table for the mechanics of the strike price, negative pricing and contract tenure; and

- support for low-carbon flexibility, through the capacity mechanism or otherwise.

Certain of these changes have the potential to significantly change the revenues available to existing and new renewable generators. The Investment Adviser and Board are actively monitoring the consultation process and any outcomes. Whilst this does create medium-term uncertainty (the proposals are not expected to be implemented until the mid-2020s), it also points to some clear areas of support for sectors including low-carbon flexible generation. The Investment Adviser therefore intends to focus on those sectors that clearly support the objectives set out in REMA.

Impact

1,429 GWh

Renewable energy exported by portfolio assets1

SDG alignment

7. Affordable and clean energy

8. Decent work and economic growth

1. Twelve month period to 30 June 2022 to facilitate data inclusion in the annual report.

Evermore waste wood biomass project

A waste wood biomass power plant located in Northern Ireland, which was refinanced during the year.

The Evermore project is a c.15.8 MWe waste wood combined heat and power station located in Lisahally, Northern Ireland. The project uses c.90,000 tonnes of waste wood per annum, sourced principally from the construction and demolition industry, to fuel a steam turbine that generates electricity and supplies heat to a virgin wood drying system. The project benefits from two ROCs per MWh of electricity generated for 20 years from its commissioning date, providing a stable, RPI-linked public sector backed revenue stream.

The Company invested in the project in 2013, committing £23.2 million to finance its construction, as part of a total financing package of c.£80 million. The project completed construction in 2015 and encountered a number of issues during commissioning and early operations. Lower than expected electricity prices and inflation impacted the project's revenues, resulting in the senior debt provider locking-up cash flows that otherwise would have serviced subordinated debt and equity investors, including the Company. Interest payable on the Company's investment was capitalised as a result. In this early period, the operational challenges were largely resolved, and the project has had a stable period of production in recent years.

In December 2021, the Company, alongside another lender, completed the refinance of the senior loans and subordinated debt, replacing them with a 'unitranche', a flexible form of financing. The Company invested £52.1 million as part of this transaction, representing a net new investment of £23.1 million. This resulted in the Company taking a senior, rather than subordinated, position, removing the associated lock-up and interest capitalisation risks. The project has paid £9.5 million in interest and principal to the Company during the year.

This transaction provides a good example of the Company's ability to optimise the financing structure of projects, particularly where it has higher levels of control (or potential for control) as a result of breaches of the financing documents, and where positive working relationships have been established with borrowers.

Sustainability indicators

Environment

128 GWh

Energy exported in 2021/221

Social

26

Current FTEs 30 June 20221

Governance

4

ISO certifications1

Financial

£44.6m

Valuation at 30 September 2022

1. Data at 30 June 2022 to facilitate inclusion in the annual report.

Supported living

Supported living projects create long-dated cash flows supported by the UK Government through the secured pledge of centrally funded benefits.

11%

Percentage of portfolio by value

£116.2m

Valuation of sector

Background

The Company has historically targeted a subset of the social housing sector provision referred to as 'supported living' through the financing of development or conversion of existing accommodation to suit specific care needs for individuals with learning, physical or mental disabilities. The Company has provided debt finance to entities that own and develop properties, which are leased under a long-term fully repairing and insuring lease to Registered Providers ("RPs") who operate and manage the properties. The RPs receive housing benefit for individuals housed in such properties. The budget for housing benefit in this sector is funded by central Government and has historically been, and remains, highly protected and uncapped.

Current position

As has been previously reported, a number of the RPs to which the Company is exposed have historically been graded as non-compliant in respect of governance and financial viability by the Regulator of Social Housing ("RSH"). In the year under review, these RPs have focused on improving processes, people and systems in seeking to address the RSH's governance concerns. Further, the Company has consented to a number of amendments in the relationships between RPs and the Company's borrowers that seek to enhance the financial viability of the applicable RPs.

It is the Investment Adviser's view that the fundamentals of the sector, underpinned by a well‑protected housing benefit budget and a care model that has demonstrated healthcare and financial benefits for the recipients, and the UK Government, remain attractive. The RSH has itself noted its desire to see higher deployment of care under a supported living model and for this to be financed by the private sector.

During the year, the Company refinanced a portion of its exposure to social housing. This is further detailed below.

Future outlook

The Company has maintained the position for some time that it does not intend to grow its exposure to the social housing sector in any new projects as a result of concerns raised by the RSH in respect of the governance and financial viability of RPs. The Investment Adviser also notes increased competition in this sector, which has put pressure on potential returns. In light of these factors, the Company will seek to replicate the refinance completed during the year on the remainder of the Company's social housing portfolio.

Impact

3,119

People housed in supported accommodation1

SDG alignment

11. Sustainable cities and communities

9. Industry, innovation and infrastructure

1. Data at 30 June 2022 to facilitate data inclusion in the annual report.

Supported living refinance

The refinance of a social housing portfolio through the introduction of institutional senior debt.

In the year, the Company completed an £81.3 million portfolio refinance of operational supported living properties.

The refinance related to 78 operational supported living properties let by three of the Company's borrowers to Bespoke Supportive Tenancies Limited under c.30 year fully repairing and insuring ("FRI") leases. The Company made its first investment in the portfolio in December 2014. Following the refinance, the Company retains exposure to the portfolio but has moved from a senior to a subordinated position.

The refinance was funded by £36.1 million raised from the Company's subscription to a new series of subordinated loan notes and £45.2 million raised from an institutional investor. The new subordinated loan notes were used to repay an equivalent number of senior notes held by the Company. This resulted in an increase to the expected IRR of the loan, 8.8% (previously 7.4%), along with the return of £45.5 million in cash.

The refinancing was made possible due to the procurement of a novel investment grade insurance product that enhanced the credit quality for a proportion of the portfolio's cash flow. This enabled an institutional investor (with a low cost of capital) to provide competitive senior debt terms. This low cost of debt created sufficient capacity within the portfolio's cash flow to meet transaction costs, returning £45.5 million in cash to the Company, and for the Company to benefit from an increased IRR.

Post refinance, there was a c.£2.0 million positive NAV impact and the Company's exposure to supported living assets fell to 11% from 14%.

Sustainability indicators

Environment

45%

EPC rated A-C1

Social

14

Current FTEs 30 June 20221

Governance

1

ESG policy implemented1

Financial

£116.2m

Valuation at 30 September 2022

1. Data at 30 June 2022 to facilitate inclusion in the annual report.

PPP/PFI

PPPs enable the procurement of private sector infrastructure financing through access to long‑term, public sector backed, availability-based payments.

24%

Percentage of portfolio by value

£253.1m

Valuation of sector

Background

Partnerships between the public and private sectors to develop, build, own and operate (or a combination thereof) infrastructure have taken a number of forms, with the best known being the PFI, which originated in the UK in the mid-1990s. Since this time, over £60.0 billion has been invested in the development of new projects across the healthcare, education, leisure, transport and other sectors under such schemes. The design and implementation of revenue support mechanisms such as PFI has been devolved to the Scottish, Welsh and Northern Irish administrations. The Company has exposure to a number of sectors within PPP/PFI including education, healthcare, waste, leisure and housing.

Current position

The UK Government announced in 2018, and restated as part of the Infrastructure Finance Review consultation published in March 2019, that it no longer wishes to utilise PFI, or variants thereof, to procure new infrastructure in England. The Welsh Government has adopted a mutual investment model ("MiM"), under which a handful of transport and health projects are being procured, and the Scottish Government is currently reviewing their own version of the MiM.

The Company does not see material new deal flow in this sector, with this being limited to a small number of discrete secondary market opportunities arising from minority owners of PPP/PFI assets seeking to monetise their investment.

Future outlook

It remains unclear whether there will be an availability-based, or other, mechanism that attracts private sector finance into the types of asset (such as schools, hospitals and community infrastructure) that PFI and its various derivatives successfully supported. The 2019 Infrastructure Finance Review consulted on possible future alternatives, including the regulated asset base ("RAB") model that has historically been used to regulate monopoly utilities, and more recently in the finance of the Thames Tideway sewer.

It was further confirmed by the UK Government that PFI/PF2 will not be re-introduced as procurement models and expressed support for the contract‑for‑difference and RAB models, with the potential to apply these to new sectors. A possible alternative is that the UK Government involves the private sector in the delivery of this type of infrastructure but does not require private sector finance in the provision of equity or debt capital to finance these projects.

The Investment Adviser will continue to monitor any PPP schemes (or similar structures) and the secondary markets for potential opportunities.

Impact

26,499

School places in portfolio1

SDG alignment

4. Quality education

3. Good health and well-being

1. At 30 June 2022 to facilitate data inclusion in the annual report.

Aberdeen schools project

A portfolio of schools financed as part of the Scottish Government's non-profit distributing PFI scheme.

Implemented through a PPP using the Scottish Government's non-profit distributing PFI scheme, the Aberdeen Schools PFI project was a major part of Aberdeen City Council's 2007 regeneration plan of their school estate. With a capital value of c.£120 million, the project comprised the design, construction and facilities management services of two new build secondary schools, seven new build primary schools and the refurbishment and extension of one primary school. Reaching financial close in December 2007 with the first schools opening in 2009 and the last in 2011, the project provides educational facilities for over 4,300 pupils on behalf of Aberdeen City Council.

Following the global financial crisis in 2008, the project experienced a number of initial difficulties with all key counterparties going into liquidation during the first four years of operation. The project was refinanced in 2009 via a consortium of three senior lenders, together with Robertson FM who stepped into the facilities management contract, agreeing to take on the latent defect liabilities as part of its contract.

Since 2009, the project has operated extremely well, recording historically low deductions under the contract, whilst maintaining the schools to a high standard and deferring lifecycle spend. Most recently during the Covid-19 pandemic, the project remained fully operational and in compliance with Scottish Government guidance.

The project was contracted under the Scottish Non-Profit Distributing Organisation ("NPDO") model which deploys a wholly debt capital structure (senior debt and fixed coupon subordinated debt). All profits beyond the amounts payable to the debt providers are distributed to a nominated charity, with Voluntary Service Aberdeen and Sport Aberdeen chosen by the Council. Aberdeen Schools PFI was the third project to reach financial close under the NPDO model, however due to the refinance and initial difficulties that the project faced historically, the first charitable donations were distributed in 2019 with £2.6 million distributed to date and a further £49.0 million forecast to be distributed by the end of the project in 2039.

Sustainability indicators

Environment

B

EPC rating1

Social

147

Current FTEs 30 June 20221

Governance

4

ISO certifications1

Financial

£14.8m

Valuation at 30 September 2022

1. Data at 30 June 2022 to facilitate inclusion in the annual report.

Investment portfolio

The Company is exposed to a portfolio of 48 investments with a weighted average annualised yield1 of 7.9% and average life of ten years.

Portfolio performance

The portfolio has generally performed well during the year. Notable successes include the completion of the refinance of a waste wood biomass project in Northern Ireland (refer above), high levels of cash generation across the renewables portfolio supported by the high electricity market prices, and the disposal of the Company's interest in an offshore wind farm at a 12% premium to the investment's holding fair value at the prior year end. This supports the Company's assessment of its conservative approach to the valuation of the renewables portfolio relative to the renewables peer group. The refinance of a portfolio of the Company's supported living exposure released c.£45.2 million of capital to the Company and increased the yield on the resulting subordinated exposure.

From an operational perspective, the investment portfolio is materially performing in line with expectations.

At 30 September 2022, c.1% (30 September 2021: c.1%) of the investment portfolio was exposed to assets at the construction stage. There has been a material reduction in risk of the underlying portfolio of investments as this number has fallen over the last four years.

The Company has ongoing challenges at a portfolio of gas-to-grid anaerobic digestion projects in Scotland, which suffered downtime as a result of storm damage during the year. The Company has completed a programme of upgrade works and anticipates remaining performance issues will be resolved in the first quarter of 2023.

The Company continues to be exposed to the outcome of ongoing audits by Ofgem relating to the accreditation and ongoing compliance of nine ground-mounted commercial solar projects accredited under the renewables obligation.

During the year, ROCs were revoked by Ofgem on one of the nine projects that was under audit, meaning that two projects in the portfolio have now had ROCs revoked. The Company has made a claim in connection with its rights under the original investment documentation in respect of the losses it has incurred as a result of such revocation. The aggregate provisions in connection to the circumstances relating to the audits total £4.6 million, of which £1.1 million has been recognised during the year. The Company remains confident that it will be able to either solely or cumulatively: (i) address Ofgem's queries to prevent or mitigate negative impact on a further eight assets that remain under audit; (ii) successfully challenge any adverse decision by Ofgem on other assets under audit; or (iii) recover losses it incurs from third parties in relation to a breach of investment documentation across all affected assets.

Portfolio by sector type

Portfolio by income type

Portfolio by annualised yield1

Portfolio by average life (years)

Portfolio by investment type

1. APM - for definition and calculation methodology, refer to the APMs section below.

Portfolio summary

Top ten investments

Key

1 Project type

2 % of total portfolio

3 Cash flow type

1 | Cardale PFI Investments1

1 PPP/PFI

2 11.7%

3 Unitary charge

2 | Gravis Asset Holdings I

1 Onshore wind

2 6.5%

3 ROC/PPA

3 | Gravis Solar 1

1 Commercial solar

2 6.4%

3 ROC/PPA/FiT

4 | Gravis Asset Holdings H

1 Onshore wind

2 5.1%

3 ROC/PPA

5 | GCP Bridge Holdings2

1 Various

2 5.0%

3 ROC/FiT/Lease/PPA

6 | GCP Biomass 2

1 Biomass

2 4.2%

3 ROC/PPA

7 | GCP Programme Funding S8

1 Biomass

2 4.1%

3 ROC/PPA

8 | GCP Programme Funding S3

1 Anaerobic digestion

2 4.0%

3 ROC/RHI

9 | GCP Green Energy 1

1 Commercial solar/Onshore wind

2 3.6%

3 ROC/PPA

10 | GCP Rooftop Solar Finance

1 Rooftop solar

2 3.4%

3 FiT

1. The Cardale loan is secured on a cross-collateralised basis against 18 individual operational PFI projects.

2. GCP Bridge Holdings is secured against a portfolio of six infrastructure investments in the renewable energy and PPP/PFI sectors.

Portfolio overview

In the reporting year, the valuation of the portfolio has remained static with a total value of £1.1 billion. The portfolio generated net valuation gains of £82.6 million, predominantly attributable to revaluations in respect of high near-term electricity futures prices.

INVESTMENTS AND REPAYMENTS (£m)

Capital structure

As part of its investment portfolio, the Company has targeted investments across a number of asset classes and within different elements of the capital structure: senior, subordinated or equity.

Discount rates

The Valuation Agent carries out a fair market valuation of the Company's investments on behalf of the Board on a quarterly basis. The valuation principles used by the Valuation Agent are based on a discounted cash flow methodology. A fair value of each asset acquired by the Company is calculated by applying an appropriate discount rate (determined by the Valuation Agent) to the cash flow expected to arise from each asset. Further information is included in note 19.3 to the financial statements.

The weighted average discount rate used across the Company's investment portfolio at 30 September 2022 was 7.47%, compared to 7.32% at 30 September 2021. Increases to discount rates were applied by the Valuation Agent at the year end, as a result of the changes in gilt and wider credit markets, and with reference to market transactions.

The valuation of investments is sensitive to changes in discount rates and sensitivity analysis detailing this is presented in note 19.3 to the financial statements.

Portfolio performance update

Performance updates

The specific factors that have impacted the valuation in the reporting year are summarised in the table below.

Valuation performance attribution

1. Refer to commodity swap below.

2. In line with the Company's conservative approach, the Valuation Agent has not applied the March 2022 OBR increase to real-term electricity prices in forecasting nominal cash flows, in recognition of the contributing effect electricity prices have had on inflation forecasts. The electricity price forecasts used by the Company at 30 September 2022 incorporate the (lower) October 2021 OBR forecasts.

3. The derivative financial instrument is utilised to mitigate volatility in electricity price movements as detailed above, refer to note 18 for further details.

Pipeline of investment opportunities

The Company has an active pipeline of c.£473.0 million of investment opportunities under consideration. This is summarised in the table below.

Portfolio sensitivities

This section details the sensitivity of the value of the investment portfolio to a number of the risk factors to which it is exposed. A summary of the overall investment portfolio risks, and the Investment Adviser's view of the changes in risk, can be found above. Sensitivity analysis to changes in discount rates on the valuation of financial assets is presented in note 19.3 to the financial statements.

Renewables valuations

As part of the Company's half-yearly report and financial statements, the Investment Adviser presented the valuation sensitivity of the Company's renewables portfolio, recognising an increasingly divergent view in a number of valuation assumptions that is observed within the Company's renewable energy peer group. The sensitivity analysis previously reported has been updated at the year end and is presented in the table below.

Inflation

Half of the Company's investments, c.50% by portfolio value, have some form of inflation protection. This is structured as a direct link between the return and realised inflation (relevant to the supported living assets and certain renewables) and a principal indexation mechanism which increases the principal value of the Company's loans outstanding by a share of realised inflation over a pre-determined strike level (typically 2.75% to 3.00%).

The table below summarises the change in interest accruals and potential NAV impact that would be associated with a movement in inflation. The Valuation Agent has not reflected the most recent short-term OBR forecast in electricity price inflation assumptions. This aligns with the Company's conservative approach and avoids compounding the current combination of high short-term electricity prices and inflation.

1. The Valuation Agent has not reflected the most recent short-term OBR forecast in electricity price inflation assumptions. This aligns with the Company's conservative approach and avoids compounding the current combination of high short-term electricity prices and inflation.

Electricity prices

A number of the Company's investments rely on market electricity prices for a proportion of their revenues. Changes in electricity prices may therefore impact a borrower's ability to service debt or, in cases where the Company has taken enforcement action and/or has direct exposure through its investment structure, impact overall returns.

During the year, the Company adapted its approach to electricity price forecasts as a result of the UK Government's intention to introduce a price cap on revenues received by electricity generators. At 30 September 2022, the Company has assumed the price for calendar years 2023 and 2024 is capped at £150 per MWh, and in the period from 1 January 2025 to 30 September 2025 the forward curve has been discounted by 25%. Thereafter, the Company's approach of using the quoted futures prices for the three year period immediately after a valuation date, and the Afry average thereafter, has not changed year on year. Since then, the UK Government has announced the introduction of a levy on excess profits generated by electricity generators, equal to 45% of any excess revenues over £75 per MWh, subject to a minimum of £10 million and applicable to generators producing over 100 GWh per annum. The Investment Adviser has estimated the downside impact of the levy to be c.1.50 pence per share on the NAV at 30 September 2022. It is expected that the impact will be offset by higher long-term electricity prices and inflation.

The table below shows the forecast impact on the portfolio of a given percentage change in electricity prices over the full life of the forecast period, the impact on hedging arrangements, and the subsequent net impact on a pence per share basis. Further information on the Company's hedging arrangements are detailed below and in note 18 to the financial statements.

Hedging

As further detailed in note 18 to the financial statements, the Company entered into a financial derivative arrangement to hedge a portion of its financial exposure to electricity prices during the year. The Company will continue to lock-in attractive electricity prices through fixing prices under power purchase agreements at an asset level and mitigating volatility through entering into hedging arrangements at Company level.

The Investment Adviser and Board will continue to review the hedging strategy on an ongoing basis with the objective of mitigating excessive NAV volatility and managing risks relating to hedging, including credit and cash flow impacts, and any required responses to the implementation of any price cap.

Financial review

The Company made investments of £127.4 million during the year. Dividends of 7.0 pence per share were paid and the Company's total shareholder return1 for the year was 3.8%.

Financial performance

It has been a favourable financial year for the Company, with material revaluations of investments positively impacting profitability. The Company has benefitted from positive revaluations associated with higher electricity prices. However, the past twelve months has seen a period of significant economic volatility. This backdrop has led to increases to discount rates as a result of the changes in gilt and wider credit markets. Refer above for analysis of valuation movements.

Total income generated by the Company was £157.5 million (30 September 2021: £76.9 million), comprising loan interest of £74.5 million, net unrealised valuation gains on investments of £77.1 million and net realised gains on investment disposal of £5.5 million (30 September 2021: loan interest of £75.3 million, net unrealised valuation gains on investments of £22.0 million and net realised gains on investment disposal of £nil). Refer to note 3 for further information.

The net unrealised gains were predominantly attributable to revisions to electricity price and inflation forecasts, partially offset by discount rate increases applied by the Valuation Agent. The realised gains were predominantly attributable to the disposal of the loan advanced to the Race Bank project. The Race Bank loan was sold for a total consideration representing a c.12% premium to the holding fair value at 30 September 2021.

The Company entered into a new hedge arrangement during the year to reduce its exposure to the volatility of electricity prices. Net gains on derivative financial instruments at the year end were £0.4 million, refer to note 3.

Total income was offset by operating costs for the year of £12.5 million (30 September 2021: £10.7 million) which include the Investment Adviser's fees, the Administrator's fees, the Directors' fees and other third party service provider costs. These, and other, operating costs have remained broadly in line with previous years, with the exception of increased professional fees associated with ongoing audits being carried out by Ofgem (refer above for further detail) and costs in relation to an aborted transaction in the year.

The Company remains modestly geared at the year end, with £99.0 million drawn on its revolving credit facility, representing a loan to value1 of 10%. Finance costs have increased year on year due to increases in SONIA throughout the year, with £4.7 million incurred (30 September 2021: £3.9 million).

Total profit and comprehensive income has increased from £62.4 million in the prior year to £140.3 million, as previously noted, this was predominantly attributable to revaluations in respect of high near‑term electricity futures prices in the year.

1. APM - for definition and calculation methodology, refer to the APMs section below.

Ongoing charges

The Company's ongoing charges ratio1, calculated in accordance with the AIC methodology, was 1.1% for the year ended 30 September 2022 (30 September 2021: 1.1%).

Revolving credit facility

During the year, the Company increased the total commitments of its existing credit arrangements from £165.0 million to £190.0 million across five lenders (four existing and one new): RBSI, AIB Group (UK) plc, Lloyds Group plc, Clydesdale Bank plc and Mizuho Bank as the new lender. At year end, £99.0 million was drawn and the terms in place are summarised below:

Further details are disclosed in note 15 to the financial statements.

Net assets

The net assets of the Company have increased from £916.8 million at 30 September 2021 to £998.1 million at 30 September 2022. The Company's NAV per share has increased from 103.92 pence at the prior year end to 112.80 pence at 30 September 2022, an increase of 8.5%.

Cash generation

The Company received debt service payments of £206.2 million (30 September 2021: £100.7 million) during the year, comprising £52.1 million of cash interest payments and £154.1 million of loan principal repayments (30 September 2021: £49.3 million and £51.4 million). The Company paid cash dividends of £59.1 million during the year (30 September 2021: £60.3 million). The Company aims to manage its cash position effectively by minimising cash balances, while maintaining the financial flexibility to pursue a pipeline of investment opportunities. This is achieved through active monitoring of cash held, income generated from the portfolio and efficient use of the Company's revolving credit facility.

Hedging

The Company entered into a new arrangement to hedge its financial exposure to electricity prices during the year. The Investment Adviser recommended hedging c.75% of the Company's exposure to the UK electricity market for winter 2022/23 at a fixed price of £434 per MWh. The mark‑to-market of the hedge at 30 September 2022 was a liability of £3.9 million. Further detail on the Company's electricity price exposure and hedging strategy can be found above and in note 18.

Share price performance

The Company's total shareholder return1 was 3.8% for the year (30 September 2021: -7.9%) and 109.9% since IPO in 2010. During the year, the Company's shares have generally traded at a discount1 to NAV, with an average of 0.7% for the year and a discount1 of 13.3% at the year end. The shares have traded at an average premium1 of 8.8% since IPO. The share price at 30 September 2022 was 97.80 pence per share (30 September 2021: 100.40 pence), being the last trading day of the financial year.

Further details on share movements are disclosed in note 16 to the financial statements.

Dividends

The Company aims to provide shareholders with regular, sustained, long-term dividends. For the year ended 30 September 2022, the Company paid a dividend of 7.0 pence per ordinary share (30 September 2021: 7.0 pence).

The Board and Investment Adviser do not believe there have been any material changes in the Company's ability to service sustained, long‑term dividends since the assessment carried out in early 2021 that established a dividend target2 of 7.0 pence per share for this financial year. As such, the Company has set a target2 at the same level, 7.0 pence per ordinary share, for the forthcoming financial year. The Company maintains an attractive pipeline of investment opportunities that will generate returns in excess of the reinvestment rate assumed during the 2021 exercise, further supporting the sustainability of the target2 in the medium term.

1. APM - for definition and calculation methodology, refer to the APMs section below.

2. The dividend target set out above is a target only and not a profit forecast or estimate and there can be no assurance that it will be met.

Dividend cover

In determining the dividend target1 for the forthcoming financial year, the Board and Investment Adviser reviewed the sustainability of the dividend level against a number of metrics, most notably the alternative performance measure based on interest income accruing to the benefit of the Company from the underlying investment portfolio; loan interest accrued2.

The Board recognises there are a number of methods of assessing dividend coverage. The Board and the Investment Adviser consider this metric to be a key measure in relation to the ongoing assessment of dividend coverage alongside earnings cover2 calculated under IFRS. The loan interest accrued2 metric adjusts for the impact of pull‑to‑par, which is a feature of recognising earnings from the investment portfolio presented under IFRS.

Further analysis on dividends is shown in note 9 to the financial statements.

1. The dividend target set out above is a target only and not a profit forecast or estimate and there can be no assurance that it will be met.

2. APM - for definition and calculation methodology, refer to the APMs section below.

3. Includes 2020 fourth interim dividend of 1.9 pence per share paid in the 2021 financial year.

4. The calculation of cash earnings cover has been updated this year to include adjusted loan interest received2 and exclude repayments of financial assets.

Sustainability

The Company's portfolio makes a positive impact, through contributing towards the generation of renewable energy and financing infrastructure that has clear benefits to end users within society.

Introduction

Company impact

Infrastructure, by definition, has a core social purpose. With long-term investments in renewables, assets such as schools and hospitals in the PFI portfolio and social housing focused on the provision of accommodation for vulnerable adults, the Company's portfolio makes a positive impact, through contributing towards the generation of renewable energy and in providing the financing of infrastructure that has clear benefits to end users within society.

The Company's philosophy remains, as it has always been, focused on the long‑term sustainability of the portfolio. The Board and the Investment Adviser have continually sought to improve how ESG criteria are embedded, integrated, monitored and measured and will continue to do so going forward.

Data collection project

This year, the Investment Adviser carried out an extensive project to develop, quantify and finalise material ESG metrics from the underlying portfolio for the twelve month period to 30 June 20221. The Investment Adviser chose to carry out the data collection in‑house rather than outsource, as leveraging its detailed knowledge of the portfolio and existing relationships with the borrowers offered the most efficient approach and provided best value for shareholders.

The project required a significant time investment and was successfully completed over a six month period. The process involved the Investment Adviser's portfolio management team liaising with each asset operator to obtain relevant ESG data on the underlying portfolio assets. This is the first year of collection and reporting and the initial data will be used to identify and set baseline metrics for future ESG reporting by the Company. The initial data points considered material are detailed in the table below. When considering materiality, the Company was advised by its external consultant using framework guidance provided by SASB, GRESB and the UN SDGs. The scope of data collection will be kept under review.

The Company appointed MJ Hudson as its external consultant, to advise on the project. MJ Hudson is a global institution with over 15 years of experience in the sustainability sector, assisting companies with their ESG implementation and transition plans. They advised on the ESG data collection approach based on industry frameworks. They also conducted an independent review of the data for any significant inconsistencies. Furthermore, they assisted the Company with creating an ESG dashboard to report on performance against relevant themes and KPIs across the portfolio.

The Investment Adviser will continue to liaise with asset operators to improve and refine the availability of future ESG data which will be collected and reported on an annual basis. It will also consider obtaining independent assurance over the data, which may include a GRESB assessment for particular assets; refer below. This was the first year such a detailed ESG-focused data collection exercise has been undertaken and there were several challenges faced in respect to the availability of the data requested, insofar as the Company is a debt provider and does not own or control c.90% of assets in the portfolio. For future investments, the Investment Adviser intends to include additional data clauses in any loan documentation to more easily facilitate the collection of ESG data.

The Board and the Investment Adviser are fully committed to improving the Company's data capture and disclosure in the drive for more consistent reporting across the industry.

1. Period chosen to facilitate data inclusion in the Company's annual report.

2. Percentage of data entries for applicable KPIs per ESG area weighted by portfolio value.

Environmental

1,429 GWh

Renewable energy exported by portfolio assets1

438,000

Equivalent homes powered by portfolio assets1

48%

Portfolio assets reporting energy conservation plans2

Portfolio impact

The Company has strong environmental credentials with 65% of its portfolio invested in renewable energy projects. The Company's investments in renewable assets provide alternative energy sources to fossil fuels. Additionally, biomass and anaerobic digestion projects within the portfolio recycle many types of waste to produce sustainable fertilisers.

The Company has a further 11% of its portfolio invested in supported living and 24% in PPP/PFI. The carbon impact of infrastructure contributes a significant proportion of the UK's national emissions from a construction, operation and maintenance perspective. In many cases, the UK's existing infrastructure was not originally designed and constructed with global warming in mind. The Company, alongside the Investment Adviser, encourages and, in some cases, directs investments in the decarbonisation of existing buildings including energy efficient retrofit programmes.

As an example of the potential climate-related opportunities under consideration, the Investment Adviser is currently exploring the addition of hydrogen production to optimise an existing wind farm within the portfolio. A feasibility study has been undertaken in partnership with a cement manufacturer located close to the wind farm. This presents the potential to generate additional revenue and a potential life extension for the wind farm, and also to help decarbonise an intensive manufacturing process.

GRESB

GRESB is an independent organisation providing validated ESG performance data. The Investment Adviser has commenced a GRESB assessment process with the assistance of an independent consultant on one of the Company's onshore wind farms. This is a detailed and time intensive assessment which will provide a transparent and independent benchmark. It is intended that any lessons learned and best practice can be applied to the rest of the portfolio, where applicable. It is anticipated that this process will complete by the end of 2023.

Climate risk assessment

During the year, the Investment Adviser carried out a climate risk assessment for each underlying portfolio asset to assess the actual and potential impacts of climate‑related risks and opportunities across the portfolio. The analysis considered both physical and transition risks for each asset. The data collated was based upon publicly available data on flood risk and EPC ratings, supplemented by inputs from the Investment Adviser's portfolio management team and its investment management team. Further information is given below.

Green economy

The Company was recognised in 2020 by the London Stock Exchange and awarded the Green Economy Mark. This classification was created to highlight companies that are driving the global green economy.

1. Twelve month period to 30 June 2022.

2. At 30 June 2022.

Social

£2.8m

Contribution of renewables portfolio to CBFs since IPO

3,119

People housed in supported accommodation1

£166.7m

Investment in supported living projects since IPO

Portfolio impact

The Company and the Investment Adviser's approach to responsible investment is integrated within its investment decisions and ongoing portfolio management. Investing in renewables, PPP/PFI and social housing projects indirectly creates job opportunities in supply chains to the benefit of local communities across the UK. These projects require contractors and specialist staff during the labour-intensive construction and/or installation phase, as well as in operations, maintenance and decommissioning where applicable. Every project supports jobs in local communities.

Renewables

Renewables projects not only have a positive impact on the environment but also have wider benefits for society, improving local communities through Community Benefit Funds ("CBFs"), where these are implemented. A CBF is a voluntary commitment by a developer to provide funds which are then made available to community projects. By way of example, the accepted standard commitment for a wind farm is £5,000 per MW. These funds can be used to finance any initiative a community deems appropriate and necessary for their local area, including community-owned renewable energy projects, recreational facilities or equipment for local schools. Benefits under the protocol are negotiated directly with host communities and tailored to their needs to ensure a positive lasting legacy is achieved.

One such scheme the Company contributed to this year is the Eden Geothermal Community Fund, which is supporting community projects in the vicinity of the Eden Project in Cornwall, where the Company is financing the development of a deep geothermal heat project that, once complete, will supply renewable heat and electricity to the Eden Project.

The projects financed through the Eden Geothermal Community Fund include improvements to local recreational facilities, developing and resourcing outdoor learning environments, wildlife habitats to improve biodiversity and a sensory garden in schools. They also include building welfare facilities in a forest learning setting for young people, running a mobile community larder and supporting a community seed library.

Supported living

The Company's investments in supported living have helped fund many properties across the UK. The properties are a mixture of specially adapted residential stock and new purpose-built properties offering high-quality accommodation for people with disabilities. This is an excellent example of effective partnerships with service providers to create quality supported living services. The Investment Adviser pays particular focus on operating to the highest ethical standards in this area due to the vulnerability of some stakeholders.

PPP/PFI

The Company's activities impact many thousands of people across the UK through its investments in assets in the PPP/PFI sector. These assets are integral to UK society and provide long-term partnerships with the public sector.

The Company has exposure to a number of sub-sectors within PPP/PFI, including education, healthcare, waste, leisure and housing. Projects financed include 49 schools offering c.26,000 school places and 41 healthcare facilities providing beds to c.2,000 patients.

1. At 30 June 2022.

Governance

45%

Gender diversity of SPV company boards1

34%

Portfolio assets visited in the year by value2

82%

SPVs with governance policies1,3

Portfolio governance

Governance at the Company level is clearly managed and articulated and is essential in achieving the investment strategy, managing risks and creating a positive environmental and societal impact. The Investment Adviser engages with the underlying assets' boards in order to improve and enhance the governance at the portfolio level. The investment documentation issued by the Company includes standard provisions to ensure effective governance within investee companies and the compliance of those companies with applicable environmental, health and safety, anti-money laundering, know your customer and employment requirements.

The directors and employees of the Investment Adviser sit on the boards of, and control, the SPVs through which the Company invests. The Company has delegated the day-to-day operations of these SPVs to the Investment Adviser through the Investment Advisory Agreement. Governance at SPV level was a particular focus for the year; the Investment Adviser specifically focused on the gender composition of the boards of the SPVs and a number of female directors were appointed with the previous directors resigning their appointment. Composition of these boards are now more gender balanced with 45% of SPV directors being female, increasing from 25% in the prior year.

The governance approach at SPV level has also been reviewed and updated with new ESG policies and procedures being introduced, including environmental, diversity, anti-bribery, and modern slavery where appropriate.

The Board and the Investment Adviser value relationships with borrowers, ensuring time is spent building and maintaining these relationships. Engagement is in the form of regular interaction with the borrowers by the portfolio management teams, including periodic site visits to the underlying assets and their managers. Site visits are an important aspect of the portfolio management role and can facilitate both technical and commercial benefits. They allow the Investment Adviser to assess the performance of both asset and contractor and investigate any important project issues.

Furthermore, site visits give the Investment Adviser an opportunity to understand the operations and relationships important to each project and its long-term success. In particular, where the Company is exposed to RPs that have been graded as non-compliant in respect of governance, the Investment Adviser has been working with the RPs to improve processes, people and systems in seeking to address the RSH's governance concerns.

In the financial year, 28 site visits were conducted, representing 34% of the portfolio by value, including visits to the Evermore waste wood biomass project (refer above), Aberdeen schools project (refer above) and renewables and PPP/PFI assets in various UK locations.

1. At 30 June 2022.

2. Year to 30 September 2022.

3. SPV's with at least one of the following policies: anti bribery, ESG, diversity and whistle-blowing.

Corporate ESG initiatives

The Board maintains and monitors a positive dialogue with its key service providers in regard to social and environmental areas. All key service providers, including the Investment Adviser and the Administrator, regularly report on their efforts and progress in such areas as diversity, environmental and social impact. Service provider initiatives include policies such as promoting paid rather than unpaid internships, charitable donations and encouraging low carbon office environments as well as business travel. It is envisaged that these initiatives will, in due course, encompass a review of sustainability in supply chains at each (material) organisation.

The Company and Investment Adviser are currently working towards running operations on a carbon-neutral basis by 2023 to support the transition to net zero. During the year, the Board resolved to offset its carbon emissions from corporate travel, specifically flights to and from the UK. The offsetting benefits the charity 'Jersey Trees for Life', which is the only charity that is dedicated solely to the protection and preservation of trees in Jersey. The charity's aim is to encourage the protection, preservation and planting of trees, and to foster an appreciation of trees through community education for their amenity, ecological and other values.

The Investment Adviser's premises in London holds a BREEAM 'Excellent' rating and the offices are powered by renewable energy. This year, the Investment Adviser revised its business travel policy to further encourage use of public transport and minimise flight travel to support its carbon neutral target.

To encourage employees to travel in more carbon efficient ways, it operates an electric vehicle scheme and a bike to work scheme. It operates an office consumables and paper recycling scheme, and all staff are provided with stainless steel, BPA-free, reusable water bottles and insulated cups to reduce the impact of single‑use plastic. Furthermore, the Investment Adviser offsets carbon emissions by contributing to a portfolio which is run by provider Climate Impact Partners, whose aim is to reduce one billion tonnes of CO2 by 2030.

Whilst the Board and the Investment Adviser do not consider offsetting to be by any means a perfect solution to the impact activities have on the environment, both parties believe that it is a useful starting point. The ultimate aim is to reduce emissions and the intention is to continue to investigate and follow best practice in this area.

This year the Investment Adviser was awarded an 'Investors in People' accreditation. As part of the assessment, a business-wide survey was conducted to collate employee feedback, which has been used to drive better communication and introduce non‑financial reward schemes. The Investment Adviser has committed to working with Investors in People over the next three years and encourages everyone in the business to reach their potential and provides regular training to staff including funding specific industry qualifications. This year it also held formal ESG training for key employees and across the wider business. The Investment Adviser also has a range of measures in place to support the physical and mental health of its employees, including a private healthcare package, weekly fitness classes and guidance on healthy home working. It offers hybrid working arrangements to all employees.

The Investment Adviser actively supports diversity and inclusion and ensures that all employees are valued and treated with dignity and respect. To further efforts in this area, it is introducing annual diversity and inclusion training for all employees and is working on enhancing recruitment processes to provide a framework that supports a diverse and inclusive culture. It also intends to carry out a diversity survey in the coming year to establish a baseline and facilitate improved reporting going forward.

The Investment Adviser also operates a volunteering initiative which supports employees to volunteer for charitable or not‑for-profit purposes by giving an additional two days' paid leave plus two days' unpaid leave per year. Furthermore, it partners with a charity of the year, to engage with in fundraising, events and through volunteering. The charity chosen this year was Little Village, a charity that supports local families. During the year, 39 employees participated across the business with more than 120 hours spent volunteering at the Little Village depot, assisting the charity in cleaning and packaging items to be sent to families they support. This provided employees with an opportunity to work as a team, engage with the local community and understand more about the hardships low-income families with young children face. At the date of publication, total amounts raised for Little Village were over £37,000.

Responsible Investment

Investment process

The Investment Adviser has been a signatory to the Principles for Responsible Investment ("PRI") since 2019. The PRI, established in 2006, is a global collaborative network of investors working together to put the six principles into practice. The Investment Adviser recognises that applying these principles better aligns investment activities with the broader interests of society, and has committed to their adoption and implementation. ESG is at the core of investment decisions and ongoing management and is led by the investment team.

The Investment Adviser has a ten year record of investing in assets with a core environmental and social benefit. ESG investment processes are overseen by the Investment Adviser's Responsible Investment committee.

1. Internal verification process.

Responsible Investment policy

The Investment Adviser's Responsible Investment policy is integrated into investment management processes and incorporates pre-investment, active ownership and governance processes, as detailed below.

UN Sustainable Development Goals

Through investing in assets which contribute to the green economy, the Company's activities align with the UN SDGs. These goals were created in 2015 by the United Nations to create a better and more sustainable world by 2030. Examples include clean and affordable energy, responsible consumption and production and sustainable cities and communities.

The Company makes a positive contribution to the provision of renewable energy, to the development of infrastructure to support economic growth and provides high-quality and safe buildings for vulnerable adults, healthcare patients and students. Further, the Company's approach to governance, and to labour and health and safety, makes a positive contribution to the employees, customers, suppliers and local communities in which the assets operate.

UN SDG alignment of the Company's portfolio

1. Twelve month period to 30 June 2022

2. At 30 June 2022

3. At 30 September 2022

4. At the date of the report

1. Twelve month period to 30 June 2022.

2. At 30 June 2022.

3. At 30 September 2022.

TCFD

Governance

Disclose the organisation's governance around climate‑related risks and opportunities.

Compliance statement

The Company has voluntarily and partially reported against all four TCFD recommendations and the eleven recommended disclosures, taking into account the TCFD 'Guidance for All Sectors', as well as the supplemental guidance for the financial sector.

The Company has omitted to report against: 'Strategy (c)' in respect of different climate‑related scenarios, including a 2ºC or lower scenario. This is due to the quality and availability of data in this first year of reporting. Additionally, "Metrics and targets (c)" in respect of targets used by the organisation to manage climate‑related risks as it intends to develop its approach in relation to targets in the coming year. The Company has only partially reported data for Scope 3 under 'Metrics and targets (b)' due to the availability of data in this first year of reporting. For these reasons, the Company is not in full compliance with the TCFD requirements at this stage. It will continue to work towards full compliance.

A. The Board's oversight of climate‑related risks and opportunities

Governance

The Board considers best practice application of ESG principles as paramount in the Company's operations, the assets within its investment portfolio and the operations of its advisers. It is responsible for setting the strategy for the Company, including in relation to climate‑related risks and opportunities.

The Board is informed about climate-related issues as part of the quarterly reporting cycle by the Investment Adviser and the Company's committees. During the year, the Board established an ESG committee specifically to focus on its ESG principles.

The Company's committees contribute as follows:

- Audit and Risk committee: responsible for climate‑related disclosures and risk assessment

- ESG committee: establish and monitor ESG policies and activities

- Investment committee: reviewing ESG impacts during the investment process

- Management Engagement committee: ensuring suppliers operate in a socially responsible manner

The ESG committee formally meets at least once a year, however it engages informally with the Investment Adviser and other service providers on a regular basis, including participating in briefings and new initiatives.

The Board and the Investment Adviser use external consultants and acquire expertise where needed, including through recruiting. This year, the Company, along with the Investment Adviser, funded an ESG-focused internship to support the work the Board is carrying out on its ESG strategy and to assist the Investment Adviser with the data collection project. The internship enabled the Company to benefit from a fresh, more diverse perspective with enthusiasm and expertise in environmental matters. The Investment Adviser has also committed additional resource by recruiting a senior member of staff to lead on ESG and legal matters.

Other initiatives included engaging with ESG ratings agencies to understand how the growing ESG ratings industry affects investor perceptions of companies.

B. Describe management's role in assessing and managing climate‑related risks and opportunities

The Investment Adviser has a ten year record of identifying assets with a core environmental and/or social benefit. ESG is at the core of investment decisions and ongoing management and is led by the investment team. ESG investment processes are overseen by the Responsible Investment committee, which reports into the Executive committee of the Investment Adviser. Further information is provided above.

Climate risks are considered at each stage of the investment process, including initial deal screening of opportunities and investment due diligence processes. Risk assessment takes the form of both quantitative analysis and qualitative assessments looking at the ESG approach of investee companies. Environmental impact assessments are carried out where appropriate, as part of the due diligence process to identify potential transition and physical short, medium and long-term impacts to costs and viability across service providers and investments.

During the year, the Investment Adviser carried out a climate risk assessment for each underlying asset to assess climate‑related risks and opportunities across the portfolio. Further information is given below.

Following execution and investment, key relevant ESG indicators are monitored by the portfolio management teams. The Investment Adviser seeks to engage with investees to understand relevant ESG factors and to manage exposure to risks. ESG indicators are reported to the Board for consideration as part of the quarterly reporting cycle.

Strategy

Disclose the actual and potential impacts of climate‑related risks and opportunities on the organisation's businesses, strategy and financial planning where such information is material.

A. Describe the climate‑related risks and opportunities the organisation has identified over the short, medium and long term

The Investment Adviser, through its climate risk assessment, has identified, based on current climate conditions, that the portfolio is exposed to physical risks arising from extreme weather events, examples such as storm Arwen in January 2022, which caused damage to infrastructure across the UK. The overall financial impact is limited and various mitigants are in place such as comprehensive insurance policies, which cover physical damage due to weather‑related events. It is recognised, however, that such insurance policies may not always be available at a reasonable cost or at all and physical resilience or protection of assets is kept under review.

The Company defines short, medium and long‑term risk time horizons as follows: short term: zero to three years; medium: four to eight years; long term: more than eight years. When considering materiality, the Investment Adviser considered the financial impact each risk could potentially have on the asset were it to materialise. Further information is included below.

The main short-term physical risk exposures are to winter storms and flooding, with 11% of the portfolio located in areas deemed as having a high risk of surface water flooding and 0.4% with high risk of river or coastal flooding respectively. However, there are mitigants in place and the likelihood of these areas experiencing flooding at the same time is low. The Investment Adviser will continue to monitor and review mitigation plans to avoid flood damage to the portfolio.

Medium to long term, more frequent floods and more intense and frequent storms may place significant pressures on energy infrastructure and may lead to damage to parts, power lines and transmission grids, and cause potential disruption to supply chains. Significant impacts may be seen in the social infrastructure sector causing localised strain on public services, potentially leading to closure of facilities. Higher temperatures may impact key components in renewables projects and also lead to overheating in buildings, which particularly affects vulnerable people.

The Company may be exposed to transition risks in the short term from rapid and unexpected changes to government policy. Since the year end, the UK Government has announced the introduction of a levy on excess profits generated by electricity generators. The Investment Adviser has estimated the downside impact of the levy to be 1.5 pence per share on the NAV at 30 September 2022. It is expected that the impact will be offset by higher long-term electricity prices and inflation.

In the medium to long term, any policy changes to Minimum Energy Efficiency Standards ("MEES") would impact properties in the social housing sector. The ability to claim MEES exemption caps the maximum exposure to £10,000 per property. Overall, 46% of the social housing portfolio has an EPC rating equal to a C or above, whilst 43% has an EPC rating of below C, with the remainder either unavailable or unrated. The obligation to improve the energy efficiency of the properties below a 'C' rating sits with the third party RPs under fully repairing and insuring leases, and this will be closely monitored with borrowers.

An increased focus on the ESG aspects of investment presents an opportunity for the Company. At IPO, ESG considerations were not as prominent for investors as they have become in the eleven years since, and particularly in recent years. Whilst most investment funds and companies are seeking to quantify and reduce their negative environmental and social impacts, the Company finds itself in a position where all its investments have a positive environmental or social contribution.

By way of an example, the consideration of the useful economic lives of assets from physical and transitional risks in many cases is either unaffected or positive. The extension of planning permission and leases for the renewable assets is something actively and regularly considered by the Company.

The Investment Adviser is exploring asset classes such as carbon sequestration, flexible generation, biogas and hydrogen as part of a large and attractive pipeline of investment opportunities, c.£473 million at 30 September 2022. As the UK embarks on the largest transformation of its infrastructure in recent history in achieving the transition to net zero, there will be a significant private sector investment requirement to support this, and the need for public sector support across a range of asset classes.

B. Describe the impact of climate‑related risks and opportunities on the organisation's businesses, strategy and financial planning

The primary physical impacts of climate change will be experienced by the Project Companies the Company lends to; firstly, by increased operating costs or reduced revenues due to physical risks materialising. In many cases, physical mitigation measures exist and there is a degree of contractual protection built into loan agreements from increased costs. Secondly, the credit quality of the Project Companies may deteriorate. For example, extreme weather events might materially increase the cost of insuring some assets, or they may not be insurable. These impacts, if material, may lead to a reduction in valuation of the portfolio.

Overall, the portfolio benefits from its geographical sector, technology and market diversification. Based on the climate risk analysis undertaken, refer below, the Investment Adviser does not currently propose to make any changes to financial forecasts due to climate risk.

Conversely, opportunities may arise which enable the Company to deploy capital to a wider range of assets classes, providing further diversification into new sectors and thereby increasing revenues. By way of an example, the Company has recently invested in an electric vehicle scheme operating in London, which benefits from the low‑emission plug-in grant representing part of £300 million of direct public sector support.

One potential transitional impact from climate change is through the increased deployment of renewable generation reducing the marginal cost of electricity thereby impacting forecast revenues. A mitigating factor is to consider PPAs thereby securing revenue streams. The Investment Adviser, on behalf of the Company, has successfully implemented a number of these agreements. Further information on the Company's electricity price exposure is included above,

C. Describe the resilience of the organisation's strategy, taking into consideration different climate‑related scenarios, including a 2ºC or lower scenario

The climate change impact assessment carried out by the Investment Adviser has concluded that the Company's strategy is relatively resilient to both the physical and transition risks associated with climate change. The results of the assessment demonstrated that whilst there are physical and transitional risks, in the context of the Company's diversified portfolio, the financial impacts were not material. By way of an example, higher wind speeds may impact to the detriment of wind turbines but not necessarily on other sectors in which the Company is invested, illustrating the resilience of a diversified portfolio.

The Investment Adviser has not considered a 2ºC or lower scenario in this analysis as this was the first year the Company has undertaken a detailed climate risk assessment. The assessment considered the impact of more extreme weather events rather than utilising explicit temperature scenarios. It will seek to carry out further analysis for future years including considering a 2ºC or lower scenario. The potential impact of climate‑related risks to the Company are detailed above.

Risk management

Disclose how the organisation identifies, assesses and manages climate‑related risks.

A. Describe the organisation's processes for identifying and assessing climate‑related risks

The Board of Directors is directly or indirectly addressing climate-related risks and opportunities when evaluating and approving new investments, including an ESG risk and impact assessment completed for each new investment.

As part of the Investment Adviser's due diligence process, environmental impact assessments are carried out on each portfolio asset, where appropriate. The Investment Adviser also carries out ongoing performance monitoring, including asset site visits by experienced personnel; further information is given above. Fortnightly updates and quarterly detailed reports on asset performance are provided to the Board.

Climate change has become a key risk faced by infrastructure investors. In the year, the Company has increased its focus on ESG, particularly the potential impacts of climate change, which has included the Investment Adviser conducting a detailed portfolio-wide climate risk assessment across each of the 80 projects in the portfolio.

The risk assessment considered nine risk factors divided between physical and transition risks:

Physical risks: these are events that are driven by a shift in temperatures and weather patterns. The assessment considers five risks: flood risk; heat stress; water stress; fires and wildfires; severe winds and storms. These events have been chosen based on the materiality to the overall portfolio. Refer to the adjacent table for further detail on materiality.

Transition risks: these are the risks related to the transition to a low-carbon economy. Four areas were considered: policy or regulatory; technological; market; and reputational risks.

External and internal data points were used to assess the portfolio. EPC ratings and flood risk data were obtained using databases provided by the UK Government for all available sites within the portfolio. The data points were used to calculate the portfolio exposure to changes to energy efficiency standards and to flooding.

An asset-by-asset assessment was also undertaken internally by the Investment Adviser's portfolio management team to consider the specifics of each investment and to understand the overall exposure to climate change and any mitigating factors. The results from the risk assessment will be used as part of decision making in relation to portfolio management, to help identify further mitigation strategies and to inform whether any change is required to the underlying financial forecasts of the Company.

The assessment was completed by evaluating the impact and likelihood of a climate change event happening within the remaining lifetime of each asset. This assessment assumes an increase in extreme weather events due to climate change.

The risk assessment scores were calculated by multiplying impact and likelihood metrics:

The impact metric indicates the financial impact each risk could potentially have on the asset. This metric is scored from a scale of 1 to 5, with 5 being highest and 1 having a negligible impact.

Each score indicates a specific financial impact as seen in the table below:

The Company will continue to refine its approach to materiality as the availability of data improves over time.

The likelihood metric was rated between 0% and 100%, based on the probability of an climate event happening within the remaining lifetime of the asset.

The impact and likelihood metrics were multiplied to give a score for each risk identified. Each asset was given a total physical risk rating out of 25 and a transition risk rating out of 20. These individual ratings were then weighted by the portfolio valuation of each asset to give an aggregated score by sub-sector and sector. A final rating of between 0 and 45 was then obtained through combining total physical and transition risks scores.

The chart on page 54 of the full annual report (on the Company's website) shows the outputs of this process, indicating the sectors that potentially could be adversely impacted by climate change. The colour of each sector represents the risk exposure and is based on the weighted average rating for each sector.

Overall, the portfolio benefits from its geographical sector, technology and market diversification. Under physical risks, the biggest exposure is to flood risk, heat stress and severe winds. An increase in the frequency of floods and severe winds is most likely to impact the renewables sector, with heat stress most impacting the PPP/PFI sector.

Under transition risks, the portfolio is most exposed to policy or regulation change. Within the renewables portfolio, biomass projects account for some 12% of portfolio value and are likely to be most influenced by regulatory and market changes. While the Investment Adviser views the biomass sector as well placed to benefit from the transition to net zero as a form of low carbon baseload power, current uncertainty around the possible participation in the UK Emissions Trading Scheme ("UK ETS") along with future power price caps for renewable generators, is reflected in the regulatory and market risk scores.

The Investment Adviser and the Board recognise that the prioritisation of climate change requires a change of government approach primarily through regulation. Regulatory changes in UK ETS, power price caps, energy efficiency standards and implementation of windfall taxes on renewable energy generators may impact the portfolio.

Based on the analysis undertaken, the Investment Adviser does not currently propose to make any changes to financial forecasts due to climate risk. As detailed above, in the medium to long term, any changes to MEES for buildings could impact some assets, and these will be closely monitored with borrowers. The Investment Adviser intends to update the climate risk assessment on an annual basis.

Whilst the Investment Adviser has concluded that the portfolio is exposed to low physical and transition risk, the opportunities for each asset have not been quantified in this exercise. This is an area that will be considered further in future assessments. However, three key opportunities have been identified in relation to climate change. Firstly, the Investment Adviser expects an increased demand for renewable energy following the transition to green energy. Secondly, the Company sees an opportunity to diversify its portfolio through investing in clean transportation, such as electric vehicles, and exploring new asset classes such as carbon sequestration, flexible generation, biogas and hydrogen as part of a large and attractive pipeline of investment opportunities, c.£473 million at 30 September 2022.

Furthermore, the Investment Adviser expects there will be optimisation and expansion opportunities for the portfolio following growing demand for renewable energy and energy security.

The Investment Adviser intends to seek to improve the climate change risk assessment process for future years to help monitor and mitigate exposure to climate change. Areas for improvement may include:

combining climate opportunities into the assessment;

adding additional climate data points and benchmarks; and

the inclusion of climate change scenarios, including a 2ºC or lower scenario.

Additionally, with the fast‑developing reporting standards, including TNFD frameworks due in 2023, the Company will seek to broaden the data collection process to include further disclosures on biodiversity loss.

B. Describe the organisation's processes for managing climate‑related risks

The portfolio is diversified across a number of asset classes and ESG processes are embedded in investment decision making. The importance of the Investment Adviser's engagement and influence in helping portfolio companies improve their ESG performance is crucial. Further information is given in the emerging risk section below.

C. Describe how processes for identifying, assessing and managing climate‑related risks are integrated into the organisation's overall risk management

The way in which the Company manages risk and the principal risks and uncertainties are described below. The Board considers climate change as an emerging risk, which is detailed below.

Metrics and targets

Disclose the metrics and targets used to assess and manage the relevant climate‑related risks and opportunities where such information is material.

A. Disclose the metrics used by the organisation to assess climate‑related risks and opportunities in line with its strategy and risk management process

The Investment Adviser includes an assessment of ESG characteristics (using a RAG rating) in every investment proposal submitted to the Company's Investment committee for approval. Prior to a new investment being approved, the Investment Adviser assesses how the investment rates against key relevant ESG criteria, laid out in an ESG checklist tailored for the Company. The checklist typically covers the counterparty's commitment and capability to effectively identify, monitor and manage potential ESG-related risks and opportunities and, to the extent applicable, the availability of relevant policies and procedures, alignment with industry or investment-specific standards and ratings, and compliance with relevant ESG-related regulation and legislation.

During the year, the Investment Adviser carried out a climate risk assessment for each underlying asset. Further information on the methodology used to complete the climate risk assessment is included above.

B. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas emissions and the related risks

As an investment company, the Company does not have a significant environmental impact in its own right. With no employees or property and an outsourced services model, there are no Scope 1 (direct) and Scope 2 (indirect through power demand) climate‑related emissions to report, and as an investment fund specifically, its Scope 3 (other indirect) emissions fall under two categories within Scope 3 as defined by the GHG Protocol:

Category 1: Purchased goods and services

The emissions from services provided by the Investment Adviser1 and the Administrator and emissions from travel of the Board. These were deemed as most material in the context of the Company's outsourced service model.

1. The emissions of the Investment Adviser are published in its Responsible Investment report which can be found on the Investment Adviser's website.

Category 15: Investments

The emissions of the underlying portfolio. As this is the first year a detailed data collection exercise has been undertaken, there were several challenges faced in respect to the availability of the data requested, insofar as the Company is a debt provider and does not own or control c.90% of assets in the portfolio. As such, emissions data points were obtained from 56% of portfolio assets by value.

The Investment Adviser will continue to liaise with asset operators to improve and refine the availability of future ESG data which will be collected and reported on an annual basis. Further information on the data collection exercise can be found above.

The Company has measured and disclosed the emissions from the underlying portfolio in accordance with the GHG Protocol. Emissions from investments (Category 15) comprise proportional Scope 1 and Scope 2 emissions of the underlying portfolio and have been allocated based on the Company's proportional share of total enterprise value (total equity plus debt) in accordance with the guidance for debt investments and project finance.

The Company has not reported total projected lifetime Scope 1 and Scope 2 emissions of the projects financed during the year. It will seek to include this information for future years where available.

Greenhouse Gas Emissions

The Company has measured its emissions in accordance with the GHG Protocol. An operational control approach was used to define the organisational boundary and responsibility for GHG emissions. Emissions have been measured over the twelve month period to 30 June 2022. The period chosen was to facilitate data inclusion in the Company's annual report.

C. Describe the targets used by the organisation to manage climate‑related risks and performance against targets

The Board and the Investment Adviser are committed to improving the Company's data capture and disclosure to help drive more consistent reporting across the industry. The Company has made significant progress towards achieving compliance with TCFD, and intends to develop its approach in relation to targets in the coming year. The Company will seek to set targets in line with the Science Based Targets initiative, where appropriate.

The data collection exercise undertaken this year has provided the Company with useful base level data. This will enable the Board and the Investment Adviser to focus on those areas that are material. When considering materiality the Company was advised by its external consultant using framework guidance provided by SASB, GRESB and the UN SDGs. The data will also assist the Board in selecting the relevant targets to manage risk and performance and inform other mitigations such as regular engagement, oversight and review.

The Investment Adviser is currently working towards running its operations on a carbon‑neutral basis by 2023. The Company has made the same commitment. The Investment Adviser and the Board believe this is the right thing to do as a business in order to help to meet the international target set out by the 2015 Paris Agreement to limit global warming to below 2°C, and to support the transition to net zero.

Integration of ESG

The Company and the Investment Adviser have made considerable progress with ESG integration over the past years.

Governance

The Company

In 2020, mindful of increased awareness and focus on consideration of ESG factors, the Board allocated specific responsibility for ESG to Dawn Crichard and, in 2021, Ms Crichard was appointed formally as the ESG representative on the Board.

In July 2022, the Board established an ESG committee comprising all the Directors and chaired by Ms Crichard, for the purpose of defining the Company's ESG strategy, overseeing the implementation and effectiveness of such strategy and ensuring it is integrated in the Company's policies and procedures. The committee meets at least once a year and at such other times as required to drive the focus on sustainability.

The committee provides a formal briefing and strategy paper at each quarterly Board meeting and time is allocated to consider specific ESG matters including the fast-developing reporting standards.

As Ms Crichard also chairs the Management Engagement committee and all Directors are members of both committees, it enables ESG to be considered holistically in all aspects of its impact upon the Company, rather than as a standalone item. This approach has evolved as it has become apparent that ESG touches all aspects of the Company's business. In the coming year, the Board intends to adopt a formal Company ESG policy, which will encompass all aspects of ESG including the Investment Adviser's Responsible Investment policy.

This year, portfolio governance has been another key focus, with the Investment Adviser carrying out work to improve governance processes at SPV and Project Company level, including improving diversity where it has direct influence. Composition of these boards is now more gender balanced with c.45% of SPV directors being female, increasing from c.25% in the prior year. The committee has also been working with borrowers to implement ESG policies and procedures and intends to continue to focus on this in the next financial year.

Investment Adviser

In 2019, the Investment Adviser became a signatory to the PRI and commenced work to integrate Responsible Investment criteria into investment processes. The Investment Adviser published a Responsible Investment policy in 2020 outlining its commitments as a business and continued with its work to fully integrate ESG considerations in accordance with the PRI.

In 2021, the Investment Adviser formed a Responsible Investment committee. The committee comprises senior personnel from across the business and is responsible for all aspects of the Investment Adviser's Responsible Investment policy; further information is given on above. This year, the Investment Adviser committed additional resource by recruiting a senior member of staff to lead on ESG and legal matters.

Over the coming year the Investment Adviser intends to review its own governance processes to identify how climate-related risks and opportunities may be fully considered when reviewing and guiding the strategy of the business. It also intends to further develop ESG metrics to better monitor and report ESG impacts and progress.

Reporting

The Company

In 2021, the Company published its first ESG update encompassing its current approach and future aspirations. This year the Company has voluntarily reported against the TCFD recommendations in full for the first time, this has been an ongoing process with the Company continuing to work towards achieving full compliance.

In 2020, the Investment Adviser defined the project scope for quantifying portfolio renewable energy exports, ESG impacts and emissions and held initial discussions with independent specialists. This year, the Investment Adviser concluded the ESG data collection project to quantify, develop and finalise these metrics. Further information is given above. The Company appointed an external consultant to advise on relevant ESG frameworks for the business and the Investment Adviser liaised with the consultant throughout the process.

In future years the intention is to identify targets and improve the completeness of data collection. There were several challenges faced in respect to the availability of the data requested, insofar as the Company is a debt provider and does not own or control c.90% of assets in the portfolio. As part of the data collection exercise the Investment Adviser carried out a climate risk assessment for the Company; further information is included above.

Investment Adviser

In 2021 the Investment Adviser published its first Responsible Investment report for the financial year and further expanded the report in 2022 whilst also launching a dedicated area for Responsible Investment on its website. The Responsible Investment report sits alongside its PRI report, which summarises the Investment Adviser's Responsible Investment activities. The reports can be found on the Investment Adviser's website.

This year, the Investment Adviser's Responsible Investment committee continued its work to achieve compliance with the core elements of the TCFD. As a company, it is currently exempt from the requirements, however the Investment Adviser believes companies must be transparent on the financial implications of climate change to their business and clearly set out the actions they are taking to manage climate change risks and opportunities. The Investment Adviser encourages the application of the TCFD framework in its funds.

As part of this process, the Investment Adviser's GHG emissions data was collated, and CO2 outputs were quantified. Business travel, specifically flights, is the largest operational source of GHG emissions for the Investment Adviser. These data have been incorporated into the emissions reporting for the Company. The Investment Adviser launched a carbon offsetting scheme in 2021 to offset the impact of its business activities. Further information can be found above.

The Investment Adviser intends to seek to obtain third party assurance of data for the 2023 reporting period.

Awareness

The Company

In 2020, the Company was awarded the Green Economy Mark by the LSE, in recognition of its contribution to positive environmental outcomes. Following which, in 2021 the Company engaged an external consultant to undertake a perception study, to obtain stakeholder opinions from a strategic and ESG perspective. The Company has sought to incorporate the recommendations from this survey, particularly in regard to the reporting of sustainability matters. The Board intends to continue to focus on engagement with all key stakeholders from an ESG perspective. This includes an ESG presentation at the Company's capital markets day and encouraging increased ESG awareness and dialogue at the underlying portfolio company level. Additionally, the Company and the Investment Adviser have engaged with ESG rating agencies during the year and intend to further engage to understand how ESG ratings impact investor perceptions of the Company and share price.

Investment Adviser

This year the Investment Adviser revised its business travel policy to further encourage use of public transport and minimise flight travel to support its carbon neutral target. Furthermore, it set up a charity of the year scheme to contribute as an organisation. To further efforts with diversity across the business, the Investment Adviser plans to introduce annual diversity and inclusion training for all employees and is working on enhancing recruitment processes to provide a recruitment framework that supports an inclusive culture. Further information can be found above.

ESG timeline

2019:

- The Investment Adviser became Signatory to the PRI

2020:

- Allocated ESG responsibility to Director

- Responsible Investment policy published by the Investment Adviser

- Green Economy Mark awarded by LSE

2021:

- ESG representative appointed on Board

- Responsible Investment committee formed by the Investment Adviser

- Published first ESG update on website

- Carbon offsetting scheme arranged by the Investment Adviser

2022:

- ESG committee formed

- Charity partnership agreed by the Investment Adviser

- ESG data collection project completed

2023:

- Adopt a formal Company ESG policy

- Broaden Scope 3 reporting

- Obtain third party assurance by the Investment Adviser

- Engage with ESG rating agencies

- Review and assess TFND framework

Stakeholders

Stakeholders are integral to the long‑term sustainable success of the Company. They include shareholders, borrowers, lenders, the public sector, suppliers and local communities.

Stakeholders

As a member of the AIC, the Company reports against the AIC Code on a comply or explain basis. Whilst the Company is not domiciled in the UK, by reporting against the AIC Code, the Company voluntarily meets any obligations in relation to the 2018 UK Corporate Governance Code and specifically section 172 of the UK Companies Act 2006.

The Directors seek to understand the needs and priorities of the Company's stakeholders in accordance with the Act. All Board discussions involve careful consideration of the longer‑term consequences of any decisions and their implications for stakeholders.

The Board believes that the Company's key stakeholders comprise shareholders, borrowers, lenders, the public sector, suppliers and local communities. This section sets out why and how the Company engages with these stakeholders and the actions taken by it to ensure that their interests are considered in the Board's decision making.

The Board always aims to be fair and balanced in its approach. The needs of different stakeholders are considered as well as the consequences of any decision in the long term.

The stakeholder model on page 62 of the full annual report on the Company's website demonstrates how the Company interacts with its stakeholders. These relationships provide the foundation for the Company's sustainability, which in return provides benefits to all parties. The Board values the importance of maintaining a high standard of business conduct and stakeholder engagement and ensuring a positive impact on the environment in which the Company operates.

The Directors recognise that, both individually and collectively, their overarching duty is to act in good faith and in a way that is most likely to promote the success of the Company as set out in section 172 of the UK Companies Act 2006 for the benefit of shareholders and in the interests of stakeholders as a whole, having regard, amongst other matters, to the likely consequences of any decision in the long term to the adjacent considerations.

Section 172:

Promoting the success of the Company

The Board of Directors consider, both individually and together, that they have acted in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole in the decisions taken during the year as set out below.

This section sets out why and how the Company engages with stakeholders and the actions taken to ensure that their interests are taken into account in the Board's decision making.

Shareholders

All investors in the Company, be they institutional, such as pension funds or wealth managers, or retail, such as private individuals.

Why engage

The Company creates earnings that benefit shareholders through dividend income. The Board and the Investment Adviser recognise the importance of engaging with shareholders on a regular basis in order to maintain a high level of transparency and accountability, acting fairly and to inform the Company's decision making and future strategy.

How the Company engages

The Company, primarily through its Investment Adviser and Corporate Broker, engages in ongoing communication with its shareholders via market interactions, analyst and marketing presentations and they regularly provide feedback to the Board. The feedback received from shareholders during the course of these interactions is taken into consideration when setting the future strategy of the Company and any Board decisions which may impact shareholders.

The Board encourages shareholders to attend and vote at general meetings of the Company so that they may discuss governance and strategy with them and to understand their issues and concerns. The Chairman of the Board and the Chair of each committee attend general meetings of the Company to answer any questions posed by shareholders.

However, the Board recognises that the Company is required to have its formal shareholder meetings in Jersey, which may preclude shareholders from attending. To address this issue, on 12 October 2022, the Company held its first 'capital markets day' in London, providing an opportunity for investors to meet the Board, the Investment Adviser and investee companies, as well as hearing in greater detail the work being undertaken to drive value within the portfolio. The presentation from the event is available on the Company's website.

Further communication with shareholders is achieved through the annual and half-yearly reports, news releases via the LSE and the Company's website. This information is supplemented by the quarterly calculation and publication of the NAV per share on the LSE and the publication of a quarterly factsheet by the Investment Adviser.

The Company's annual report is dispatched to shareholders by post (where requested) and is also available to download from the Company's website, together with the half-yearly report. In the annual report, the Directors seek to provide shareholders with information in sufficient detail to allow them to obtain a reasonable understanding of recent developments affecting the business and the prospects for the Company in the year ahead.

The strategic report above and below provides further information. Communication of up-to-date information is provided through the Company's website.

The Board and the Investment Adviser have engaged with ESG ratings agencies during the year and intend to further engage to understand how ESG ratings impact investor perceptions of the Company.

Key Board decision: Electricity price hedging

Following the maturity of the electricity prices commodity swap agreement with Axpo Solutions AG on 31 March 2022, the Company entered into a new agreement with Axpo Solutions AG on 13 July 2022 for winter 2022/23. The commodity swap agreement is a derivative financial instrument utilised for the purpose of hedging price volatility in the market.

Process:

In recent years, the Company has increased its exposure to investments where the value of such investments was linked to long-term electricity price forecasts. Whilst recent changes to these forecasts have benefited the Company, the increased volatility of such prices remains an increased risk.

At the Board meetings held in January and April 2022, the Investment Adviser and the Board discussed electricity price forecasts, identifying that there was an opportunity to 'lock-in' the current high electricity prices using a new hedging arrangement, thus mitigating the risk posed by volatility in electricity power prices in the investment valuations.

To facilitate these discussions, the Investment Adviser prepared a paper which included a current market overview, modelling of the electricity price forward curve, summary of volumes proposed, potential impacts on cash flow, potential risks, valuation impact, and impact on sensitivity.

The Board considered the uncertainty in the market at the time, such as possible government intervention in electricity price rises and the impact of the war in Ukraine, and it was agreed to put the hedging arrangements on hold but for the Investment Adviser to continue to monitor. A sub‑committee comprising Andrew Didham, Michael Gray and Steven Wilderspin was formed to consider and approve all necessary decisions in relation to the potential hedging arrangement.

In July 2022, the Investment Adviser provided the sub-committee with an update on market developments, and the potential impact to the Company, and based on the significant rise in gas and electricity prices, driven by the continued conflict in Ukraine, recommended that the Company 'lock-in' the high prices through a hedging arrangement. The recommendation was supported by a detailed cash flow analysis.

Outcomes:

Following discussion and review of the recommendation and cash flow forecasts, the sub-committee concluded that the proposed hedging arrangement was in the interest of shareholders as it would help to reduce volatility in the valuation of investments impacted by electricity power price fluctuations. This would in turn help to support the share price and total returns for investors going forward.

The sub-committee therefore approved the Investment Adviser's recommendation and the Company entered into a commodity swap agreement with Axpo Solutions AG as part of the hedging arrangement.

Further information on the commodity swap can be found in note 18 to the financial statements.

Borrowers

Owners of the Project Companies to which the Company advances loans.

Why engage

The Company values its relationships with borrowers, ensuring time is spent building and maintaining these relationships. By engaging with borrowers and understanding their needs, the Company can build long-lasting relationships beneficial to both parties. Borrower contact enables direct feedback and informs strategic decision making at Board level.

How the Company engages

The Company has been able to advance a further £28.2 million to current borrowers in the financial year under review, or by way of extensions to existing facilities.

The Investment Adviser is closely engaged with borrowers on an ongoing basis. Engagement is in the form of regular interaction with the borrowers by its dedicated portfolio management team. Refer above for details of site visits carried out during the year.

The Board takes advantage of all available opportunities to engage with borrowers. This includes participating in site visits led by the Investment Adviser.

Suppliers

Suppliers across the UK and Jersey who provide administrative services to the Company.

Why engage

The Company's suppliers include third party service providers engaged to provide corporate or administration services, in addition to the investment advisory services provided by the Investment Adviser. These services are critical to the ongoing operational performance of the Company. It relies on the performance of third party service providers to perform its main functions.

How the Company engages

The Board has a close working relationship with all its advisers and regularly engages with all parties. The Management Engagement committee regularly monitors the performance and reviews the terms of each service contract.

This informs decision making at Board level in regard to the continuing appointment of service providers. Further information on the activities of the Management Engagement committee can be found on page 87 of the full annual report on the Company's website.

The Audit and Risk committee also conducts an annual review of the internal controls of the Investment Adviser and the Administrator; this includes a visit to the offices of both service providers, refer to pages 89 and 97 of the full annual report on the Company's website for further details.

Public sector

Organisations owned and operated by the UK Government that exist to provide public services for society.

Why engage

Governments and regulators play a central role in shaping the renewable energy, PFI and social housing sector policy. Changes in UK Government policy may adversely affect the ability of the Company to successfully pursue its investment policy and meet its investment objective or provide favourable returns to shareholders.

How the Company engages

The Company engages with local government and regulatory bodies at regular intervals and participates in focus groups and research projects on the infrastructure sector through the Investment Adviser. UK infrastructure policy informs strategic decision making at Board level with consideration given to the impact the Company has on the sector.

The Company has historically benefitted from co-investment alongside public bodies seeking to 'crowd-in' private sector capital and will continue to seek and evaluate such opportunities. In addition, the Company is helping in efforts to mobilise private capital to support decarbonisation efforts. The Company's focus remains on investing in UK infrastructure debt in project companies that own and operate assets that benefit from public sector backed revenues.

The UK Government remains committed to aggressive decarbonisation targets: net zero by 2050 and the decarbonisation of the electricity system by 2035. The Investment Adviser's extensive track record in certain sectors and proven ability to target emerging sectors means the Company is well placed to benefit from investment opportunities associated with the transition to net zero.

Society

The Company makes a positive impact through its investments in renewables and assets such as schools and hospitals which are integral to society.