TIDMSEIT
RNS Number : 1217E
SDCL Energy Efficiency Income Tst
28 June 2023
28 June 2023
SDCL Energy Efficiency Income Trust plc
("SEEIT" or the "Company")
Announcement of Annual Results for the year ended 31 March
2023
SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or
the "Company") today announced its financial results for the year
ended 31 March 2023.
Highlights
-- Net Asset Value ("NAV") per share(APM) of 101.5p as at 31
March 2023 (31 March 2022: 108.4p), which includes a reduction of
7.3p from 70bps increase in weighted average unlevered discount
rate in the year
-- Investment cash inflow from the portfolio(APM) of GBP85
million, up 31% on a portfolio basis(APM) (2022: GBP65 million)
-- Aggregate dividends(APM) of 6.0p per share declared for the
year ended 31 March 2023, in line with target (March 2022:
5.62p)
-- Dividend cash cover(APM) of 1.2x for the year to 31 March 2023 (March 2022: 1.2x)
-- Target dividend [1] of 6.24p per share for the year to March
2024, a 4% year-on-year increase
-- Loss before tax of GBP18.6 million for year to 31 March 2023
(31 March 2022: Profit of GBP79.8 million), includes unrealised
loss of GBP81 million from discount rate increases
-- Portfolio valuation(APM) of GBP1,100 million as at 31 March
2023, up from GBP913 million at 31 March 2022
-- Investment of c.GBP240 million in new and organic investments
and existing commitments during the year and a further c.GBP30
million invested since the year end
-- Carbon savings of 1,202,528 tCO(2) (March 2022: 1,060,617 [2]
tCO(2) ) from Company's portfolio
Tony Roper, Chair of SEEIT, said:
"This financial year has been marked by global economic
instability as a consequence of the war in Ukraine, which has
impacted discount rates and market valuations of all London-listed,
income-oriented investment companies. SEEIT is no exception.
However, the subsequent rise in energy prices has led to a growing
focus by governments and corporates on the critical requirement to
save energy. Demand for on-site generation, efficient distribution,
and energy use reduction solutions continues to grow substantially.
The Investment Manager has remained selective in making new
investments, while focusing on unlocking additional value from the
existing portfolio as it seeks to deliver attractive risk-adjusted
returns for investors."
Jonathan Maxwell, CEO of SDCL, the Investment Manager said:
"SEEIT has continued to generate solid levels of cashflow from
its geographically and technologically diversified portfolio.
Energy efficiency projects and solutions are a critical part of the
energy transition. Generally, they offer major advantages in terms
of speed and cost of implementation compared with new sources of
utility generation. Specifically, energy efficiency projects that
are delivering services to end users offer value enhancement
opportunities. For SEEIT this means that value can be added by
enhancing its existing portfolio and by investing in organic
pipeline. More and more private and public sector counterparties
are focused on meeting carbon targets, cutting costs, and enhancing
energy security and resilience. SEEIT is ideally placed to invest
in these solutions."
For Further Information
Sustainable Development Capital T: +44 (0) 20 7287 7700
LLP
Jonathan Maxwell
Purvi Sapre
Eugene Kinghorn
Tom Hovanessian
Jefferies International Limited T: +44 (0) 20 7029 8000
Tom Yeadon
Gaudi Le Roux
TB Cardew T: +44 (0) 20 7930 0777
Ed Orlebar M: +44 (0) 7738 724 630
Henry Crane E: SEEIT@tbcardew.com
About SEEIT
SDCL Energy Efficiency Income Trust plc is a constituent of the
FTSE 250 index. It was the first UK listed company of its kind to
invest exclusively in the energy efficiency sector. Its projects
are primarily located in the UK, Europe and North America and
include, inter alia, a portfolio of cogeneration assets in Spain, a
portfolio of commercial and industrial solar and storage projects
in the United States, a regulated gas distribution network in
Sweden and a district energy system providing essential and
efficient utility services on one of the largest business parks in
the United States.
The Company aims to deliver shareholder value through its
investment in a diversified portfolio of energy efficiency projects
which are driven by the opportunity to deliver lower cost, cleaner
and more reliable energy solutions to end users of energy.
Past performance cannot be relied on as a guide to future
performance.
Further information can be found on the Company's website at
www.seeitplc.com .
Investment Manager
SEEIT's investment manager is Sustainable Development Capital
LLP, an investment firm established in 2007, with a proven track
record of investment in energy efficiency and decentralised
generation projects in the UK, Continental Europe, North America
and Asia.
SDCL is headquartered in London and also operates worldwide from
offices in New York, Dublin, Hong Kong and Singapore. SDCL is
authorised and regulated in the UK by the Financial Conduct
Authority.
Further information can be found on at www.sdclgroup.com .
CHAIR'S STATEMENT
On behalf of the Board, I am pleased to present the annual
report and financial statements (the "Annual Report") for the SDCL
Energy Efficiency Income Trust plc ("SEEIT" or "the Company") for
the year ended 31 March 2023.
This financial year has been characterised by global economic
instability, driven by high power prices, high inflation, rising
interest rates and energy price volatility in the wake of Russia's
invasion of Ukraine. Government interventions in energy markets
responded to this environment with varying degrees of success. An
energy crisis was followed by a liquidity and banking crisis as
inflation, interest rates and bond yields rose quickly in the
second half of the year, accompanied by recessionary concerns in
major markets where the Company is active. A low interest rate, low
inflation environment is unlikely to return in the short term.
Higher risk-free rates, and higher costs of capital, have fed
through into the market valuations of all income-oriented
investment companies listed on the London Stock Exchange.
Generally, share prices moved from a premium to a discount to net
asset value across the listed infrastructure sector.
The Board and the Investment Manager have reflected the higher
interest rate environment in the Company's valuation assumptions at
the year end. SEEIT's NAV per share declined to 101.5p in the year
to 31 March 2023 and the Company recorded a loss before tax of
GBP18.6 million, largely as a result of increases in discount rates
applied in the valuation but including certain project specific
adjustments described in Financial Review and Valuation Update.
The Company owns a large, diversified portfolio of
energy-efficiency assets, which provide several opportunities for
future growth. Our assets reduce energy wastage and are focussed on
providing essential energy services often to essential industries.
The range of technologies in SEEIT's portfolio creates opportunity
to provide a wide variety of energy solutions to end users, helping
them cut costs; reduce their carbon footprint; and improve
resilience.
One consequence of the tragic Ukraine war and its impact on
energy markets has been a growing focus by governments and
corporates on how to save energy. We believe that energy efficiency
should be considered one of the three main "pillars" of
infrastructure investment, alongside but distinct from (i)
renewable energy and (ii) social and other infrastructure. More
detail on what distinguishes energy efficiency is in Investment
Proposition.
Portfolio and Financial Performance
The portfolio, as a whole, generated sufficient cash to
comfortably cover the Company's dividends paid in the year.
During this financial year, levels of volatility in global
energy markets not seen for many years, and regulatory responses to
them, created both short-term and "one-off", setbacks for some of
SEEIT's investments. Both SEEIT Oliva and Värtan Gas were
materially impacted by higher fuel costs combined with regulatory
changes that have since been updated or appealed. At the same time,
some investments, such as Primary Energy, Värtan Gas, Onyx and
Future Energy Solutions faced specific operational challenges.
Details in relation to the operational performance of specific
projects and asset management initiatives undertaken during the
year are outlined in Portfolio Summary.
While SEEIT's portfolio is positively correlated to inflation
over the medium to long term, in the short term, increases in
labour costs impacted returns on certain investments. Although most
of the debt financing at the project level in SEEIT's portfolio was
secured on fixed terms or hedged at relatively attractive terms,
rising interest rates increased some project-level borrowing
costs.
Notwithstanding these challenges, several investments have also
made progress, with for example RED-Rochester, Onyx and EVN all
presenting opportunities to deliver additional long-term value.
The Investment Manager is focused on outperforming the Company's
return target. In an environment characterised by a higher cost of
capital, and given the upside performance potential from the
portfolio, we remain confident that the Company can meet or exceed
its stated target net total return of 7-8% per annum [3] from its
IPO price over the medium to long term.
Capital Structure
The Company secured successfully the equity capital it needed
through a GBP135 million fundraise conducted in September 2022,
shortly before capital markets effectively closed. We are grateful
for the support that shareholders have given SEEIT since its
inception.
This fundraise, along with the existing revolving credit
facility ("RCF"), underpin the capital position of the Company,
allowing it to manage liquidity, invest in growth across existing
portfolio projects and, as suitable opportunities arise, make
attractive new investments.
The Company continues to pursue a low-gearing(APM) strategy
relative to the wider infrastructure peer group, with consolidated
outstanding debt across the Group representing approximately 32% of
NAV as at 31 March 2023, in line with the Company's medium-term
structural gearing(APM) target of 35%. We do not have any near-term
refinancing risk. Further details in relation to the Company's
existing leverage can be found in Financial Review and Valuation
Update.
As we are more focused on value enhancement from the Company's
existing portfolio and our organic pipeline than on sourcing new
investments, our existing liquidity is considered sufficient for
the foreseeable future.
Investment Activity
The Investment Manager has been focused on initiatives within
the existing portfolio, which involves identifying sources of
additional revenue, reducing costs or investing incremental capital
for accretive returns. Planning and implementation of these
initiatives takes time, and while some value enhancement activity
has been recognised in our current valuation of the portfolio, the
majority will not be recognised until its implementation is
proven.
During the year, SEEIT invested c.GBP121 million into six new
investments and commitments and a further c.GBP119 million into
organic follow-on investments and commitments across 16 existing
portfolio projects. Since the year end, a further two new
investments of c.GBP4 million, plus a further GBP26 million in
follow-on investments across four existing portfolio projects have
been made. Details of these investments are provided in Portfolio
Summary.
The Investment Manager continues to focus on new opportunities
associated with our existing portfolio (the "organic" pipeline)
typically at rates of return above our stated investment
objectives, as opposed to acquisitions of new projects in the
market. Opportunities for capital growth could also include
utilising the capacity the Company has to increase selectively its
exposure to construction and development phase investments.
SEEIT generally approaches investment opportunities with the
intention to acquire and improve assets and will thus typically
hold an investment to the extent that it is consistent with total
return targets and until value has been optimised. The Company will
contemplate disposing of assets opportunistically or via targeted
sales where it considers that doing so would deliver value to
shareholders. SEEIT materially exited one investment during the
financial year, through early repayment of its loan to the Biotown
green gas project in the United States at a return above expected
return for this investment. Disposals of less strategic or smaller
projects, where a third party could derive greater value, are being
evaluated.
Dividends
In line with previous guidance, in June 2023 the Company
announced its fourth interim dividend for the year ended 31 March
2023 of 1.50p per share, providing an aggregate dividend of 6.00p
per share declared for the year ended 31 March 2023, which was
fully covered by net cash income.
Based on our assessment of current cashflow forecasts, the
Company is announcing new dividend guidance of 6.24p per share for
the year to 31 March 2024 (an increase of 4%) and as before,
targeting progressive dividend growth thereafter. [4]
Share Price and Buyback Programme
As noted above, rising interest rates had a major impact on the
valuation of listed infrastructure since September 2022, compounded
by a dislocation in markets where demand from buyers did not match
pressure from sellers, particularly those needing to raise
liquidity to manage redemptions.
We do not believe that SEEIT's recent trading price reflects the
value of the portfolio or its total return prospects and took
proactive steps to address this.
On 3 April 2023, the Company announced a share buyback programme
in response to the discount at which its share price traded
relative to its reported NAV per share(APM) . As at the date of
this report, the Company has deployed c.GBP14 million of the GBP20
million total buyback allocation.
Corporate Governance and Stakeholder Engagement
The Company held its Annual General Meeting ("AGM") on 12
September 2022, at which all resolutions were duly passed by
shareholders. The Articles of the Company provide that a
continuation vote be put to shareholders at the first AGM following
the fourth anniversary (which falls in the current year) of initial
admission and, if passed, at every third AGM thereafter.
Investment companies undertake continuation votes alongside
share buybacks as a means, inter alia, for discount control. Share
buybacks can be an effective means of managing short-term
dislocations between price and value. Continuation votes provide
investors with the ability to mitigate any long-term fundamental
problems with value itself. The Board recognises the importance of
this mechanism for shareholders and believes that there is no
fundamental concern with the Company's prospects and our ability to
deliver value for shareholders. Despite the current macroeconomic
situation, we believe the Company is well positioned, with
substantial scale and a diversified portfolio able to deliver
attractive returns. Further details of the Company's first
continuation vote will be provided to shareholders in the notice of
the 2023 AGM.
The Investment Manager hosted a Capital Markets Day on 14 March
2023 at the London Stock Exchange. The event explained the key
market drivers for energy efficiency and provided greater insight
into some of the Company's larger holdings.
The Board was pleased to visit SEEIT Oliva in Spain during the
year and was able to engage directly with members of the management
and operations teams at one of SEEIT's larger portfolio of
investments to understand the key risks and growth drivers of the
projects concerned.
Over the past few months, I have met with some of SEEIT's larger
shareholders to discuss their expectations and collect feedback on
the performance of the Company. These meetings have been helpful in
shaping the Company's disclosure in this Annual Report, which we
have revised and expanded, both at Company level and at project
level for our larger investments. The Investment Manager and I look
forward to continuing regular dialogue with investors going
forward.
Outlook
SEEIT is well positioned to be able to unlock long-term growth
opportunities from its established and diversified portfolio of
investments. Energy efficient technology is a critical part of the
energy transition because its implementation is typically much
quicker and cheaper compared with the time and cost to develop new
sources of energy generation.
More and more private and public sector counterparties are
focused on meeting carbon targets; enhancing energy security and
resilience; and seeking to better manage energy price volatility.
Demand for on-site generation, efficient distribution, and
demand-side reduction solutions continues to grow
substantially.
The Investment Manager has remained selective in making new
investments and continues to evaluate organic and inorganic
investments that can deliver attractive risk-adjusted returns for
investors . The Company remains well capitalised, with a strong
balance sheet and low levels of gearing(APM) relative to the
infrastructure investment company sector.
The Board recognises the current challenges facing UK-listed
investment companies, and is working with the Investment Manager to
ensure that SEEIT manages and adapts to the current market
dislocation evident across the sector. Our objective is to provide
top quartile levels of disclosure to help investors better
understand current performance and the long-term prospects of
SEEIT, which we expect will evolve. I would like to thank
personally all our shareholders for their continued support of the
Company, and I look forward to continued engagement in the year
ahead.
Tony Roper
Chair
COMPANY OVERVIEW
SDCL Energy Efficiency Income Trust plc ("the Company" or
"SEEIT")
SDCL Energy Efficiency Income Trust plc ("the Company" or
"SEEIT") is the first listed company in the UK to invest
exclusively in the energy efficiency sector. The Company's
objective is to generate an attractive total return for investors,
comprising stable dividend income and capital preservation, with
the opportunity for capital growth.
The Company's current portfolio comprises assets across the
United Kingdom, Europe, North America and Asia. The Company is a
FTSE 250, closed-ended investment company incorporated in England
and Wales that was admitted to the Official List and to trading on
the London Stock Exchange's Main Market on 11 December 2018.
Sustainable Development Capital LLP ("SDCL" or "Investment
Manager")
Sustainable Development Capital LLP ("SDCL" or "Investment
Manager") is a London-based investment firm with a proven track
record of investment in energy efficiency and decentralised energy
generation projects in the United Kingdom, Europe, North America
and Asia. SDCL was established in 2007 and has a team of over 50
professionals across offices in London, Dublin, New York and
Singapore.
With over 15 years of sector experience in energy efficiency,
SDCL has specialist origination, project development, execution,
ESG, asset management and portfolio management teams with support
from finance, compliance and risk. Since 2012, the Group has raised
over GBP2 billion in capital commitments, including seven funds,
all exclusively focused on energy efficiency.
SEEIT Management
The Company has been established in the United Kingdom as an
investment trust to provide shareholders with access to investment
into energy efficiency infrastructure investments. The Company has
an independent Board of Directors and has appointed SDCL as
Investment Manager to manage the investments on its behalf.
The Company makes its investments via its sole direct subsidiary
and main investment vehicle, SEEIT Holdco Limited ("SEEIT Holdco"
or "Holdco").
The Investment Manager controls the actions of Holdco and its
direct and indirect subsidiaries manage the existing investments
that Holdco has directly or indirectly invested in. Holdco
typically invests in project special purpose vehicles ("SPVs"),
which provide energy efficiency solutions to counterparties through
long-term contracts with a fixed lifespan. An SPV - and by
implication the portfolio of investments as a whole - therefore
normally has a limited lifetime over which it provides target
returns to Holdco and ultimately the Company. These SPVs are
structured so that they can be sold in an active secondary market
for energy efficiency assets although each of the investments will
also have been assessed individually to ensure appropriate
alternative exit strategies are in place.
INVESTMENT PROPOSITION
Investment Objectives
Generate an attractive total return for investors, comprising stable
dividend income and capital preservation, with the opportunity for
capital growth.
Cashflows underpinned Operational investments have an underlying
by contracts [5] contract for energy services
-------------------------------------------------------
Targeting to limit and manage exposure to merchant
power pricing over medium to long term, mitigating
risk where possible
-------------------------------------------------------
Targeting to limit and manage exposure to counterparty
demand risk and regulatory risk over medium
to long term, mitigating risk where possible
-------------------------------------------------------
Creditworthy counterparties High proportion of investment grade counterparties
-------------------------------------------------------
A diversified, mostly Well diversified by geography, technology,
operational portfolio project and counterparty
-------------------------------------------------------
Exposure to construction and development stage
assets limited to 35% of GAV
-------------------------------------------------------
Aiding net zero transition First LSE listed company to invest exclusively
in energy efficiency projects
-------------------------------------------------------
Government policies highlight role of energy
efficiency in mitigating climate change
-------------------------------------------------------
Sustainability considerations integrated into
all processes and operations
-------------------------------------------------------
Total Return Opportunity Scale of portfolio provides pipeline of follow-on
investments
-------------------------------------------------------
Asset management initiatives can generate incremental
cashflows from long-term accretive investment
opportunities
-------------------------------------------------------
Low gearing strategy Medium-term gearing(APM) target of 35% of NAV
-------------------------------------------------------
Gearing(APM) limit of 65% of NAV available
for short-term funding of new investments
-------------------------------------------------------
Energy Efficiency: The Third Pillar of Infrastructure
Investment
Energy efficiency is considered the third pillar of
infrastructure investment, alongside but distinct from renewable
energy infrastructure and social and other infrastructure. It can
be distinguished from other classes of infrastructure in part due
to the operational features associated with energy efficiency
assets. In addition, energy efficiency investments usually benefit
from relatively low levels of exposure to energy price fluctuations
and policy factors such as price caps, which can affect traditional
renewable energy infrastructure assets from time to time.
Comparing Types of Infrastructure
Energy efficiency Social and other Renewables
infrastructure
Heritage Emerging investment Established investment Growing investment
class class class
------------------------------- -------------------------- -----------------------
Assets / technology CHP Units, lighting PFI/PPP, hospitals, Grid-connected wind
projects, behind-the-meter, toll roads, utilities, farms, solar farms,
etc broadband, schools, etc
etc
------------------------------- -------------------------- -----------------------
Typical counterparty Commercial and Public sector Utilities
industrial or government entity
entities
------------------------------- -------------------------- -----------------------
Key risk Counterparty credit Political / regulatory Subsidy / energy
pricing
------------------------------- -------------------------- -----------------------
Typical construction Short: Within 18 Long: 2+ years, Medium: 1-2+ years
periods months and often sometimes extending
within 3-6 months to several years
----------------------------- ------------------------ -----------------------
Role in energy transition Important, particularly Not directly Important
in short term tied to energy
transition
----------------------------- ------------------------ -----------------------
SEEIT BUSINESS MODEL
SEEIT invests in a portfolio of energy efficiency assets and
platforms designed to deliver a total return underpinned by
long-term contracted cashflows that cover a growing dividend. SEEIT
assesses investment opportunities based on defined characteristics
that apply to projects across its portfolio. A project must
typically:
1) fit the definition of an energy efficiency investment;
2) have, or will follow, a specified contractual structure with
a suitable counterparty or counterparties; and
3) have the potential to generate accretive returns through
asset management and follow-on investments.
STRATEGIC REPORT: THE COMPANY
OVERVIEW
Why Invest in Energy Efficiency Market Landscape
Key characteristics of the energy A challenging macroeconomic environment
efficiency investment proposition has hurt asset values across the
include some, or all, of the following: listed infrastructure space in the
* behind-the-meter projects with identifiable end users short term due to:
and counterparties; * sharply rising interest and discount rates;
* quick to integrate and install, lowering construction * extreme volatility in energy prices and commodity
risk; prices;
* results in carbon emissions reductions and helps to * high levels of inflation, driving labour,
improve energy security and reliability, while construction and operational costs; and
cutting energy costs for end users;
* Delay in supply chain and planning capacity.
* predominantly contracted cashflows, with managed
exposure to merchant power pricing;
Notwithstanding these headwinds,
energy efficiency is expected to
* nature of operational projects and relationships with benefit over the medium to long term
counterparties creates opportunity to improve total from policy tailwinds supporting
return through asset management initiatives, investment in the sector .
expansion of services for customers and management of Further detail on the market landscape
costs; and and policy tailwinds for energy efficiency
can be found in The Investment Manager's
Report.
* low gearing relative to other forms of infrastructure
investment.
Asset Management Initiatives Portfolio Performance, Pipeline
Focus on unlocking additional value and Exit Strategy
from the existing portfolio. Examples During the year, headwinds from the
include: macroeconomic environment as well
* short-term accretive project investments, together as short-term operational challenges
with a long-term investment plan to optimise at certain projects impacted on the
performance and asset life across the RED-Rochester Company's portfolio valuation.
portfolio ; However, The Investment Manager was
able to unlock long-term value in
certain projects. A detailed summary
* investment in project development, including at EVN of the portfolio performance is outlined
as well as the newer, low carbon solutions in the Portfolio Summary.
represented by Turntide (energy efficient motors), Focus during the year has been on
Iceotope (data centre cooling); and value enhancement from the Company's
existing portfolio and organic pipeline.
The Investment Manager continues
* working closely with new management at Onyx to to evaluate exit opportunities for
progress the development pipeline. certain investments where it believes
more value could be delivered to
shareholders versus holding the assets
Further detail on the Company's asset to maturity in line with its typical
management function can be found investment strategy.
in the Investment Manager's Report. Further detail on the portfolio performance
in the year is outlined in Portfolio
Summary and the Company's pipeline
and strategy in relation to disposals
in The Investment Manager's Report.
-------------------------------------------------------------
THE INVESTMENT MANAGER'S REPORT
Market Landscape and Macroeconomic Factors
In the current landscape, energy efficiency is providing
essential solutions to a growing list of global issues.
Net Zero
==========================================================================
Market Backdrop/Overview
The Intergovernmental Panel on Climate Change (IPCC) published its
most recent synthesis report in March 2023, warning that the world
is approaching "irreversible" levels of global heating and emphasising
that it is "now or never" to limit warming. Reaching net zero greenhouse
gas ("GHG") emissions over the next few decades will be critical to
avoid the worst impacts of climate change, such as more frequent and
intense heatwaves, droughts, floods, and storms.
Importance of Energy Efficiency
Energy efficiency is critical to reducing GHG emissions by reducing
energy demand and waste. According to the International Energy Agency
("IEA"), energy efficiency represents more than 40% of the emissions
abatement needed by 2040. Energy efficiency initiatives in multiple
sectors, including industry, buildings, appliances and transport, are
prioritised in the IEA's Net Zero Emissions by 2050 (NZE) scenario
due to their easy implementation and high scalability. These measures
are anticipated to play a prominent role in reducing energy demand
and its related emissions from now to 2030.
Energy Security
Market Backdrop/Overview
Following Russia's invasion of Ukraine, the global energy landscape
changed dramatically, with high prices and supply chain disruptions
highlighting the energy security risks associated with relying on polluting
fuels supplied by a few major external producers. Extreme weather conditions
such as hurricanes, heatwaves and wildfires are also posing challenges
to energy infrastructure, leading to power outages and supply chain
disruptions.
Additionally, the introduction of variable renewable energy generation
is posing structural changes in the generation profile of electricity
systems, potentially impacting the grid's ability to provide a reliable
energy supply, unless and to the extent it is balanced by alternative
generation, storage and demand reduction.
Importance of Energy Efficiency
Energy efficiency plays a crucial role in addressing energy security
concerns that arise due to geopolitical conflicts, extreme weather
events and infrastructure constraints. By reducing energy consumption
and dependence on fossil fuels, countries can reduce their vulnerability
to supply disruptions caused by conflicts or infrastructure failures.
Furthermore, energy efficiency measures such as demand response programmes
and energy storage technologies help to tackle the energy security
risks posed by ageing infrastructure and renewable energy capacity
additions.
Energy Prices
Market Backdrop/Overview
Energy commodity prices hit multi-decade highs in most countries following
the pandemic and the Russia-Ukraine war, remaining unstable ever since.
Average gas prices increased in 2022 to the highest on Eurostat's record,
from EUR7.8 per 100 kWh in 2021 to EUR11.4 per 100 kWh, while the USA
consumers paid 14.3% more for electricity in 2022 than in 2021.
High energy prices have led to inflation and slowed economic growth,
impacting energy-intensive industries, transportation costs and consumers.
Importance of Energy Efficiency
Energy efficiency is a vital solution to increased energy prices as
the solutions reduce demand for energy and therefore reliance on fossil
fuels, minimising the impact of price fluctuations.
For example, energy-efficient building retrofits can reduce heating
and cooling costs, which can provide relief to households and businesses
struggling to pay their energy bills. Energy-efficient transport solutions
such as electric vehicles can also help to reduce fuel costs and mitigate
the impact of rising energy prices on consumers.
Inflation and Discount Rates
Global inflation rates underwent significant volatility during
the financial year, although economic indications suggest we have
now seen the peak of the cycle. The 2022 calendar year saw 8.8%
global inflation per the IMF.
Central banks around the world have responded to the spikes in
inflation by raising interest rates. This was compounded by turmoil
in the banking sector towards the end of the financial year,
following the collapse of Silicon Valley Bank and take-over of
Credit Suisse, which put pressure on banking company balance
sheets.
The Company reflected the movement in discount rates across the
infrastructure sector, having raised underlying rates by 50 bps (on
weighted average unlevered basis) at the 30 September 2022 interim
period and a further 20 bps at 31 March 2023, following independent
discount rate reviews across SEEIT's whole portfolio.
Rising interest rates have had a significant impact on the
listed infrastructure investment company sector - not just in terms
of short-term pressure on discount rates, but also from a yield
competitiveness perspective, as alternative fixed income
investments, such as government bonds, have become comparatively
more attractive. SEEIT, along with nearly all members of its wider
listed infrastructure peer group, has experienced a decline in
share price because of these factors, leading to a period of
trading at a discount to NAV per share(APM) . The Board and the
Investment Manager are focused on managing this discount through
investor engagement and measures such as the recent share buyback,
and continue to build a compelling portfolio proposition which
offers attractive returns to shareholders over the medium to long
term.
Inflation Linkage Strategy
Approximately half of SEEIT's current portfolio by value has
revenues that are partly or wholly inflation-linked, which
culminates in an overall positive inflation correlation. Therefore,
higher than expected inflation has had an overall small positive
impact on the Company's returns during the year.
The Company's projects are in a number of different geographic
regions, which diversifies and mitigates the impact of inflation
volatility for the portfolio. The Company has the highest overall
exposure, by country, to the USA at 59% by Gross Asset Value(APM)
("GAV"), followed by the UK with 20% and the rest of Europe with
20%.
The Investment Manager aims to construct and maintain a
portfolio that generates year-on-year revenue growth on a
progressive basis. The Investment Manager does not exclusively
target investments with fully inflation-linked returns, but
inflation correlation is a relevant metric when evaluating new
investment opportunities and when re-contracting existing projects
within the portfolio.
The portfolio includes some flexibility to recontract certain
non-inflation-linked revenues periodically during a project's
lifecycle. Some examples the Investment Manager actively works with
project management teams to implement include:
-- at Värtan Gas, individual customer contracts are re-evaluated
on an annual basis. Typically, historic inflation and short to
medium-term inflation is a key consideration when setting customer
tariffs; and
-- periodic re-contracting of revenue contracts is assumed in
the Primary Energy projects, providing an opportunity to recover
inflation exposure on costs or introduce direct inflation
linkage.
SEEIT's Ability to Adapt to Changing Market Conditions
The Investment Manager has sought to construct a resilient
portfolio with defensive characteristics through its contractual
structures and credit quality of counterparties.
Counterparty credit is a key risk that the Investment Manager
has focused on when constructing the portfolio. As at 31 March
2023, c.62% of the portfolio by investment value (March 2022: 60%)
is associated with investment grade or equivalent counterparties.
Those which are non-investment grade are typically highly
diversified or providing vital services, often via essential
industries. Since listing, the Company has not suffered any
material credit defaults across its portfolio.
SEEIT maintains a relatively low level of gearing(APM) versus
the wider infrastructure investment company peer group, with total
Group and project level debt leverage as at 31 March 2023 of 32% of
NAV, in line with the medium-term target of 35% of NAV.
These qualities seek to ensure that whether the Company is
operating in a high inflationary environment, a high interest rate
environment, a volatile merchant pricing environment or a
recessionary environment, overall portfolio cashflows can remain
relatively predictable over the medium to long term and downside
risk is mitigated.
Notwithstanding these contractual protections, the Investment
Manager's asset management team also works closely with the senior
management teams within its portfolio project companies to address
the impact of changing market conditions on operations. This
includes, for example, rising labour costs in certain markets in
which SEEIT operates. Labour is actively managed at a project level
through a number of initiatives, which include but are not limited
to, apprenticeship schemes and comprehensive succession planning
strategies at both RED-Rochester and Primary Energy.
Supply chain challenges have also been a prevailing issue across
a number of industries, particularly in the wake of the Covid-19
pandemic. The Company is seeking to leverage its procurement power
across its portfolio, with the Investment Manager connecting
certain project company procurement teams such as UU Solar and Onyx
in order to improve their ability to secure key equipment. In
addition, forward purchasing of equipment has always been a key
part of the Company's procurement strategy, with regular review of
stock inventory and consideration for lead times in all procurement
activity at a project company level.
Policy Tailwinds for Energy Efficiency
USA
The Inflation Reduction Act ("IRA"), passed in August 2022, is
the most significant climate legislation in US history, offering
funding, programmes and incentives to accelerate the transition to
a clean energy economy. The climate and energy industries are
central to the overall financial support extended under the IRA,
committing c.$369 billion to the energy transition and climate
change mitigation. A sum of $47 billion has been earmarked for tax
credits for rebates for energy efficiency in buildings (commercial
and residential). By 2030, the Act will help cut US greenhouse gas
emissions by roughly 42%.
The IRA introduces tax credit support for clean energy
generation, storage and transmission, which is a crucial
development for renewable energy projects. The legislation provides
certainty and continuity for clean energy incentives, benefiting
decentralised energy generation assets like Onyx Renewables. Along
with the IRA, another significant policy development is the
Bipartisan Infrastructure Law ("BIL"), which was signed in November
2021 and will provide more than $1 trillion in federal investment
to improve the nation's infrastructure. Of the $550 billion of new
funding provided in the BIL, approximately $76 billion is committed
to be invested in energy.
Overall, the recent focus on energy efficiency in two of the
most significant infrastructure-spending bills ever passed in the
USA has made investment opportunities in the country increasingly
appealing for SEEIT. The Company is monitoring changes in policies
in the USA and evaluating areas where legislative support is
applicable for both new and existing investments.
European Union
Throughout the year, the European Union has been working on
several legislative packages to guide member states through the
energy transition.
In May 2022, the European Commission published the REPowerEU
plan, which aims to rapidly decrease the EU's dependency on Russian
fossil fuels, outlining a legal amendment to raise the target
reduction in final energy consumption from 9% to 13%. The European
Parliament proposed to raise it further, to 14.5% by 2030. The plan
recognises that energy efficiency is a key solution to the energy
crisis resulting from the Russia-Ukraine conflict.
Furthermore, in March 2023 a provisional political agreement of
the recast Energy Efficiency Directive ("EED") was reached,
outlining the target to reduce final energy consumption by at least
11.7% by 2030. Also in March, the European Parliament adopted draft
measures on the proposed revision of the Energy Performance of
Buildings Directive ("EPBD"), which would mandate that new
buildings occupied, operated or owned by public authorities are
zero-emission from 2026, and from 2028 would make rooftop solar
panels mandatory for new residential buildings.
The impact of the European Union's energy-related policies on
the Company varies widely. The Investment Manager is currently
assessing how EU directive revisions can help to unlock additional
opportunities and revenue streams for project companies located
within the EU, such as Värtan Gas.
United Kingdom
The UK Government has set an ambitious target to reduce final
energy demand from buildings and industry by 15% by 2030. In order
to reach the net zero target, in March 2023 the government released
a package of policy plans termed "Powering Up Britain" i, which
includes the Great British Insulation Scheme that aims to deliver
up to GBP1 billion additional investment by March 2026 in
energy-efficient upgrades.
Further, the government strives to continue its support towards
the decarbonisation of the public sector, with GBP1.4 billion in
grant funding for low-carbon heat and energy efficiency retrofits
made available over the period 2022/23-2024/25. The UK continues
the decarbonisation of the national heat network market through the
Green Heat Network Fund and the Heat Network Efficiency Scheme.
Additionally, the UK government launched its Energy Efficiency
Taskforce in February 2023 to accelerate improvements that will
bring down energy bills for households and businesses. In March
2023, a GBP1.8 billion outlay was announced to increase energy
efficiency and cut emissions of homes and public buildings across
England.
The government's commitment to energy efficiency and the energy
transition has been made more apparent during the year, and the
Investment Manager expects this to result in greater investment and
public-private collaboration opportunities for the Company in the
UK.
Asset Management
Overview
The Investment Manager manages the portfolio to achieve
operational efficiency, provide reliable and sustainable services
to customers and develop value-enhancing projects.
While the Investment Manager manages operational challenges that
arise from time to time, it also benefits from the upside
opportunities associated with improving project company operations
and working hands-on with management at the ground-level. Through
this approach the Investment Manager aims to mitigate downsides,
unlock new revenue streams and improve margins across the
portfolio.
The portfolio is managed through a combination of:
-- the active day-to-day involvement of SDCL's 50+ employees,
including an asset management team of senior and experienced
professionals focused solely on driving value through financial
management and operational improvements;
-- over 250 full-time employees at the project level,
predominantly dedicated to "on the ground" operations of the
Company's largest assets in the UK, Europe and North America;
and
-- the coordinated full-time presence of on-site teams of professional advisers.
Unlocking Additional Value
The Investment Manager seeks opportunities to improve margins by enhancing
operational and financial performance, unlocking platform value and
expanding the energy efficiency characteristics of an asset. Details
of some key asset management initiatives undertaken during the year
can be found in Portfolio Summary.
Identifying accretive Improving operational Enhancing sustainability Achieving platform
investment opportunities and financial performance characteristics value
The Investment of a project The Investment Energy-as-a-service
Manager identifies, The Investment Manager consistently platforms allow
assesses and implements Manager engages assesses the efficiency for the Company
additional investment with management of a project to to achieve scale
opportunities for teams to identify improve its performance through opportunity
existing projects and solve operational and seeks to ensure to make follow-on
to achieve higher inefficiencies the usage of the investments in
returns and provide and improve the best available new projects.
improved services financial performance technology at the The Investment
to customers. These of a project. point of investment. Manager helps these
improvements can The Investment The Investment platforms unlock
include unlocking Manager's engagement Manager also manages potential value
additional revenue involves ensuring the ESG performance through investment
streams, identifying that the management of companies based and management
new customers, teams have the on its ESG principles, support, such as
renegotiating existing proper governance, more information governance and
contracts, and leadership and about which can operational reforming.
increasing generation technical support be found in ESG.
capacity and efficiency. to run the project
efficiently.
--------------------------- ------------------------- ------------------------
Mitigating Downside
Operational issues are ongoing risks in infrastructure-based portfolios,
especially in the volatile macroeconomic conditions defining the market
backdrop during the past year. The Investment Manager's asset management
team dedicates a similar level of attention and resource focused on
overseeing portfolio performance, managing risks and adapting to potential
obstacles facing projects as it does to unlocking additional value.
Further information in relation to the risks around asset operations
performing in line with expectations is outlined in Risk Management
Framework.
Details of operational issues impacting the operations of the portfolio
and mitigation strategies can be found in Portfolio Summary.
Investment Pipeline Overview
The Investment Manager is focused on building a pipeline of
investment opportunities that can complement the existing
portfolio, create synergies between projects and maximise overall
value for SEEIT.
While the prevailing market environment can present some
interesting opportunities, the Investment Manager remains selective
in making new investments, with a very small percentage making it
to the stage of Investment Committee review. A significant
proportion of the Investment Manager's focus is currently on
evaluating initiatives within the portfolio to optimise assets and
unlock additional value within individual projects.
Organic growth of the existing SEEIT portfolio currently
comprises over 70% of near-term pipeline by value through follow-on
opportunities, often at attractive pre-agreed rates of return.
Further, the Company is reviewing a good pipeline of new
investment opportunities, taking into account the higher discount
rate environment and focusing on opportunities considered to be
accretive to key portfolio metrics. While the Company remains
flexible in terms of which technology to employ to address client
needs and secure required investment returns, the Investment
Manager seeks opportunities with competitive advantages and
proprietary pipeline for the Company by investing in developers,
managers or operators of energy efficiency projects, some of which
involve newer, commercially proven technologies. Examples include
rare-earth-free motors, liquid cooling for datacentres and, more
recently, thermal storage.
The Investment Manager exercises robust pricing discipline when
evaluating any opportunities within its target markets and
geographies, preferring to make investments where it can add value
and through a private or bilateral negotiation with a vendor,
rather than through a competitive auction process competing on
price alone.
Over the next 12 to 24 months, the Investment Manager expects
that in excess of GBP200 million could be invested into organic
opportunities, of which approximately GBP50 million is
contractually committed and the remaining is at the discretion of
the Investment Manager.
The organic pipeline includes several investment opportunities
within the existing portfolio, which are expected to contribute
positively to portfolio project valuations, such as:
-- efficiency improvement projects at RED-Rochester, which
contribute directly to increasing the project company's profit
margin;
-- further scaling of EVN as it continues to establish itself as
one of the UK's largest EV charging developers; and
-- continued rollout of solar and storage projects through Onyx,
which benefits from the substantial policy tailwinds associated
with the Inflation Reduction Act of 2022
The Company is also evaluating two efficient heat project
opportunities in Europe, utilising biogas technology and heat
pumps.
Assuming that current market conditions remain such that the
Company is not able to undertake an equity capital raise, the
Investment Manager is confident it can source funding for these
investments through a combination of current cash resources,
existing acquisition facilities, investment disposals and
co-investment opportunities
Enhancing Returns Through Development and Construction-Stage
Investments
While the Company invests predominantly in operational
investments, SEEIT may invest in projects that are in a
construction phase or development phase. The Investment Manager
recognises the value potential inherent in construction and
development-stage assets progressing through stages to become
operational.
The Investment Manager is therefore pleased that during the
year, multiple investments under construction became operational.
These investments include the first six sites at EVN in the UK,
energy-efficiency retrofits at Tallaght Hospital in Ireland and
energy-efficient chillers at Lycra's facility in Singapore. At
Red-Rochester, construction work commenced to replace chillers as
well as a strategically important new CHP plant (see Portfolio
Summary for details). At 31 March 2023, the Company had c.17% of
Gross Asset Value(APM) ("GAV") exposed to construction-stage
projects, well below the 35% of GAV across both construction and
development-stage projects allowed under its investment policy.
While construction phase investments offer opportunities for
capital gains as well as income once they become operational, it is
important that construction risks are managed. The Company has seen
some construction delays during the year, notably in Onyx, but
continues to manage those situations so that the investments become
operational as close as possible to budget and expected timelines.
The Huntsman Energy Centre, which had previously suffered from
extensive delays, reached steam on date, the point at which it
generates revenues, in June 2023.
Additionally, within the 35% of GAV that may be invested in
construction and development-stage projects, the Company may invest
up to 3% of GAV in companies that are developers, managers, or
operators of energy efficiency projects. This offers the
opportunity for capital gains but also the ability to access or
secure pipeline for project investment, particularly where such
companies are innovating in the context of a large total
addressable market. Examples of such investments include Iceotope,
which provides energy efficient cooling technology for datacentres;
Turntide, which provides energy efficient and rare-earth-free
motors; and, after the year end, a company which provides
industrial scale thermal storage solutions. More information on
these investments is in Portfolio Summary.
Strategy in Relation to Disposals
The Company may choose not to exit certain investments until
they reach the end of their contracted life. At this point, it may
be possible for the Company to extend the life of the project,
subject to contractual negotiations.
SEEIT will contemplate disposing of assets opportunistically or
via targeted sales, in the near to medium term, where these deliver
value to shareholders. Timing of such disposals will be partly
driven by market conditions to achieve best outcomes for
shareholders or in order to secure capital for potentially
accretive investments. There may be instances where a portfolio
project is of greater value to an external stakeholder than to the
Company - for example due to synergies within the third-party's
portfolio, or the ability of a third party to recognise enterprise
value or upside potential earlier in the project's lifecycle.
The Company is investing in a sector for which there is an
active secondary market, and the Investment Manager has received
inbound interest in respect of the disposal of certain assets
within SEEIT's portfolio. These enquiries are evaluated on a
case-by-case basis to determine whether pursuing an early exit
would be in the best interests of shareholders.
Capital Markets Day
On 14 March 2023 the Investment Manager hosted a Capital Markets
Day for the Company at the London Stock Exchange. The Board and the
Investment Manager were grateful for the support for the event,
with over 250 in-person and virtual attendees, made up of
institutional investors and analysts.
The event consisted of a video interview with International
Energy Agency (IEA) Executive Director Fatih Birol. This was
followed by four panel discussions, each based around one of the
Company's larger groups of investments - Onyx Renewable Partners,
Oliva Spanish Cogeneration, Primary Energy and RED-Rochester. A
video about the investment preceded each panel, which comprised
footage of the sites in operation, with commentary from key senior
managers from the relevant project companies.
A full video recording of the event, as well as the separate
video interview and the investment introduction videos, can be
found on the SEEIT website.
Outlook
SEEIT's portfolio has grown significantly since IPO and
continues to deliver diversified income and growth opportunities
from a combination of follow-on investments.
The Investment Manager is seeking opportunities to improve
returns and achieve capital gains from operational projects while
looking to mitigate any potential downsides. Some of these
opportunities have already been included in the valuation of
underlying projects. A selection of other opportunities identified
and described further in Portfolio Summary could seek to offset
adverse value impacts experienced in this financial year.
Energy efficiency has significant potential as a solution to
economic, climate and energy security challenges. Reducing energy
usage and energy waste is as valuable as ever, providing new
opportunities for the Company and its portfolio.
The Investment Manager is seeking opportunities to improve
returns and achieve capital gains from operational projects while
looking to mitigate any potential downsides. A selection of these
opportunities is described further in, Portfolio Summary.
The Investment Manager continues to assess potential investment
opportunities with a focus on operational and follow-on
investments, in addition to more limited investments in the
development or construction phase.
Against an outlook of heightened risks to energy prices, energy
security and decarbonisation, energy efficiency has a crucial role
to play, with the potential to offer large-scale, proven, rapid and
cost-effective solutions. The Investment Manager believes that
SEEIT is well placed to continue to perform, deliver on its
investment objectives and remain a leader in energy efficiency
investment.
FINANCIAL REVIEW AND VALUATION
Financial Performance
The Company's investment strategy and the Investment Manager's
focus on asset management helped manage downside risks and target
value accretive opportunities during the year, notwithstanding
market volatility. Efficient financial management, including the
focus on treasury management described further below, helped
maintain consistent dividend cover and allowed the Company to
capitalise on new investment opportunities.
GBP85 million
Investment cash inflow from the portfolio (APM) , up 31% on a
portfolio basis(APM) (2022: GBP65 million), providing 1.2x dividend
cash cover(APM)
GBP(19) million
loss before tax reflects performance below management
expectations, caused by the unrealised loss of GBP81 million from
increased discount rates and specific portfolio adjustments (March
2022: GBP80 million profit).
(1.8) pence
loss per share , comprising income components of 5.5 pence, made
up from inflation increases, FX gain and portfolio performance,
less capital component of 7.3 pence, made up of discount rate
movements.
GBP135 million
capital raised in September 2022 - accretive to NAV, adding 0.7
pence.
Dividends
The Company paid a total of GBP62 million in dividends to
shareholders during the year. This included the last quarterly
dividend for the year ended 31 March 2022, and the first three
quarterly dividends for the year ended 31 March 2023. The Company
has declared the fourth quarterly dividend for the year ended 31
March 2023, payable at the end of June 2023, thereby delivering the
target of a 6.00 pence per share total dividend related to the year
ended March 2023.
Based on the projected investment cashflows from the current
portfolio prepared by the Investment Manager and approved by the
Board, the Company announced new dividend guidance of 6.24p per
share for the year to March 2024 and, as before, will target a
progressive dividend growth thereafter. The Company intends to
continue to pay interim dividends on a quarterly basis through four
broadly equal instalments (in pence per share).
Analysis of Movement in NAV
During the year, the investment portfolio has seen benefits from
net FX movements and high inflation levels. During the year, the
performance of the operational assets in the underlying portfolio
has generally been in line with expectations, apart from Oliva
Spanish Generation (see 2.4 Portfolio Performance for additional
information). However there has been an overall increase in
discount rates caused by global increases of risk-free interest
rates. This has adversely impacted the discount rates of individual
projects in the Company's investment portfolio, affecting the
Company's financial performance and resulting in a decrease in the
Company's overall NAV.
As of 31 March 2023, the NAV per share(APM) is 101.5p, a
decrease of 6.9p from 108.4p at 31 March 2022. This decrease
reflects the impact of increased discount rates (negative 7.3p) on
Loss Per Share in the year offset by uplifts in macroeconomic
assumptions related to inflation of 1.5p, FX movements of 0.9p,
portfolio performance of 3.1p and accretive share issue of 0.7p -
each of which is further described below.
Portfolio Valuation( (APM)
The Investment Manager is responsible for carrying out the fair
market valuation of SEEIT's portfolio of investments (the
"Portfolio Valuation"(APM) ) which is presented to the Directors
for their consideration and approval. A valuation is carried out on
a six-monthly basis, as at 31 March and 30 September each year. The
Portfolio Valuation(APM) is the key component in determining the
Company's NAV.
The Company has a single investment in a directly and wholly
owned holding company, SEEIT Holdco. It recognises this investment
at fair value. To derive the fair value of SEEIT Holdco, the
Company determines the fair value of investments held directly or
indirectly by Holdco (the Portfolio Valuation(APM) ) and adjusted
for any other assets and liabilities. The valuation methodology
applied by Holdco to determine the fair value of its investments is
materially unchanged from the Company's IPO and has been applied
consistently in each subsequent valuation. See Note 3 for further
details on the valuation methodology and approach.
The Portfolio Valuation(APM) as at 31 March 2023 was GBP1,100
million, an increase of 20% compared with GBP913 million as at 31
March 2022. A reconciliation between the Portfolio Valuation(APM)
at 31 March 2023 and Investment at fair value shown in the
financial statements is given in Note 11.
After allowing for investments of GBP240 million (see Portfolio
Summary for more details) and cash receipts from investments of
GBP85 million, the Rebased Portfolio Valuation(APM) is GBP1,069
million. After adjusting for changes in macroeconomic assumptions,
foreign exchange movements and changes in discount rates, this
resulted in a portfolio return of GBP49 million, equating to a 4.6%
return in the year. The return was affected by a number of project
specific valuation movements described under Balance of Portfolio
Return below.
The Portfolio Valuation(APM) as at 31 March 2023 includes
assumptions on future project level revenues that are both
contracted and uncontracted (as at 31 March 2023). The definition
of contracted revenues include:
-- long-term fixed contracts
-- rolling annual contracts (e.g. in Värtan Gas where the
majority of customers have contracts that are rolled over
automatically on an annual basis)
-- contracts due to be recontracted in future, where there is a
clear history of recontracting and the customer does not have
another viable or contractual source of energy (e.g. extension of
existing contracts in Red-Rochester and Primary Energy)
The uncontracted revenues typically relate to where assumptions
have been made for:
-- expansion of developer platforms (e.g., future C&I solar portfolios developed by Onyx)
-- growth assumptions based on existing contracts (e.g.,
Red-Rochester where revenue growth is assumed from successful
delivery of value accretive capital expansion and addition of new
customers), and
-- contract life extensions where the customer can be considered
to have a viable alternative source of energy at the end of the
existing contract (e.g., UU Solar and Onyx where it is assumed that
the customer will seek an extension for a few years instead of
decommissioning)
-- Ancillary revenues that are considered side products of
primary revenues in certain projects (e.g., olive oil sales at
Oliva Spanish Cogeneration and merchant revenues from excess
capacity at UU Solar).
Based on the above characteristics, as at 31 March 2023, 79%
(March 2022: 76%) of the Portfolio Valuation(APM) by value is
considered to be contracted and 21% (March 2022: 24%) is considered
to be uncontracted.
Furthermore, based on the assumed cash flows in the March 2023
Portfolio Valuation(APM) , approximately 73% (March 2022: 77%) of
portfolio revenues (contracted and uncontracted as described above)
are linked to contracts with availability-based, regulated or
pre-determined revenue characteristics, with a further 19% (March
2022: 18%) of portfolio revenues having capacity-based
characteristics where there is typically a right of first dispatch,
whereby an offtaker agrees to pay for a volume of output to the
extent that it has demand for it.
The analysis above is based on the revenue projections included
in the March 2023 Portfolio Valuation(APM) and excludes costs and
terminal value assumptions.
The weighted average remaining life of investments as 31 March
2023 is 15.9 years (March 2022: 14.8 years), when calculated purely
on when current contracts end. When based on the March 2023
Portfolio Valuation(APM) , which includes recontracting and
contract life extensions, the weighted average remaining life is
28.0 years (March 2022: 21.7 years).
Further information on key assets and potential future valuation
movements can be found in Portfolio Summary and Note 3.
Valuation Movements
A breakdown of the movement in the Portfolio Valuation(APM) in
the year is set out below.
Return from the Portfolio off the Rebased Portfolio Valuation
(APM)
Each movement between the Rebased Portfolio Valuation(APM) of
GBP1,069 million and the 31 March 2023 valuation of GBP1,100
million is considered in turn below:
Changes in Macroeconomic Assumptions of GBP16.9 million:
-- Inflation assumptions: consistent with March 2022, the
approach in all jurisdictions is to apply a three-year near-term
bridge to the relevant long-term inflation assumption. Given the
rises in global inflation in the last 12 months, this has resulted
in an uplift in the valuation due to high near-term inflation,
compared with the assumptions applied for the March 2022 valuation
or at the time of investments during the year.
-- Tax rate assumptions: there were no changes to corporation
tax rate assumptions during the year.
-- Further details on the macroeconomic assumptions applied to
the 31 March 2023 valuation and comparison to previous periods can
be found in Note 3.
Changes in Foreign Exchange Rates of GBP46.6 million (before
hedging):
-- The investment portfolio gained GBP46.6 million during the
year from movements in foreign exchange rates, driven by the
movement of GBP against the US dollar, Euro, Singapore dollar and
Swedish krona since 31 March 2022 or since new investments were
made in the year. The most significant impact was due to the GBP's
weakening against the US dollar, which had a pronounced effect on
portfolio valuations as SEEIT has a significant portfolio exposure
to the USA.
-- However, it is important to note that this only reflects the
movement in underlying investment values, and it does not take into
account the offsetting effect of foreign exchange hedging that
SEEIT Holdco applies outside of the Portfolio Valuation(APM) .
-- SEEIT Holdco experienced an aggregate loss of GBP36.3 million
due to foreign exchange hedging. The overall foreign exchange
movements did not have a significant impact on NAV during the year,
resulting in a net gain of GBP10.3 million from foreign exchange
movement.
Changes in Valuation Discount Rates of GBP(81.2) million:
-- The discount rate used for valuing each investment represents
an assessment of the rate of return at which infrastructure
investments with similar risk profiles would trade on the open
market.
-- During the year, and in particular since early September
2022, there were significant increases in interest rates globally,
including in SEEIT's key geographical areas. This has stemmed from
geopolitical uncertainties and a high inflationary environment due,
in part, to high energy costs. This has led to an increase in
discount rates across the whole investment portfolio that in
aggregate resulted in a decrease in the Portfolio Valuation(APM) of
GBP81.2 million
-- Since September 2022 there has been very little market
activity to help set benchmarks for appropriate discount rates for
the investments in the Portfolio Valuation(APM) .
-- The Investment Manager considered it necessary to apply a
significant increase to discount rates, and having assessed
geographical areas as a whole and each project individually, has
applied discount rate increases that increased the weighted average
discount rate by approximately 70bps to 7.7% on an unlevered basis
(March 2022: 7.0%) and 8.5% on a levered basis (March 2022:
8.0%).
-- For the valuation as at 31 March 2023, the Directors
commissioned a report from a third-party valuation expert to
provide their assessment of the appropriate discount rate range for
each investment (excluding small investments with an aggregate
value of less than 2% of the Portfolio Valuation (APM) ) in order
to further benchmark the valuation prepared by the Investment
Manager. The discount rate applied to each investment by the
Investment Manager were within the ranges advised by the
third-party valuation expert.
Weighted average discount rate as at March 2023 (compared to March
2022)
Levered/unlevered UK US Europe/Asia Combined
-------------- -------------- -------------- -------------
Levered 7.1% (6.7%) 8.9% (8.3%) 8.4% (7.5%) 8.5% (8.0%)
-------------- -------------- -------------- -------------
Unlevered 7.1 % (6.7%) 7.9 % (7.2%) 7.4 % (6.5%) 7.7% (7.0%)
-------------- -------------- -------------- -------------
Discount rate ranges (unlevered) as at March 2023 (compared to March
2022)
UK US Europe/Asia Combined
------------------ ------------------ -----------------
4.75% - 8.75% 6.50% - 9.00% 4.75% - 10.25% 4.75% - 10.25%
(4.0% - 10.0%)
(4.0% - 8.0%) (5.2% - 10.0%) (4.6% - 10.0%)
------------------ ------------------ -----------------
Balance of Portfolio Return of GBP48.8 million:
-- This refers to the balance of valuation movements in the year
(excluding (i) to (iii) above), which provided an uplift of GBP48.8
million. The balance of portfolio return reflects the net present
value of the cashflows unwinding over the year at the average
prevailing portfolio discount rate, and various additional
valuation adjustments described below. The portfolio delivered a
return of c.5% in the year, lower than expected with details on key
movements described below.
The Portfolio Valuation(APM) as at 31 March 2023, and by
implication the return achieved over the year, includes several key
estimates and judgements of future cash flows expected from
different investments. In addition, specific adjustments were
required for events during the year that affected the actual
outcome from certain investments.
The key estimates, judgements and adjustments described below
summarise those that have had a material impact on the March 2023
Portfolio Valuation(APM) and therefore the Company's NAV, defined
for the purpose of this section as having a 1% impact or higher.
The below movements are all between c. 1% and c. 3% of NAV:
-- Primary Energy
-- Estimates of medium to long-term energy demand expected at
PCI in the Primary Energy portfolio has been lowered materially,
resulting in an adverse impact on the valuation of c. GBP16m.
-- RED-Rochester
-- The projected growth of earnings is assumed to deliver a
business capable of continuing to serve customers at the Eastman
Business Park for a further 20 years beyond the lifetime previously
assumed . As a result, estimates have been included, based on the
assumed projected growth of earnings, that a gain share pay-out
will be made to the external asset management team tasked with
delivering the growth. The net positive impact of these is
estimated at c. GBP30 million.
-- Assumptions for operating costs over the life of the
investment have been increased, including labour costs, chemical
costs and maintenance costs. This has had an adverse impact of c.
GBP24 million.
-- Changes in the assumed future commodity pricing affecting
both revenues and costs had a favourable impact of c. GBP17
million. In addition, due to changes in the expected energy demands
of customers in the future and the increasing importance of
providing electrical loads, the methodology for calculating power
pricing has been updated to more closely align to current market
pricing. A third-party power curve is now the basis of electricity
pricing and this has had a positive impact of c. GBP12 million.
-- Onyx
-- Based on the number of underlying assets that reached
completion during 2022 and a revised target set for asset
completions in 2023 and 2024 caused by operational delays, there is
a reduction in value of c. GBP16 million in the construction
portfolio (Obsidian II) of Onyx, after taking into account positive
impact from the Inflation Reduction Act.
-- An estimate has been included that assumes Onyx continues to
deliver annual portfolios of C&I solar assets until the end of
2029 (previously 2026) with no terminal value thereafter for the
development platform, which has positively impacted the valuation
of the development platform of Onyx by c. GBP30 million. This is
further substantiated through the acquisition after 31 March 2023
of the remaining 50% stake of the development platform as described
in Note 18.
-- Oliva Spanish Cogeneration
-- Following a long delay, in late 2022 and early 2023 the
Spanish government published regulatory updates to the RoRi
(incentive scheme to provide a return on operations and
investments) for 2021 and the first half of 2022. The updates were
below expectations and caused an adverse one-off impact of c. GBP21
million to the actual outcome of Oliva for 2022 and the expected
outcome for 2023.
-- The lack of RoRi updates and highly volatile commodity
markets in 2022 resulted in a utilisation of the plants well below
expectations, especially in the second half of 2022 - this had an
adverse one-off impact of over GBP10 million to the actual outcome
of Oliva for 2022.
-- Värtan Gas
-- The periodic regulatory update relevant to Värtan Gas changed
both the WACC and RAB used in calculating the value of the
regulated investment, causing an adverse impact on the valuation of
c. GBP17 million. There is no impact on medium term cashflows
stemming from this update as the forecast revenues at V ärtan
remain comfortably below the allowed revenue cap. The valuation
impact is primarily driven by the impact on the assumed terminal
value which is calculated as a multiple of the RAB in line with
broader market practice.
-- Using third-party advice, long term assumptions on the rate
of growth assumed for the use of biogas in the Stockholm transport
industry have been revised downwards in the Värtan Gas investment
by c. GBP11 million, although partially offset by assumed growth in
revenues generated from restaurants of c. GBP2 million.
-- Other
-- The availability of group relief for UK corporation tax has
increased during the year, resulting in a positive impact on the
Portfolio Valuation(APM) as a whole of c. GBP13 million.
-- A provision of c. GBP13 million has been included for the
recoverability of a loan to FES Lighting while it is undergoing a
comprehensive review of its sales strategy, led by the Investment
Manager.
Additional information and sensitivities are disclosed in the
critical estimates and judgements section of Note 3.
Valuation movements during the year to 31 March 2022 (GBP'm)
Portfolio Valuation - 31 March 2022 912.7
New investments 240.3
Cash from investments (84.5)
--------
155.8
--------------------------------------------- -------- --------- ---------
Rebased Portfolio Valuation 1,068.5 % on
Rebased
--------------------------------------------- -------- --------- ---------
Changes in macroeconomic assumptions 16.9 1.6%
Changes in foreign exchange 46.6 4.4%
Changes in discount rates (81.2) (7.6%)
Balance of portfolio return 48.8 4.6%
--------
31.1
--------------------------------------------- -------- --------- ---------
Portfolio Valuation - 31 March 2023 1,099.6
--------------------------------------------- -------- --------- ---------
Financial information
As described in detail in Note 2, the Company meets the
conditions of being an Investment Entity in accordance with IFRS
10. This report is prepared on a consistent basis to previous
reports whereby the IFRS 10 Investment Entity exemption is applied
to the financial statements.
To provide shareholders with more transparency into the
Company's capacity for investment, ability to make distributions,
operating costs and gearing(APM) levels, results have been reported
in the pro forma tables below on a non-statutory "portfolio
basis"(APM) , as it has been done in previous years, to include the
impact if SEEIT Holdco were to be consolidated by the Company on a
line-by-line basis.
The Directors consider the non-statutory portfolio basis(APM) to
be a more helpful basis for users of the accounts to understand the
performance and position of the Company. This is because key
balances such as cash and debt balances carried in Holdco and all
expenses incurred in Holdco, including debt financing costs, are
shown in full rather than being netted off.
The impact of including Holdco is shown in the Holdco
reallocation column in the Income Statement and Balance Sheet,
which reconciles back to the statutory financial statements
("IFRS") and constitutes a reallocation between line items rather
than affecting NAV and Earnings. In the Cashflow statement the
Holdco reallocation column simply represents the net difference
between the portfolio basis(APM) and IFRS for movements that may
occur only in Holdco or only in the Company.
NAV per share(APM) and Earnings per share are the same under the
portfolio basis(APM) and the IFRS basis.
Summary Financial Statements
Portfolio Basis Summary Income Statement
12 Month period to 31 12 Month period to 31
March 2023 March 2022
----------------------------------------------------------------------------- ---------------------------------------
GBP'million Portfolio Holdco IFRS Portfolio Holdco IFRS
Basis reallocation (Company) Basis reallocation (Company)
------------------- ---------------- ------------------- ----------------- ---------- -------------- -----------
Total
(loss)/income (1.8) (4.8) (6.6) 92.5 (3.8) 88.8
Expenses &
Finance Costs (16.7) 4.7 (12.0) (12.7) (3.7) (9.0)
Profit/(loss)
before Tax (18.5) (0.1) (18.6) 79.8 - 79.8
Tax (0.1) 0.1 - - - -
(Loss)/Earnings (18.6) - (18.6) 79.8 - 79.8
------------------- ---------------- ------------------- ----------------- ---------- -------------- -----------
(Loss)/Earnings
per share (pence) (1.8) - (1.8) 10.0 - 10.0
------------------- ---------------- ------------------- ----------------- ---------- -------------- -----------
Portfolio Basis Balance Sheet
31 March 2023 31 March 2022
-------------------------------------------------------------------------- ---------------------------------------
GBP'million Portfolio Holdco IFRS Portfolio Holdco IFRS
Basis reallocation (Company) Basis reallocation (Company)
----------------------- ------------- ------------------ -------------- ---------- -------------- -----------
Investments
at fair value 1,099.6 28.3 1,127.8 912.7 15.5 928.2
Working capital (39.9) 37.2 (2.7) (10.6) 9.4 (1.2)
Debt - - - - - -
Net cash 65.7 (65.4) 0.3 170.9 (24.9) 146.1
Net assets
attributable
to Ordinary
Shares 1,125.4 - 1,125.4 1,073.1 - 1,073.1
----------------------- ------------- ------------------ -------------- ---------- -------------- -----------
NAV per share
(pence) 101.5 - 101.5 108.4 - 108.4
----------------------- ------------- ------------------ -------------- ---------- -------------- -----------
-- Total income: Income at the Company level is the income it
receives from Holdco which contrasts to Portfolio Basis where the
income is received from the portfolio assets.
-- Expenses & finance costs: Investment transaction costs
are incurred at Holdco only and therefore not included in the
Company Income Statement.
-- Investment at fair value: Company valuation excludes Holdco's
other net assets (see note 11 for detailed reconciliation).
-- Working Capital and cash: Holdco working capital includes a
large payable to a FX hedging counterparty.
Treasury Management
Cash cover(APM) for dividends paid
The financial year saw cash inflow from investments (on a
portfolio basis(APM) ) of GBP84.5 million, an increase of circa 30%
from the previous year's GBP64.7 million. After allowing for fund
level costs of GBP13.5m (March 2022: GBP10.8m), this enabled the
Company to cover its cash dividends of GBP62 million by 1.2 times,
maintaining the same level as the previous year. The Company's
average cash cover(APM) is around 1.3x since its IPO to date, and
the Investment Manager is targeting to grow the near to medium-term
levels to above the historic average.
Maintaining these levels of cash cover(APM) has resulted in
cumulative excess cash cover(APM) of c. GBP29 million since IPO,
demonstrating the consistent nature of the income from the
underlying assets in the portfolio, as well as the ability of the
portfolio to generate excess cash that can be reinvested for an
accretive return. Post year end, the surplus cash has assisted the
Company with its programme of share buybacks.
Liquidity and The Company's Hedging Strategy
The Investment Manager has been proactive in ensuring
significant liquidity headroom to meet existing investment
commitments and capitalise on emerging opportunities in both
organic and inorganic pipelines. The heightened volatility in
foreign exchange markets has increased the need for available
liquidity to cover cash collateral requirements and mark-to-market
losses associated with foreign exchange trades. In the year, due to
sudden sharp movements in GBP/USD, the highest amount reached for
cash collateral posted was GBP56 million. As at 31 March 2023, the
amount outstanding for cash collateral was nil.
To further manage liquidity risk, the Investment Manager has
taken measures to increase cash collateral thresholds and diversify
its exposure across multiple hedge counterparties. This approach
has significantly reduced Holdco's liquidity risk, ensuring that
Holdco and the Company maintained ample liquidity levels throughout
and beyond the reporting period.
The Company's hedging strategy is executed at the level of
Holdco, so the Company itself is only indirectly exposed to foreign
exchange movements. The objective of the Company's hedging strategy
is to protect the value of both near-term income and capital
elements of the portfolio from a material impact on NAV arising
from movements in foreign exchange rates.
This is achieved on an income basis by hedging forecast
investment income from non-sterling investments for up to 24 months
through foreign exchange forward sales. On a capital basis, it is
achieved by hedging a significant portion of the portfolio value
through rolling foreign exchange forward sales. The Investment
Manager also seeks to utilise corporate debt facilities in the
local currency to reduce foreign exchange exposure.
As part of the Company's hedging strategy, the Investment
Manager regularly reviews the non-sterling exposure in the
portfolio and adjusts the hedging levels accordingly while
considering the cost-benefit of the hedging activity. The hedging
strategy also involves ensuring regular calculation of sufficient
cash headroom, so as to meet potential liquidity requirements
imposed by hedging counterparties during periods of volatility that
may adversely affect the Company.
As demonstrated below, the portfolio has a substantial exposure
to non-GBP assets. In the execution of hedging strategy, the
Investment Manager has chosen to retain high levels of hedging
during the year, typically ranging between 90-100% of the value of
the underlying non-GBP investments.
During the year marked by sharp fluctuations in GBP/USD and the
USD's strengthening, the increase in portfolio value attributed to
foreign exchange was mostly negated by the hedging's foreign
exchange loss. Consequently, the impact on the Net Asset Value(APM)
due to currency exchange was limited to GBP10.3 million
(0.9p/share), which equates to less than 1% of NAV.
Following an assessment of liquidity risk and medium-term
projections, the Investment Manager has concluded that SEEIT Holdco
should lower its current hedging level and focus on hedging 75% to
90% of its non-GBP assets going forward. This target range remains
within the parameters previously agreed with the Directors through
the Company's Treasury Policy, thus the overall hedging strategy
and objective are unchanged from before. This move is expected to
result in reduced liquidity risks and increased cash and RCF
availability, enabling the Investment Manager to invest in new and
existing projects accretive to the Company's total return prospects
without the need for higher levels of cash/RCF buffers for hedging
commitments.
Revolving Credit Facility
The Investment Manager periodically considers refinancing
options aligned to the pipeline of new and existing investments.
During the year SEEIT Holdco increased its RCF by GBP35 million to
GBP180 million, through a partial exercising of the accordion
option. At 31 March 2023 the RCF was undrawn.
Ongoing Charges
The Portfolio's ongoing charges ratio(APM) remained in line with
before at 1.02% (March 2022: 1.00%), the marginal increase stemming
predominantly from the impact of increased discount rates and the
associated adverse impact on NAV as described elsewhere in this
section.
Ongoing charges, in accordance with AIC guidance, are defined as
annualised ongoing charges (i.e. excluding acquisition costs and
other non-recurring items) divided by the average published
undiluted net asset value in the year). Ongoing Charges percentage
has been calculated on the portfolio basis(APM) to take into
consideration the expenses of the Company and Holdco.
Portfolio Basis Cashflow Statement
31 March 2023 31 March 2022
--------------------------------------------------------------------------- --------------------------------
GBP'million Portfolio Holdco IFRS Portfolio Holdco IFRS
Basis reallocation (Company) Basis (Company)
---------------------------- ------------ ----------------- ------------ ---------- ------- -----------
Cash from investments 85.1 (0.3) 84.8 64.7 (11.7) 53.0
Operating and
finance costs
outflow (13.1) 3.1 (10.0) (11.8) 2.9 (8.9)
---------------------------- ------------ ----------------- ------------ ---------- ------- -----------
Net cash inflow
before capital
movements 72.0 2.8 74.8 52.9 (8.8) 44.1
---------------------------- ------------ ----------------- ------------ ---------- ------- -----------
Cost of new
investments
including acquisition
costs (240.2) (52.2) (292.4) (304.9) (14.9) (319.8)
Share capital
raised net of
costs 132.6 - 132.6 343.9 - 343.9
Movement in
borrowings 29.6 (29.6) - (1.7) 1.7 -
Movement in
capitalised
debt costs and
FX hedging (37.3) 38.5 1.2 (1.3) 1.3 -
Dividends paid (62.0) - (62.0) (44.2) - (44.2)
---------------------------- ------------ ----------------- ------------ ---------- ------- -----------
Movement in
the period (105.3) (40.5) (145.8) 44.7 (20.7) 24.0
Net cash at
start of the
period 170.9 (24.9) 146.1 126.2 (4.1) 122.1
---------------------------- ------------ ----------------- ------------ ---------- ------- -----------
Net cash at
end of the period 65.6 (65.3) 0.3 170.9 (24.9) 146.1
---------------------------- ------------ ----------------- ------------ ---------- ------- -----------
Investment cash inflows from the portfolio(APM) on a Portfolio
Basis were GBP85.1 million (2021: GBP64.7 million), includes
GBP84.5 million cash from portfolio investments plus other interest
income.
The total cost of investments by the SEEIT group on a portfolio
basis(APM) was GBP240.2 million (March 2022: GBP304.9 million),
including a further GBP119 million invested as follow-on in
existing investments and transaction costs (transaction costs are
included at Holdco and not included in the Company Income
Statement). Further details can be found in Portfolio Summary.
Going Concern
The Directors believe that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Therefore, they continue to adopt the going concern basis of
accounting in preparing the financial statements. Further details
of the processes carried by the Company in determining that the
going concern basis continues to be appropriate including the
upcoming continuation vote, can be found in Report of the Directors
and Note 2.
PORTFOLIO SUMMARY
Investment Update
During the financial year, SEEIT successfully invested c.GBP240
million in six new and seven follow-on investments and commitments.
A further c.GBP30 million has been invested since 31 March 2023
into two new and four follow-on investments and commitments.
The Investment Manager has actively sought to make investments
in a wider range of technological solutions for energy efficiency.
For example, since 31 March 2022, SEEIT has made investments
focused on supply and distribution and demand reduction
involving:
-- geothermal power and heating;
-- energy-efficient motors, free of rare earth minerals;
-- datacentre liquid cooling; and
-- behind-the-meter solar PV, wind and hydropower.
Inorganic Investments Made During the Year
Project Description Investment/ Location Investment/
commitment commitment
date amount
--------------------------------- -------------- --------- --------------
Baseload Convertible debt investment May 2022 Sweden c.GBP4m [6]
into a portfolio of
small-scale geothermal
projects that utilise
existing heat sources.
--------------------------------- -------------- --------- --------------
Turntide Energy-efficient variable-speed May 2022 USA c.GBP8m
motor systems technology
that reduces carbon
emissions, providing
energy cost savings
to various industries
without incorporating
environmentally damaging
rare earth minerals
used in alternatives.
--------------------------------- -------------- --------- --------------
Iceotope Data centre immersion June 2022 UK c.GBP3m
cooling technology providing
significant reduction
in energy usage and
associated CO(2) emissions
versus traditional air-cooling
technology.
--------------------------------- -------------- --------- --------------
UU Solar Portfolio of predominantly July 2022 UK c.GBP100m
solar PV assets, providing
renewable energy generated
on site directly to
the end user across
North West England.
--------------------------------- -------------- --------- --------------
On.Energy Investment in battery August 2022 USA c.GBP4m [7]
energy storage systems
("BESS") and microgrids
solutions provider,
focusing on delivering
long-term, on-site "energy
storage as a service"
projects.
--------------------------------- -------------- --------- --------------
Bloc Power Energy efficiency solutions, November 2022 USA c.GBP0.2m [8]
including heat pumps,
LED lighting, solar
PV, battery storage,
etc, for small and medium-sized
enterprises and low-to-moderate
income communities in
New York State.
--------------------------------- -------------- --------- --------------
Organic Investment Activity During the Year
Project Location Investment/commitment
amount
--------- ----------------------
Biotown USA c.GBP1m
--------- ----------------------
Onyx USA c.GBP50m
--------- ----------------------
Spark US Energy Efficiency II USA c.GBP13m
--------- ----------------------
Tallaght Hospital Ireland c.GBP4m [9]
--------- ----------------------
EV Network UK c.GBP23m
--------- ----------------------
FES Lighting USA c.GBP6m
--------- ----------------------
Lycra Asia c.3m
--------- ----------------------
RED-Rochester USA c.16m
--------- ----------------------
Investment Activity Since Year End
Project Investment Date Type Location Investment/Commitment
Amount
---------------- ---------- --------- ----------------------
Onyx Development June 2023 Follow-on USA c.GBP4m [10]
Platform - remaining
50% interest
---------------- ---------- --------- ----------------------
CPP Biomass June 2023 Inorganic USA c.GBP1m
---------------- ---------- --------- ----------------------
Thermal energy June 2023 Inorganic USA c.GBP2m
storage company
---------------- ---------- --------- ----------------------
Spark US Energy Various Follow-on USA c.GBP7m
Efficiency
---------------- ---------- --------- ----------------------
RED -Rochester Various Follow-on Asia c.GBP12m
---------------- ---------- --------- ----------------------
Onyx Various Follow-on USA c.GBP1m
---------------- ---------- --------- ----------------------
FES Lighting Various Follow-on USA c.GBP2m
---------------- ---------- --------- ----------------------
Portfolio - Key Updates
Overview
SEEIT has made several larger investments since listing, which
form a foundation for overall portfolio cashflows as well as
providing established platforms to generate growth opportunities.
Some of these investments consist of a number of distinct
individual projects and therefore 21 individual projects are
represented by this section.
The largest six investments (consolidated) are diversified
across the UK, North America and Europe and make up c.78% of
SEEIT's total portfolio by value. A detailed summary of these
investments and their performance during the year is outlined
below.
In comparison to previous periods, this section increases the
overall disclosure of SEEIT's key underlying portfolio investments,
including the provision of specific project-level KPIs. The Board
and the Investment Manager will continue to engage with the
Company's shareholders and evaluate the benefits of increasing
disclosure further in future.
For a more comprehensive understanding of these investments,
Financial Review and Valuation Movements, the principal risks in
Risk Management Framework and Note 3 in the financial statements
provide further details.
The revenues referred to in this section describe the revenues
that are assumed in the Portfolio Valuation(APM) and therefore
includes both contracted and uncontracted revenues. This is
explained further in Financial Review and Valuation Update.
This section also highlights some of the upside opportunities, a
number of which would require further upfront investment, that are
being developed by the Investment Manager across the larger
investments but not yet included in the March 2023 Portfolio
Valuation(APM) , . These opportunities alone could potentially add
over GBP150 million to the NAV over the next 2-5 years, although
there can be no guarantee that this will be realised. In addition
there is a pipeline of identified upside opportunities that are yet
to be reliably quantified. As a result, the Investment Manager
expects the NAV accretive opportunities to continue to develop over
the next few years.
1) RED-Rochester
One of the largest commercial district energy systems in North
America
Investment Overview
RED-Rochester is the exclusive provider of select utility
services to customers within the Eastman Business Park ("EBP"), for
which it has contractual and regulated utility-status franchise
rights.
The asset provides 16 on-site services to customers that reduce
customer energy demand compared with local utility and third-party
service providers. These services include electricity, steam,
chilled water, industrial wastewater treatment, compressed air,
nitrogen, water treatment, industrial water and high-purity water
distribution.
RED-Rochester provides SEEIT with a platform to grow the
delivery of on-site energy efficient services to the local region,
including the expansion of operations beyond the EBP to greater
Rochester and the Northeast of the USA.
Investment Highlights
Investment type Direct equity (100%)
------------------------------------------------------
Acquisition date May 2021
------------------------------------------------------
Asset location Rochester, NY
------------------------------------------------------
No. of projects 1
------------------------------------------------------
Project equity value c.$314 million (c. GBP 254 million) (c.22%)
and as a percentage
of SEEIT's GAV
------------------------------------------------------
Project level debt c.$75 million
------------------------------------------------------
Capacity 117MW
------------------------------------------------------
Technology 16 on-site services, primarily process/heating
steam, electricity, and process/conditioning cooling
------------------------------------------------------
Forecast project c. 40 years
life remaining
------------------------------------------------------
Lifecycle stage Operational [11]
------------------------------------------------------
Counterparties / Over 115, including Eastman Kodak, Li-Cycle, Amazon,
offtakers among others
------------------------------------------------------
O&M RED-Rochester staff
------------------------------------------------------
Fuel supply Natural gas supplied from Rochester Gas & Energy
Corporation
------------------------------------------------------
RED-Rochester Revenues and Cost Model
The project is underpinned by predominantly long-term contracted
cashflows with positive inflation correlation. RED-Rochester has
contracts with over 115 commercial and industrial customers on
fixed terms under an approved tariff structure as follows:
-- Customers typically sign a 20-year contract with no break
clauses. Contract extensions are assumed in the March 2023
Portfolio Valuation(APM) . Revenues are split:
o Fixed charge : c.40% of revenues are generated from fixed fees
paid, unrelated to demand or services procured.
o Capacity based charge : c.50% of revenues are from a
pre-determined tariff, based on the cost of delivery of the service
and the customer's demand.
o Overhead: c.10% of revenues are from a fixed mark-up for each
customer on the total utility bill.
Future cashflows are also assumed from growth opportunities,
including the accretive capital enhancements such as the CHP plant
described below that is expected to increase revenues in the
future.
Investment Risks and Mitigants
Risk type Description Mitigation
Operational Construction delays of capex The Investment Manager ensures
projects, including the that, where appropriate,
CHP plant project contracts include
liquidated damages for delays
should they overrun schedule.
The schedules also assume
a buffer for delays.
----------------------------- ----------------------------------
Credit Default of counterparties By providing services to
over 100 customers across
the park, the credit risk
is diversified. The Manager
works with other stakeholders
to ensure the creditworthiness
of new customers does not
degrade the overall credit
profile. In addition, the
fixed charge component of
the tariff is joint and several
between customers, thus limiting
the impact of any potential
default.
----------------------------- ----------------------------------
Operational Demand risk resulting in Demand from the customers
the lower-than-expected at RED-Rochester is relatively
variable tariff revenues stable. The majority of the
customers were deemed as
"critical industry" during
the Covid-19 pandemic period,
with demand remaining in
line with expectations. The
diversification across 100
customers helps mitigate
against individual customer
demand volatility.
----------------------------- ----------------------------------
Value Accretion Potential
There are two potential sources of value accretion at
RED-Rochester:
-- Increasing Fixed Revenues: EBP is currently underutilised and
has capacity to service more customers. As new tenants join EBP,
RED-Rochester can benefit from increased profits from the
additional fixed fee that each new customer will pay.
-- Improving Efficiency: the variable charge is based on a
baseline efficiency of the cost of delivering services. If
RED-Rochester is able to improve the efficiency of its operations
and reduce this cost, it is able to capture the financial benefit
of this reduced cost.
There are several examples of upside opportunities at
RED-Rochester that have not been reflected in its current
valuation, but could provide additional value over the short to
medium term, including:
-- Increasing Fixed Revenues:
-- Converting 5% higher new customers to the EBP above
forecasted in the Portfolio Valuation(APM) .
o Estimated potential value uplift: GBP10 million - GBP20
million
o Time period: 2-4 years
-- Improving Efficiency:
-- CHP plant constructed on time and on budget (the Portfolio
Valuation(APM) at 31 March 2023 applied a probability factor and
higher discount rate for the construction activity).
o Estimated potential value uplift: GBP10 million - GBP15
million
o Time period: 2-3 years
-- Investment in other energy efficiency projects that result in
cost savings (the Portfolio Valuation(APM) at 31 March 2023 applied
a probability factor and higher discount rate for the construction
activity).
o Estimated potential value uplift : GBP5 million - GBP10
million
o Time period: 1-3 years
-- Cost recovery of future fixed overheads based on management's
planned actions over the medium-term.
o Estimated potential value uplift : GBP5 million - GBP10
million
o Time period : 3-5 years
Investment Updates for the year
The Investment Manager has progressed several growth initiatives
that will support the operational and financial performance at
RED-Rochester.
In July 2022, a three-year asset management agreement was signed
with Ironclad for management oversight of the asset's
administration, finance, operations and maintenance activities, as
well as project management and execution of major accretive
projects. As part of this agreement, the Investment Manager and
Ironclad agreed on incentives aimed at growing RED-Rochester's
EBITDA through marketing efforts to attract new customers and
implement value-added projects.
The Investment Manager also completed negotiations to bring
lithium-ion battery recycler Li-Cycle to the EBP, providing a new
processing centre and warehousing multiple utility services.
Several capital projects were also approved in the year,
including:
-- a c. GBP7 million new chiller installation, for which
construction commenced in 2022 and is expected to complete in
2024.
-- a c. GBP69 million CHP plant (cogeneration turbine generator
and heat recovery steam generator), for which construction
commenced in 2023 and expected to complete in 2025.
-- a c. GBP13 million investment to support Li-Cycle's new
processing centre and warehouse, for which construction commenced
in 2022 and is expected to complete in 2024.
Finally, the Investment Manager engaged with the RED-Rochester
management team to strengthen governance and employment
opportunities, including:
-- The appointment of a new CEO to RED-Rochester to support
business development at EBP and pursue new opportunities in
district energy in the northeast USA.
-- the creation of staffing and leadership succession plans to
manage eventual staff changes and employee resource efficiency.
-- the implementation of an internship programme to bring
undergraduates and technical students to RED-Rochester and
therefore support educational programmes, promote ESG community
outreach and identify potential new hires.
-- the hiring of additional managerial and technical staffing at
the EBP wastewater treatment facility in order to improve
environmental compliance.
Year to 31 December 2022 [12]
------------------------------------
EBITDA (US$ '000's) 14,628
------------------------------
MMBTUs [13] delivered to customers 7,005,222
------------------------------
EBITDA was c.11% below budget for the year to December 2022,
primarily driven by some unplanned maintenance as well as higher
than expected chemical costs, which could not be passed through
during the period. This cost increase has been incorporated into
the current valuation.
Additionally, the MMBTUs delivered were c.4% under budget,
driven by lower heat demand due to a milder winter in Rochester.
Slight weather adjusted fluctuations in output, both up and down,
are to be expected over the long term.
2) Onyx Renewable Partners ("Onyx")
C&I Solar and Storage Platform in the USA
Investment Overview
Onyx Renewable Partners is a large and established C&I solar
and storage platform, with over 200 commercial and industrial
customers across its operational, construction and development
stage assets.
SEEIT's investment is structured as follows:
1. 100% ownership of portfolios of projects that are operational
(SMIII, Janus II, CTAZ, and Obsidian I, totalling 72MW) or in
construction/late-stage development (Obsidian II totalling
106MW).
2. 50% ownership of the Onyx development platform with
Blackstone, with SEEIT retaining the right to acquire pipeline
projects at a pre-agreed price.
Onyx provides SEEIT with a well-established platform to expand
its on-site solar and storage presence in North America. The
investments have strong energy efficiency characteristics,
increasing the supply of on-site renewable energy and helping to
reduce greenhouse gas emissions from the supply, distribution and
consumption of energy.
Investment Highlights
Investment type Direct equity (100% of operational assets, 50%
JV in development platform)
--------------------------------------------------
Acquisition date February 2021
--------------------------------------------------
Asset location Currently operational in over 13 states in the
USA
--------------------------------------------------
No. of projects 6
--------------------------------------------------
Project equity value c.$200 million (c. GBP 161 million)
and as a percentage - Onyx - SM III, Janus II, and CTAZ operational
of SEEIT's GAV portfolios (c.3%)
- Onyx - Obsidian I operational portfolio and
Obsidian II construction/late-stage development
portfolio (c.10%)
- Onyx - Development Platform (c.2%)
--------------------------------------------------
Project level debt c.$81 million
--------------------------------------------------
Capacity 72 MW operational
--------------------------------------------------
Technology Solar and storage
--------------------------------------------------
Forecast project c. 34 years
life remaining
--------------------------------------------------
Lifecycle stage Development, construction, operational
--------------------------------------------------
Counterparties / Over 80 across operational and construction sites
offtakers
--------------------------------------------------
O&M Various
--------------------------------------------------
Fuel supply N/A
--------------------------------------------------
Onyx Portfolio Revenues and Cost Model
The 100% owned portfolio consists of operational, construction
and late-stage development projects and makes up c.88% of the
investment's value. The projects in the portfolio have the
following revenue structure once they are operational:
-- Power Purchase Agreements ("PPAs"): c.95% of asset revenues
are generated from the end users. PPAs have fixed indexation and
are typically 20 years (weighted average of c.18 years).
-- SRECs: c.5% of asset revenues are generated from SRECs.
The valuation assumes that the current construction and
development stage projects within this portfolio will become
operational within a defined timeframe.
Onyx Developer Revenues and Cost Model
The Onyx development platform makes up c.12% of the total Onyx
value and has the following revenue structure:
-- Asset Management fees: c.52%, generated from AM fees charged
by Onyx for managing operational portfolios.
-- EPC Development margin: c.33%, achieved on commercial
operation date for delivery of certain assets.
-- Asset sales : c.15%, based on the net proceeds from the
future sale of assets developed in the pipeline after the 130MW of
100% SEEIT-owned projects are constructed.
Investment Risks and Mitigants
Risk type Description Mitigation
Operational Delay in the deployment The Investment Manager has been
of the short-term pipeline focused on accelerating the conversion
impacts the receipt of cashflows of Onyx's pipeline by streamlining
for the 100% owned assets the development process and hiring
as the valuation assumes key individuals.
them reaching commercial In addition, the pipeline has
operations date ("COD") increased substantially so that,
within a defined time period. should some projects experience
Conversion of development significant delays, other projects
pipeline to operational can make up the MW target.
projects is less than projected.
---------------------------------- --------------------------------------------
Operational Underperformance of operational Onyx minimises the potential of
projects underperformance by building projects
using tier 1 equipment with equipment
warranties and using local subcontractors,
with oversight, for O&M.
---------------------------------- --------------------------------------------
Operational Supply chain issues/cost As projects are being developed,
increases PPA pricing takes into account
construction and operational costs
identified at the time of signing.
Additionally, recontracting opportunities
exist to further enhance revenues
to protect margins, if required.
---------------------------------- --------------------------------------------
Value Accretion Potential
There are two potential sources of activity for value
accretion:
-- Increasing the pipeline of solar and storage projects in the
Onyx development platform. This creates value uplift as
follows:
o The Onyx development platform valuation assumes a forecast
level of MW under management over a period, with value created
through cashflows from AM, EPC and Asset Sales. Increasing the MW
in the pipeline increases the value of the platform.
-- Improving the economics of new individual solar projects will
create value for SEEIT given it has an option to acquire the
projects at pre-agreed rates of return.
There are several examples of upside opportunities at Onyx that
have not been reflected in SEEIT's valuation, but could provide
additional value over the short to medium term, including:
-- A potential 10% increase in expected annual MW deployment in
2024 and 2025 would accelerate the receipt of cashflows for the
100% owned portfolio.
o Estimated potential value uplift: GBP5 million - GBP10
million
o Time period: 3 years
-- In addition, the value of the Onyx development platform
assumed a level of MW of projects developed per year and any
increase in MW would increase the value of the platform.
o Estimated potential value uplift: GBP5 million - GBP10
million
o Time period: 3+ years
-- Improved economics with the Inflation Reduction Act: this
benefits the Onyx development platform as it improves the economics
of any assets sales.
o Estimated potential value uplift : GBP2 million - GBP5
million
o Time period: 3-5 years
Investment Updates for the year
The Investment Manager has worked closely with the Onyx team to
ensure that the investment has the right leadership and support to
develop and convert its project opportunity pipeline. Specific
actions included:
-- The integration of a new CEO, who joined in January 2022 to
oversee operations, asset management and business development.
-- The expansion of the management team to enhance governance
and leadership at Onyx, through the hiring of a Chief Commercial
Officer and Executive Vice President, Operations.
-- The reorganisation and prioritisation of business initiatives
to drive improvements in portfolio operational performance, improve
timely completion of development projects, and expand services and
product offerings.
Additionally, the new management team is putting a focus on the
business development strategy to expand beyond commercial and
industrial solar and storage development. The Investment Manager
continues to pursue new opportunities for behind-the-meter solar
and storage development from Onyx's relationship network, as well
as through the Company's portfolio through ongoing discussions at
Primary Energy, RED-Rochester and FES Lighting.
The Company was also pleased, after year end, to acquire the
remaining 50% interest in the Onyx Development Platform from
Blackstone giving it 100% ownership of the entire Onyx
Investment.
Y/E 31 December 2022 [14]
------------------------------------
New projects at COD 14MW
--------------------------
MWh produced (operational projects
only) 64,942
--------------------------
Performance ratio [15] 95%
--------------------------
Annual delivery of projects to COD increased c.75% in the year
to December 2022. However, this was under budget by c.74% due to
continued supply chain issues relating to certain major components,
partly resulting from lingering effects of Covid-19. Furthermore,
permitting and inspection delays for construction activities have
slowed the ability for projects to reach COD. In the short term,
this has been mainly a timing issue rather than losing
projects.
As a result of positive changes in the business over the past
year, management has brought a number of projects back on track and
in the first quarter of 2023 Onyx achieved a new record for project
PPAs signed since SEEIT's investment of 28MW.
Certain one-off maintenance issues with the operational projects
resulted in c.5% lower production and performance than budgeted for
the period. These issues are in the process of being resolved by
the Onyx management team and are not expected to materially affect
production going forward.
3) Primary Energy
Portfolio of on-site waste recycling cogeneration units,
servicing the largest steel blast furnace in the USA
Investment Overview
Primary Energy is a 298MW portfolio comprising three energy
recycling projects, one natural gas-fired CHP project and a 50%
interest in an industrial process efficiency project.
These projects are fully integrated into the operations of two
steel mills in the USA, one owned by Cleveland-Cliffs ("CC") and
the other by Midwest Steel, a subsidiary of United States Steel
Corporation ("USS"). The projects provide services critical to the
operations of the steel mills, including fuel handling and
emissions control equipment. Primary Energy has overall
responsibility for the O&M of the projects but uses line staff
seconded from CC and USS under contracts for site operations.
Primary Energy generates energy for the blast furnaces at the
steel mills through the recycling of waste gases, playing a crucial
role in reducing harmful emissions such as CO(2) and SO(2) , and in
certain cases, serving as the sole source for emissions control
equipment and fuel handling. Primary Energy also improves energy
efficiency by bringing energy generation closer to the point of use
and reducing heat wasted in the steel making process.
The projects qualify for RECs that, due to their efficiency and
environmental impact, are equivalent to those generated by
approximately 536MW of solar or 374MW of wind projects.
Investment Highlights
Investment type Direct Equity (100% in four projects and 50% in
one project)
----------------------------------------------------
Acquisition date December 2019 (50%), December 2020 (15%), September
2021 (35%)
----------------------------------------------------
Asset location Indiana, USA
----------------------------------------------------
No. of projects 5
----------------------------------------------------
Project equity value c.$241 million (c. GBP 195 million)
and as a percentage Consisting of:
of SEEIT's GAV - Primary - Cokenergy (c.9%)
- Primary - North Lake (c.4%)
- Primary - Portside (c.2%)
- Primary - Ironside (<1%)
- Primary - PCI Associates (c.2%)
----------------------------------------------------
Project level debt c.$180 million
----------------------------------------------------
Capacity 298MW
----------------------------------------------------
Technology On-site cogeneration, waste heat recovery process
efficiency
----------------------------------------------------
Forecast project c. 32 years
life remaining
----------------------------------------------------
Lifecycle stage Operational
----------------------------------------------------
Counterparties / Cleveland-Cliffs, US Steel ("USS")
offtakers
----------------------------------------------------
O&M Primary Energy, Cleveland-Cliffs, USA Steel
----------------------------------------------------
Fuel Supply Waste gases from CC; Natural gas supplied via
CC
----------------------------------------------------
Primary Energy Revenues and Cost Model
Approximately 83% of Primary Energy's revenues are derived from
energy services to CC's Blast Furnace ("BF") #7 at Indiana Harbor
Works, which is considered to be the largest and most competitive
furnace facility of its kind in North America. The remaining
revenues are derived from the Portside Project which services USS
BF #14. Primary Energy's revenues are split in the following way
between the five different projects:
-- Cokenergy (c.57% of revenues): the project receives waste gas
and converts to power and steam to sell to CC's BF #7 through a
long-term PPA that is index linked. The revenues are protected from
demand fluctuations through a true-up mechanism.
-- North Lake (c.19% of revenues): the project receives waste
gas steam and converts into power and steam and sells back to BF #7
through a long term PPA, which is index linked. The revenues are
protected from demand fluctuations through a true-up mechanism.
-- PCI (c.7% of revenues): the project is 50% owned with
Cleveland Cliffs, the asset pulverises coal for steel production.
Revenues are demand based.
-- Portside (c.17% of revenues): the project's revenues
generated through the sale of heat, power and softened water
through a long-term PPA. Revenues are capacity based.
-- Renewable Energy Certificates ("RECs") (c.4% of revenues):
the RECs are generated by Cokenergy and North Lake and are sold in
the open market.
Investment Risks and Mitigants
Risk type Description Mitigation
Operational Recontracting of existing Primary Energy assets play a critical
PPAs is assumed in the role in the operations of two of
forecasts and risk of the most profitable and critical
recontracting terms being blast furnaces in North America by
below forecasts providing significant cost savings
and emissions reductions. The Investment
Manager believes that alternative
energy sources would not be able
to compete on the same terms and
associated benefits.
-------------------------------- -------------------------------------------
Credit Offtaker is currently Further to the sale by Arcelor Mittal
sub-investment grade N.A. to CC in 2021, the largest offtaker
within the Primary Energy portfolio
is sub-investment grade.
The blast furnaces associated with
the Primary Energy assets are some
of the largest in the USA and are
highly profitable. Given their importance
to the North America steel market,
the likelihood of not finding a buyer,
in the event of a credit default
by CC, is considered low.
-------------------------------- -------------------------------------------
Climate Development of new technologies The Investment Manager is working
may displace or make with CC to assess options for employing
obsolete existing pulverised best available technologies and will
coal injection ("PCI") deploy, and/or replace, them into
technology, leading to existing assets if necessary.
reduction in revenues
-------------------------------- -------------------------------------------
Value Accretion Potential
Examples of upside opportunities at Primary Energy that have not
been reflected in SEEIT's valuation, but could provide additional
value over the short to medium term, include:
-- Additional revenue streams and contracts from existing assets
e.g. capacity contracts.
o Estimated potential value uplift: GBP5 million - GBP10
million
o Time period: 2-5 years
-- Additional energy efficiency capex to improve operations that
also generate attractive returns.
o Estimated potential value uplift: GBP2 million - GBP5
million
o Time period: 2-3 years
-- BF #4 restarted by Cleveland-Cliffs resulting in Ironside
returning to operations but at reduced output
o Estimated potential value uplift: GBP20 million - GBP40
million
o Time period: Uncertain
Investment Updates in the Year
The focus at Primary Energy has been on maximising operational
performance at the Primary Energy sites. In March 2022, Primary
Energy customer CC announced the idling of its BF #4 steel
manufacturing facility, resulting in operational idling of Primary
Energy's Ironside project. This was provided for as at March 2022.
The Investment Manager has supported Primary Energy leadership in
their development of an interim operating agreement proposal,
signed in Q1 2023, for the continuation of select operations at
Ironside that save CC costs. This extended the existing contract
from a day-to-day basis, creating the potential for incremental
revenues in the future.
The Investment Manager is collaborating with Primary Energy and
CC on operations at PCI, which provides pulverised elemental coal,
essential for steelmaking in CC's largest North American blast
furnace. The Investment Manager has identified options to extend
the asset life as well as end-of-life technology alternatives.
Additionally, the Investment Manager is supporting the
negotiations between Primary Energy and CC in renewing the existing
ten-year operations agreement and therefore continue supplying CC
with essential energy and environmental services.
The Investment Manager also initiated reviews with brokers and
underwriters to take credit for existing Primary Energy initiatives
and outage planning to lower the overall cost of insurance,
resulting in premium rate decreases in 2022.
Y/E 31 December 2022
[16]
------------------------------
EBITDA (US$ '000's) 36,450
---------------------
Average Net Production (MWs) 163.4
---------------------
The 2022 EBITDA was c.16% below budget, primarily due to idling
of BF #4 and resultant operational idling of the Ironside project
facility. The valuation of Ironside assumes that BF #4 will remain
idled indefinitely and does not consider the possibility of it
being re-started.
Additionally, operations and maintenance costs at Cokenergy and
Portside projects came in higher than budgeted during the year,
which has also been reflected in future cashflows, adversely
affecting the valuation of these projects. The Investment Manager
is working with stakeholders through ongoing contractual
negotiations with the objective of recovering these costs in future
periods.
Unplanned outages at CC facilities, Primary Energy's source of
waste heat, affected production at North Lake and Cokenergy which
contributed to Average Net Production being c.8% below budget for
the year to December 2022. Some of the revenues related to this
lost production will be recovered via a contractual true-up in the
next calendar year.
4) Oliva Spanish Cogeneration ("Oliva")
Portfolio of on-site waste recycling, on-site generation and
process efficiency supporting the olive oil industry in Spain
Investment Overview
Oliva Spanish Cogeneration, located in southern Spain, comprises
nine operating projects, of which five are efficient, natural gas
cogeneration (CHP) plants with a combined capacity of 100MW, two
are olive waste biomass plants with a combined capacity of 25MW,
and two are olive pomace processing plants.
Oliva Spanish Cogeneration brings geographical diversification
to SEEIT, through a series of efficient cogeneration plants that
deliver on-site energy generation.
The investment has good yield metrics and inflation correlation,
as well as robust energy efficiency credentials as the assets bring
heat generation closer to the point of use. As a result, they
generate process efficiencies compared with alternative heat
sources. In addition, the assets process waste pomace to produce
Orujo oil and electricity, an efficient energy solution that
reduces greenhouse gas emissions.
Investment Highlights
Investment type Direct equity (100% owned, apart from Celvi which
is 90% owned with 10% owned by the offtaker)
--------------------------------------------------
Acquisition date November 2019
--------------------------------------------------
Asset location Andalucía, Spain
--------------------------------------------------
No. of projects 9
--------------------------------------------------
Project equity value c. EUR 129 million (c. GBP 114 million)
and as a percentage Consisting of:
of SEEIT's GAV - Oliva - Celinares (c.2% of GAV)
- Oliva - Colinares (c.1%)
- Oliva - Cepuente (c.2%)
- Oliva - Cepalo (c.1%)
- Oliva - Sedebisa (c.2%)
- Oliva - Bipuge (c.1%)
- Oliva - La Roda (c.1%)
- Oliva - Celvi (c.1%)
- Oliva - Biolinares (c.1%)
--------------------------------------------------
Project level debt Nil
--------------------------------------------------
Capacity 125MW
--------------------------------------------------
Technology On-site cogeneration, biomass, oil extraction
--------------------------------------------------
Forecast project Various, up to c.18 years
life remaining
--------------------------------------------------
Lifecycle stage Operational
--------------------------------------------------
Counterparties / Olive co-operatives, San Miguel Arcángel,
offtakers Acesur, Spanish government
--------------------------------------------------
O&M Sacyr
--------------------------------------------------
Fuel supply Natural gas, biomass, waste olive cake
--------------------------------------------------
Oliva Revenues and Cost Model
Oliva's revenues are split in the following way:
-- RoRi: c.44% (on average) of revenues. The RoRi is a
regulatory payment from the government paid to CHP and biomass
assets and adjusted to account for changes in revenues received by
the assets (namely sale of electricity) and operating costs (namely
natural gas and EUA emission certificates for the cogeneration).
This results in stabilised cashflows and EBITDA over the long term.
The assets receive the RoRi for the remainder of their asset
life.
-- Electricity sales: c.42% (on average) of revenue comes from
electricity sales produced by the biomass and CHP plants, which is
predominantly sold to the grid, as the heat is used on site. While
the revenues are linked to market pricing, this is effectively
hedged through the RoRi.
-- Oil Sales : c.14% (on average) of revenues come from the
product of the pomace processing, namely the production of Orujo
oil, which Oliva sells through short-term contracts in the market.
The price of the oil links to the cost of the biomass, providing
some hedging against this fuel supply cost.
Investment Risks and Mitigants
Risk type Description Mitigation
Regulatory Increase of EU ETS The cost of EU ETS certificates has
costs been rising sharply, but the costs are
reimbursed over the medium term through
the RoRi mechanism.
---------------------------------- -----------------------------------------------------
Regulatory Update of RoRi mechanism: The Investment Manager, alongside Oliva's
timing delays by the management team, have made efforts to
Spanish government lobby the government (directly and through
have created a short-term trade bodies) to try to accelerate decision-making.
cash impact on the In addition, the assets have been optimised
business as well as to sequence operational availability
general uncertainty during peak periods of profitability,
in the market. resulting in periods where the assets
are not operating.
---------------------------------- -----------------------------------------------------
Climate Extreme weather conditions The Investment Manager monitors the
(particularly drought) impacts of extreme weather events such
are impacting the as drought on olive production, and
olive harvest in Andalucía. works with Oliva's olive feedstock providers
This would not only to manage and mitigate any potential
impact the biomass physical climate-related risks and pursue
assets within Oliva various mitigation tactics. These include
but also the operations diversifying feedstock suppliers, using
of the offtakers alternative waste feedstock, forward
purchasing of feedstock, and collaborating
with local government and olive producers
in the region to minimise water usage.
---------------------------------- -----------------------------------------------------
Value Accretion Potential
The Investment Manager has been investigating several upside
opportunities at Oliva that have not been reflected in SEEIT's
valuation, but could provide additional value over the short,
medium and long term, including:
-- Optimising use of owned land to generate additional revenues e.g. for solar production.
o Estimated potential value uplift : GBP1 million - GBP3
million
o Time period: 3-4 years
-- Extension/Improvement of an existing contract.
o Estimated potential value uplift : GBP5 million - GBP10
million
o Time period: 0-1 year
Investment Updates in the Year
Y/E 31 December 2022 [17]
-----------------------------
Adjusted EBITDA (EUR'000's) (8,010)
--------------------------
MWh produced [18] 827,966
--------------------------
Global energy markets were dominated in 2022 by
unpredictability, which significantly impacted the Spanish energy
regime. As a result of Russia's invasion of Ukraine, European gas
and electricity markets were highly volatile and operated at
elevated price levels throughout 2022.
Normal market dynamics are managed in the Oliva projects through
adjustment of the RoRi payment over the medium to long-term. The
short-term impact of higher gas costs is normally managed through
the execution of the established Oliva hedging strategy. However,
price volatility was so extreme in 2022 that hedging alone was
insufficient to control rising input costs. In its efforts to
control escalating consumer electricity prices, the Spanish
government introduced energy price controls that capped electricity
prices (a revenue to Oliva) but did not cap gas prices (an expense
to Oliva), resulting in an abnormal and material disconnect between
the two. In turn, this severely impacted the ability to hedge and,
combined with Government induced delay and uncertainty around the
RoRi updating, resulted in cashflows at five of the nine Oliva
projects being negatively impacted.
In order to prioritise cashflow management and minimise losses
whilst waiting for the RoRi updates, the Investment Manager paused
operations during certain periods where losses were highest. As a
result, energy generation (Mwh produced) and EBITDA were well below
budget for 2022 of c. EUR29m and c.1.2m MWh, respectively.
The Investment Manager led lobbying efforts to the Spanish
government to issue RoRi updates and favourable energy market
controls and policies.
A positive update for the RoRi was announced at the end of 2022,
allowing operations to return in line with expectations in 2023
.
In addition to the above, the Investment Manager has proactively
collaborated with the management team at Oliva to ensure full
compliance with wastewater treatment requirements and lower
incident rates for equipment incidents and employee injuries.
5) UU Solar
Portfolio of 70 operational on-site renewable projects across
the UK
Investment Overview
UU Solar's portfolio provides renewable energy generated on-site
directly to the end user, United Utilities Water Limited ("UUW").
UUW is the regulated water and wastewater business of United
Utilities Group PLC, the largest listed water and wastewater
company in the UK.
The portfolio is 90% solar PV, 9% wind and 1% hydro in terms of
total generation. The assets are all connected to UUW on-site water
and wastewater utility infrastructure via private wire, and provide
green electricity under long-term, fixed-price PPAs with UUW. UU
Solar provides SEEIT with a yielding, fully operational project
with an investment grade counterparty, underpinned by predominantly
long-term contracted cashflows.
The project increases the supply of renewable energy generated
on site and helps to reduce greenhouse gas emissions arising from
the supply, distribution and consumption of energy. In particular,
these assets supply clean energy to critical water infrastructure
sites.
Investment Highlights
Investment type Direct equity (100%)
---------------------------------------------------
Acquisition date September 2022
---------------------------------------------------
Asset location North West England, UK
---------------------------------------------------
No. of projects 1 (across several locations)
---------------------------------------------------
Project equity value c. GBP 96 million (c.9%)
and as a percentage
of SEEIT's GAV
---------------------------------------------------
Project level debt Nil
---------------------------------------------------
Capacity 69MWdc
---------------------------------------------------
Technology Predominantly solar, with some wind and hydropower
- all onsite
---------------------------------------------------
Forecast project c. 29 years
life remaining
---------------------------------------------------
Lifecycle stage Operational
---------------------------------------------------
Counterparties / United Utilities
offtakers
---------------------------------------------------
O&M PSH
---------------------------------------------------
Fuel supply Not applicable - solar, wind and hydro energy
---------------------------------------------------
Investment Risks and Mitigants
Risk type Description Mitigation
Operational Underperformance of assets Projects are built using tier
resulting in lower generation 1 equipment; some applicable
and therefore, revenues. warranties remain. O&M is
carried out by an experienced
contractor, PSH, with oversight
by an asset manager, Green
Nation.
------------------------------- ---------------------------------
UU Solar Revenues and Cost Model
The majority of UU Solar's project revenues are generated from
long-term contracts, and can be broken down into:
-- PPAs: 77% of revenues are through PPAs with UU for a fixed
price on a take-or-pay basis, with a fixed escalation of 2%.
Weighted average life of the PPAs is 25 years.
-- Feed-in tariff with RPI-linked payment: c.14% of revenues are
on an NPV basis. Weighted average life is 17.5 years.
-- Merchant revenues: 9% for electricity not consumed on site.
Value Accretion Potential
An example of an upside opportunity at UU Solar that has not
been reflected in SEEIT's valuation, but could provide additional
value over the short to medium term is:
-- Expanding the use of existing sites for additional revenues e.g. batteries.
o Estimated potential value uplift : GBP2 million - GBP5
million
o Time period: 1-3 years
Investment Updates in the year
Following a competitive tender process t he Investment Manager
appointed a third-party asset manager to manage and optimise
performance of the portfolio. The Investment Manager has also
negotiated with the existing third-party operations and maintenance
contractor to revise and execute a four-year contract with enhanced
availability and performance guarantees.
The Investment Manager anticipates improved performance after
negotiation of a long-term O&M agreement that includes
performance guarantees, implementation of a more rigorous
preventive maintenance programme and heightened focus on
performance metrics to identify and eliminate operational
deficiencies.
Given SEEIT's ownership of UU Solar commenced only in the last
half of FY 2023, there are no Project KPIs to report in this period
but they will be reported in FY 2024.
6) V ä rtan Gas
Green gas distribution and supply for the city of Stockholm
Investment Overview
Värtan Gas owns and operates the regulated gas grid in
Stockholm, Sweden, c.78% of the gas is locally produced renewable
biogas, sourced primarily from the city's wastewater facilities.
The investment was fully operational from the point of acquisition,
with strong long-term yield metrics and inflation correlation.
Värtan Gas provides essential infrastructure services, reducing
pollution and greenhouse gas emissions by reusing waste gases both
at the point of production, (for example, at municipal wastewater
treatment plants) and, at the point of use, through the
displacement of natural gas in buildings and diesel in transport.
These characteristics are aligned to Swedish national and EU
regional strategies to attain carbon neutrality by 2040.
This investment brings geographical diversification to SEEIT,
together with a substantial customer base and opportunity to unlock
further growth in volumes - including through the transport
segment.
Investment Highlights
Investment type Direct equity
--------------------------------------------------
Acquisition date October 2020
--------------------------------------------------
Asset location Stockholm, Sweden
--------------------------------------------------
No. of projects 1
--------------------------------------------------
Project equity value c.SEK 831 million (c. GBP 65 million) (c.6%)
and as a percentage
of SEEIT's GAV
--------------------------------------------------
Project level debt c.SEK782 million
--------------------------------------------------
Capacity Distributing approximately 250GWh/year of gas
--------------------------------------------------
Technology Green gas distribution
--------------------------------------------------
Forecast project c. 22 years and terminal value
life remaining
--------------------------------------------------
Lifecycle stage Operational
--------------------------------------------------
Counterparties / Various, including c.50,000 residential customers
offtakers and c.800 commercial and industrial customers
--------------------------------------------------
O&M Värtan Gas
--------------------------------------------------
Fuel supply Gasum, Scandinavian Biogas, Others
--------------------------------------------------
Värtan Gas Revenues and Cost Model
The investment's revenues consist of:
-- Fixed Tariff (c.51% of revenues): annual fixed fee to the
regulated grid from end users, which is not related to consumption.
Contracts are typically rolling yearly contracts with residential
customers (c.50,000).
-- Variable fee (c.49% of revenues): tariff paid for the supply
of gas. Tariffs are reviewed annually (or more frequently if
required) and are based on gas costs and a margin. This also
includes transport and restaurants as customers.
Investment Risks and Mitigants
Risk type Description Mitigation
Operational Churn rate (reduction) The Investment Manager is engaging
of customers higher with the Värtan Gas management
than expected resulting team to deliver more targeted marketing
in lower customers to gain new customers and retain existing
and revenues ones.
Electrification typically requires
building refits.
-------------------------- ---------------------------------------------
Operational Transport and restaurant Electrification of Stockholm buses
revenues lower than has occurred faster than expected
targeted resulting and therefore the Värtan Gas
in lower revenues management team is focusing on expanding
into new transport segments such as
ferries/marine transport.
-------------------------- ---------------------------------------------
Regulatory Periodic regulatory Regulatory updates may be appealed,
updates causing revenues such as the current appeal for the
to be less than expected most recent update. Business plans
may be adjusted for future years where
it impacts revenues.
-------------------------- -----------------------------------------------
Commodity Volatility in biogas The Investment Manager has implemented
costs resulting in a hedging strategy to ensure majority
higher gas procurement of short-term volatility of biogas
costs costs can be mitigated. In addition,
the Investment Manager and local management
team implement price changes for the
end customers to reflect actual gas
costs.
-------------------------- ---------------------------------------------
Value Accretion Potential
There are several examples of upside opportunities at Värtan Gas
that have not been reflected in SEEIT's valuation, but could
provide additional value over the short to medium term,
including:
-- Improved customer retentions (5% above forecast for 3 years)
as a result of initiatives implemented by management.
o Estimated potential value uplift : GBP3 million - GBP5
million
o Time period: 2-3 years
-- Development of new business/customer offerings in order to
grow consumption volume and new lines of business, e.g. green
energy as a service.
o Estimated potential value uplift : GBP10 million - GBP15
million
o Time period: 3-5 years
-- Successful appeal of latest regulatory period updates.
o Estimated potential value uplift : GBP5 million - GBP10
million
o Time period: 1-2 years
Investment Updates in the Year
Customer retention remains a priority, with a new retention
strategy developed and implemented in 2023. Reduced future
transport loads are projected and an assumption around additional
costs for relining sections of the distribution piping network in
future periods have impacted the valuation as at 31 March 2023,
although this has been partly offset by higher restaurant
volumes.
A key focus for Värtan Gas is to increase the share of biogas as
a proportion of total gas sold from the current average of 78% to
100% in the medium to long term.During the second half of the year,
the Investment Manager completed an organisational restructuring to
position Värtan Gas for future growth, with the appointment of a
new CEO who started in January 2023. The Investment Manager
consolidated operations and management of business segments
Gasnãtet and Stockholm Gas to improve efficiency and revised the
board structure to eliminate non-executive board membership and
provide unified oversight of the restructured business.
Towards the end of 2022, the Swedish regulator, the Energy
markets Inspectorates ("Ei") updated their assumptions on
calculating the revenue cap for the period 2023-2026. The
regulatory cost of capital, the WACC, has come down significantly,
from 8.65% to 6.87%. In addition, there has been a change to the
calculation of the Regulated Asset Base ("RAB"), which has resulted
in a devaluation of the RAB (and therefore, the allowed revenue).
The reduction in WACC and RAB does not impact the short-medium term
revenues as these revenues are still below the regulatory cap. The
impact is seen in future years for WACC and the change in RAB
primarily impacts the terminal value assumed for Värtan as it has
been calculated as a multiple of RAB.
Ei's decision is being appealed by Värtan and other gas network
operators in the market and we expect a decision in Q3/Q4 2023.
Given the nature of the changes and the precedents in other
countries, we anticipate a positive outcome. We have however taken
a cautious approach to the valuation in this period and not assumed
the appeal will be successful.
Y/E 31 December 2022
[19]
----------------
EBITDA (SEK'm) 40.2
---------------------
% of Green Gas 78%
---------------------
The 2022 EBITDA was c.6% below budget as a result of additional
gas costs due to the timing of implementing tariff price increases
in reaction to increasing gas costs, mitigated by putting gas cost
hedging in place.
The Investment Manager has worked closely with the Värtan Gas
management team to secure stable gas supplies through the reporting
period's energy market volatility. The Company increased its
hedging through the purchasing of biogas and natural gas, and by
reviewing retail pricing to bring customers cost certainty for
Värtan Gas products.
Additional Portfolio Project Updates
EVN
SEEIT's dedicated Electric Vehicle ("EV") charging
infrastructure platform has progressed well through the year. The
first six sites (totalling 26 ultra-speed chargers) are operational
and have been handed over to the Charge Point Operator, with
another 15 in construction as at 31 March 2023. This includes a
project in the West Midlands, where EVN has signed a 30-year
exclusive contract with NEC Group to develop and build the EV
charging infrastructure at the NEC campus. Once completed, the NEC
campus will be a first-of-its-kind charging hub for EVs at this
scale, with over 180 charging points, becoming the largest fast
charging hub in the UK and one of the largest in Europe.
The assets owned by SEEIT are acquired at attractive pre-agreed
returns and there is an opportunity for SEEIT to benefit from yield
compression once the assets are fully operational. This upside has
not been considered in the current valuation but is currently
estimated at GBP10 million to GBP15 million.
FES
Due to the lingering effects of post-Covid-19 economics within
FES's target market, as well as FES business development staffing
turnover, revenue and EBITDA dropped well below projected levels
during the second half of 2022. The Investment Manager is engaging
with the business to manage cash constraints and the unanticipated
difficulties with project deployment and employee hiring. In
addition, rising interest rates and the consequent cost of capital
led to additional follow-on investment in FES and a debt
restructuring, which is ongoing.
The issues above have impacted FES's ability to be profitable in
the short term and the Investment Manager is carrying out a review
of FES' business development strategy, shifting focus to target
larger commercial businesses, channel partner business development
and MUSH (municipal, university, schools, and hospitals) entities,
all of which have longer sales cycles but potentially higher
revenue profitability.
The valuation has taken a provision against FES of c. GBP13
million as a result of the issues experienced during the period.
There may be an upside opportunity to recover the provision if
there is a successful implementation of actions coming out of the
review.
Tallaght Hospital
Construction of the energy efficiency retrofit at Tallaght
Hospital in Dublin, Ireland was completed on budget and on
schedule, with operational handover achieved in early January
2023.
Lycra
Construction of the energy efficient chiller system at Lycra's
Singapore facility was completed one month ahead of contracted
schedule and on budget, with full operation commencing on 1
February 2023.
Huntsman Energy Centre
The Huntsman project progressed through the year and started the
commissioning process. However, the failure of a steam system
compressor resulted in an approximately six-month delay at the
beginning of the calendar year, as detailed testing and a root
cause analysis were completed before manufacturing replacement
components. The rectification programme for this setback has
progressed well, with the plant becoming operational in June
2023.
Moy Park Biomass
The underlying performance of the site's biomass boilers has
been strong throughout the year. The minority shareholder, which is
also the feedstock provider, has submitted two force majeure claims
towards the end of the financial year, both in relation to the
provision of their obligations under the feedstock contract. The
Investment Manager is in ongoing discussions to resolve this matter
and ensure service of supply to the end customer is maintained.
GET Solutions
A period of record high fuel costs created problems for the
contractor associated with SEEIT's GET Solutions project, in
covering contract gas procurement costs. This has resulted in SEEIT
covering these costs, which has negatively impacted the asset's
financial performance. The Manager is seeking to recover these
costs from the contractor, while also exploring opportunities to
hedge the gas procurement position to preserve performance on top
of the existing contractual protections.
Portfolio Diversification
Overview
During the year, the Company achieved further scale and
diversification for SEEIT by geography, technology, industry and
counterparty.
Geographically, SEEIT added to its US portfolio and gained
exposure to a new country, Japan, through its investment in
Baseload Capital's debt facility. SEEIT also expanded its portfolio
in the UK through the acquisition of UU Solar, the 69MW portfolio
of on-site renewable generation projects.
By technology, SEEIT added exposure to new markets by funding
geothermal district energy, liquid cooling for data centres and
energy-efficient motors free of rare-earth minerals. COMPANY KEY
PERFORMANCE INDICATORS
In the section below, the Company sets out its financial and
operational key performance indicators (KPIs) used to track the
performance of the Company over time against its objectives. . The
Board believes that the KPIs detailed below provide shareholders
with sufficient information to assess how effectively the Company
is meeting its objectives.
Financial KPIs
KPI Definition 31 March 2023 31 March 2022 Commentary
Net Asset Value ("NAV") per NAV divided by number of 101.5p 108.4p NAV has decreased compared
share (pence) shares outstanding as at with the prior year due to
31 March global increases in
risk-free rates
pushing discount rates up
materially from March 2022
-see Financial Review and
Valuation Update.
--------------------------- -------------- -------------- ---------------------------
Share price (pence) Closing share price as at 84.0p 117.5p The share price has
31 March decreased predominantly
due to market volatility.
Since 31 March 2023,
the Company launched a
buyback programme (see
Note 12)
--------------------------- -------------- -------------- ---------------------------
Dividends per share (pence) Aggregate dividends 6.0p 5.62p The dividend increased
declared per share in year on year due to
respect of the financial predictability of
year near-term cash generation
from
portfolio, plus new
investments made
previously. The Company
met its stated dividend
targets
for the years ended 31
March 2022 and 31 March
2023.
--------------------------- -------------- -------------- ---------------------------
Dividend cash cover (x) Operational cashflow 1.2x 1.2x The target was for net
divided by dividends paid operational cash inflow to
to shareholders during the fully cover dividends
year paid. The Company
met its target for the
years ended 31 March 2022
and 31 March 2023.
--------------------------- -------------- -------------- ---------------------------
Total return on NAV basis NAV growth and dividends (0.9)% 11.2% The payment of interim
in the year (%) paid per share in the year dividends contributed to
NAV return in the year,
although offset by
significantly higher
discount rates, resulting
in a material decrease in
return compared to
prior year.
--------------------------- -------------- -------------- ---------------------------
Ongoing charges ratio (%) Annualised ongoing charges 1.02% 1.00% Remained consistent
(i.e. excluding investment although marginal increase
costs and other irregular year on year caused by
costs) divided increased discount rates
by the average published affecting the March 2023
undiluted NAV in the NAV. See Financial Review
period, calculated in and Valuation Update.
accordance with AIC
guidelines
--------------------------- -------------- -------------- ---------------------------
Operational KPIs
KPI Definition 31 March 2023 31 March 2022 Commentary
Weighted average contracted Weighted average number of 15.9 14.8 In line with expectations
investment life (years) years of contracted - one material contract
revenue remaining in requires recontracting in
investment contracts the year ahead
(excludes but offset by new
all recontracting investments made during
assumptions) the year.
--------------------------- -------------- -------------- ---------------------------
Largest five investments as Total value of five 54% 49 % Target is to maintain good
a % of GAV (%) largest individual portfolio diversification,
investments divided by the achieved in both financial
sum of all investments years.
held
in the portfolio plus
cash, calculated at year
end
--------------------------- -------------- -------------- ---------------------------
Directors' Responsibility Statement
The 2023 Annual Report which will be published in July 2023
contains a responsibility statement in compliance with DTR 4.1.12.
This states that on 28 June 2022, the date of the approval of the
Annual Report, the Directors confirm that to the best of their
knowledge:
-- the Company financial statements, which have been prepared in
accordance with UK-adopted international accounting standards, give
a true and fair view of the assets, liabilities, financial position
and profit of the Company; and
-- the Strategic Report: Portfolio Review includes a fair review
of the development and performance of the business and the position
of the Company, together with a description of the principal risks
and uncertainties that it faces.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2023
For the For the
year ended year ended
31 March 2023 31 March 2022
Note GBP'millions GBP'millions
===================================== ===== =============== ===============
Investment (loss)/income 5 (7.8) 88.8
Total operating income (7.8) 88.8
===================================== ===== =============== ===============
Finance income 1.2 -
===================================== ===== =============== ===============
Fund expenses 6 (12.0) (9.0)
===================================== ===== =============== ===============
(Loss)/Profit for the year before
tax (18.6) 79.8
Tax on (loss)/profit on ordinary 7 - -
activities
===================================== ===== =============== ===============
(Loss)/Profit for the year (18.6) 79.8
===================================== ===== =============== ===============
Total comprehensive (loss)/income
for the year (18.6) 79.8
===================================== ===== =============== ===============
Attributable to:
Equity holders of the Company (18.6) 79.8
===================================== ===== =============== ===============
(Loss)/Earnings Per Ordinary Share
(pence) 8 (1.8) 10.0
===================================== ===== =============== ===============
The accompanying Notes are an integral part of these financial
statements.
All items in the above Statement derive from continuing
operations.
STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2023
31 March 2023 31 March 2022
Note GBP'millions GBP'millions
==================================== ===== ============================= =======================
Non-current assets
Investment at fair value through
profit or loss 11 1,127.8 928.2
==================================== ===== ============================= =======================
1,127.8 928.2
Current assets
Trade and other receivables 0.6 0.3
Cash and cash equivalents 0.3 146.1
0.9 146.4
Current liabilities
Trade and other payables (3.3) (1.5)
==================================== ===== ============================= =======================
Net current (liabilities)/assets (2.4) 144.9
Net assets 1,125.4 1,073.1
==================================== ===== ============================= =======================
Capital and reserves
Share capital 12 11.1 9.9
Share premium 12 1,056.8 925.1
Other distributable reserves 12 39.3 39.3
Retained earnings 18.2 98.8
==================================== ===== ============================= =======================
Total equity 1,125.4 1,073.1
==================================== ===== ============================= =======================
Net assets per share (pence) 10 101.5 108.4
==================================== ===== ============================= =======================
The accompanying Notes are an integral part of these financial
statements.
The financial statements were approved by the Board of Directors
on 28 June 2023 and signed on its behalf by:
Sarika Patel Tony Roper
Director Director
Company number: 11620959
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED 31 MARCH 2023
Share Other Retained
Share Premium distributable earnings Total
Capital GBP' reserves GBP' Equity
Note GBP'millions millions GBP' millions millions GBP' millions
======================== ===== ============== ============= ================= ============= ==============
Balance at 1 April
2022 9.9 925.1 39.3 98.8 1,073.1
Shares issued 12 1.2 133.8 - - 135.0
Share issue costs 12 - (2.1) - - (2.1)
Dividends paid 9 - - - (62.0) (62.0)
Loss and total
comprehensive
loss for the year - - - (18.6) (18.6)
======================== ===== ============== ============= ============= ================= ==============
Balance at 31 March 2023 11.1 1,056.8 39.3 18.2 1,125.4
=============================== ============== ============= ============= ================= ==============
Share Other
Premium distributable Retained Total
Share Capital GBP' reserves earnings Equity
Note GBP' millions millions GBP' millions GBP' millions GBP' millions
======================== ===== ============== ============== ============== ============== ==============
Balance at 1 April
2021 6.8 584.4 58.1 44.4 693.7
Shares issued 3.1 346.9 - - 350.0
Share issue costs - (6.2) - - (6.2)
Dividends paid 9 - - (18.8) (25.4) (44.2)
Profit and total
comprehensive
income for the year - - - 79.8 79.8
======================== ===== ============== ============== ============== ============== ==============
Balance at 31 March 2022 9.9 925.1 39.3 98.8 1,073.1
=============================== ============== ============== ============== ============== ==============
The accompanying Notes are an integral part of these financial
statement
STATEMENT OF CASHFLOWS
Cashflows from operating activities
Total Comprehensive (loss)/income for the year
before tax (18.6) 79.8
Adjustments for:
Loss/(gain) on investment at fair value through
profit or loss 74.3 (47.8)
Loan interest income 5 (9.0) (7.3)
Operating cashflows before movements in working
capital 46.7 24.7
Changes in working capital
(Increase) in trade and other receivables (0.3) -
Increase in trade and other payables 1.8 0.3
Net cash generated from operating activities 48.2 25.0
Cashflows from investing activities
Additional investment in Holdco 11 (292.4) (319.9)
Loan principal repayment received 11 18.5 12.0
Loan interest income received 9.0 7.3
==================================================== === =============================== ==========================
Net cash used in investing activities (264.9) (300.6)
Cashflows from financing activities
Proceeds from the issue of shares 12 135.0 350.0
Payment of share issue costs (2.1) (6.2)
Dividends paid 9 (62.0) (44.2)
==================================================== === =============================== ==========================
Net cash generated from financing activities 70.9 299.6
Net movement during the year (145.8) 24.0
Cash and cash equivalents at the beginning of the
Year 2 146.1 122.1
==================================================== === =============================== ==========================
Cash and cash equivalents at the end of the year 2 0.3 146.1
==================================================== === =============================== ==========================
FOR THE YEARED 31 MARCH 2023
For the For the
year ended year ended
31 March 31 March 2022
2023 GBP'millions
Note GBP'millions
===== ================ ===============
The accompanying Notes are an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 MARCH 2023
1. General Information
SDCL Energy Efficiency Income Trust plc (the "Company") is a
Public Company limited by shares, incorporated on 12 October 2018
and registered and domiciled in England, United Kingdom under
number 11620959 pursuant to the Companies Act 2006 and is the
ultimate controlling party of the group. The Company's registered
office and principal place of business is 6th Floor, 125 London
Wall, London, EC2Y 5AS.
The Company's ordinary shares were first admitted to the premium
segment of the UK Listing Authority's Official List and to trading
on the Main Market of the London Stock Exchange under the ticker
SEIT on 11 December 2018.
The Company's objective is to generate an attractive total
return for investors comprising stable dividend income and capital
preservation, with the opportunity for capital growth through the
acquiring and realising of a diverse portfolio of energy efficiency
infrastructure projects.
The Company currently makes its investments through its
principal holding company and single subsidiary, SEEIT Holdco, and
intermediate holding companies which are directly owned by the
Holdco. The Company controls the investment policy of each of the
Holdco and its intermediate holding companies in order to ensure
that each will act in a manner consistent with the investment
policy of the Company.
The Company has appointed Sustainable Development Capital LLP as
its Investment Manager (the "Investment Manager") pursuant to the
Investment Management Agreement dated 22 November 2018. The
Investment Manager is registered in England and Wales under number
OC330266 pursuant to the Companies Act 2006. The Investment Manager
is regulated by the FCA, number 471124.
The financial statements are presented in pounds sterling
because that is the currency of the primary economic environment in
which the Company operates. All values are rounded to the nearest
million (GBP million), except otherwise indicated. As a result, the
prior year numbers have been rounded to the nearest million to
facilitate comparability.
2. Significant Accounting Policies
a) Basis of accounting
The financial statements of the Company have been prepared in
accordance with UK-adopted International Accounting Standards and
with the requirements of the Companies Act 2006, as applicable to
companies reporting under those standards. The financial statements
are prepared under the historical cost convention, except for
certain investments and financial instruments measured at fair
value through the Statement of Comprehensive Income.
The financial information set out above does not constitute the
Company's statutory financial statements for the years ended 31
March 2023 or 2022 but is derived from those financial statements.
Statutory financial statements for 2022 have been delivered to the
registrar of companies, and those for 2023 will be delivered in due
course. The auditors have reported on those financial statements;
their reports were (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
Fair value is the price that would be received on sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an
asset or liability, the Company takes into account the
characteristics of the asset or liability if market participants
would take those characteristics into account when pricing the
asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in these financial
statements is determined on such a basis.
The principal accounting policies adopted are set out below and
consistently applied, subject to changes in accordance with any
amendments in IFRS.
(i) New standards and amendments to existing standards effective 1 April 2022
There are no standards, amendments to standards or
interpretations that are effective for annual periods beginning on
1 April 2022 that have a material effect on the financial
statements of the Company.
(ii) New standards, amendments and interpretations effective
after 1 April 2022 and have not been early adopted
A number of new standards, amendments and interpretations are
effective for annual periods beginning after 1 April 2022 and have
not been early adopted in preparing these financial statements.
None of these are expected to have a material effect on the
financial statements of the Company.
b) IFRS 10 - basis of consolidation and Investment entities exemption
The Company applies IFRS 10 Consolidated Financial Statements.
As in the previous year, the Directors have concluded that in
accordance with IFRS 10, the Company continues to meet the
definition of an investment entity having re-evaluated the criteria
(see below) that need to be met. The financial statements therefore
comprise the results of the Company only and no subsidiaries are
consolidated on a line by line basis.
The Company invests its investable cash into SEEIT Holdco when a
targeted investment has been approved by the Investment Manager's
Investment Committee. The sole objective of the Holdco is to enter
into several energy efficiency projects, via individual corporate
entities. The Holdco issues equity and loans to finance the
projects. Holdco also incurs overheads and borrowings on behalf of
the group. As a result, the Directors have provided an alternative
presentation of the Company's results in the Strategic Report which
includes a consolidation of Holdco.
Under IFRS 10 investment entities are required to hold
subsidiaries at fair value through the Statement of Comprehensive
Income rather than consolidate them. There are three key conditions
to be met by the Company for it to meet the definition of an
investment entity. For each reporting period, the Directors assess
whether the Company continues to meet these conditions:
(i) The Company has obtained funds for the purpose of providing
investors with investment management services;
(ii) The business purpose of the Company, which was communicated
directly to investors, is investing solely for risk-adjusted
returns (including having an exit strategy for investments); and
the performance of substantially all investments is measured and
evaluated on a fair value basis.
The Company is an investment company, providing investors
exposure to a diversified portfolio of energy efficiency
infrastructure projects that are managed for investment
purposes.
During the year ended 31 March 2023, the Company, via Holdco,
made significant new investments, and as a result the size of the
Company increased. These investments are described in Note 11.
These investments were made in line with the stated objective of
the Company to generate returns from capital appreciation and
investment income in accordance with the strategy that has been set
by the Directors. The Directors assessed each new investment
carefully in order to determine whether the Company as a whole
still meets the definition of an investment entity.
As part of the assessments the Directors had regard for the
nature of the underlying business and operations and the exit
strategy of each new investment and how that compared to the
already existing portfolio. The Company's exit of investments may
be at the time each investment reaches its current assumed end of
economic life. The Company is investing in a sector for which there
is an active secondary market and therefore the Company may also
exit investments at an earlier stage for profit or for portfolio
rationalisation purposes.
The assessments concluded that the new investments shared
similar characteristics to the existing investments, are in line
with the business purpose of the Company and that each has an
appropriate exit strategy. In particular, the Directors noted
that:
-- the underlying businesses and the structure of the new
investments are in keeping with the existing portfolio through the
provision of energy efficiency services to clients, or host
counterparties, predominantly through long-term contracted
agreements;
-- the underlying businesses are set up as Special Purpose
Vehicles (SPV's) and although each SPV can have an indefinite life,
the equipment associated with providing such services have finite
lives, are capable of being upgraded or sold and the contracts can
be renewed;
-- as part of the exit strategy for each new investment, the
structure of that investment is such that it could be readily made
available for sale; and
-- each new investment is measured at fair value.
Exit strategy:
The Company's general approach to exit is as follows:
-- The investments can be traded on the secondary market between
willing buyers and willing sellers, therefore the Company can sell
its interest in a project, via Holdco, before the end of its
project life if there is an attractive offer from a buyer where the
valuation is higher than the carrying of the specific asset.
-- Investments are not indefinite. Generally SEEIT would invest
in a project for the maximum time frame during which it could
achieve required capital appreciation and returns acceptable for
the Company's shareholders even though the useful life of the
underlying assets can be longer than the period the investment is
held.
After assessing whether the Company meets the definition of an
investment entity set out in IFRS 10 the Directors concluded that
as a whole:
(i) the Company has multiple investors with shares issued
publicly on London Stock Exchange and obtains funds from a diverse
group of shareholders who would otherwise not have access
individually to investing in energy efficiency projects;
(ii) the Company's purpose is to invest funds for both
investment income and capital appreciation. The Holdco and its SPVs
have indefinite lives however the underlying assets have minimal
residual value because they do not have unlimited lives, are not to
be held indefinitely and have appropriate exit strategies in place;
and
(iii) the Company measures and evaluates the performance of all
of its investments on a fair value basis which is the most relevant
for investors in the Company. The Directors use fair value
information as a primary measurement to evaluate the performance of
all of the investments and in decision making.
c) Going concern
The Directors have considered the following current matters
alongside the regular cashflow and business activities in assessing
that it is appropriate to prepare the financial statements on a
going concern basis:
Continuation Vote
The Articles of the Company provide that a continuation vote be
put to shareholders at the upcoming AGM to be held in September
2023.
The Directors recognise the importance of the continuation vote
mechanism for shareholders and believe that there is no fundamental
concern with the Company's prospects and it's ability to deliver
value for shareholders.
The resolution requires a simple majority to pass and Directors
and Investment Manager are confident the vote will be achieved.
This is based on positive feedback from recent meetings held by the
Chair or the Investment Manager with several major shareholders
alongside discussions with the Company's Broker who has indicated
their confidence the shareholders will vote in favour of
continuation. The Company also has a strong track record of
shareholder support through consistently oversubscribed capital
raises since IPO and achieving overwhelming majority (over 90%)
support for all resolutions at all its general meetings to date.
The Directors believe the Company is well positioned, with
substantial scale and a diversified portfolio able to deliver
attractive returns.
Should the resolution not pass, the Directors note that this
would not automatically result in the Company not continuing as a
going concern. The requirement from the Articles of the Company
would be for the Directors to put forward proposals within six
months of the vote. In practice, the Directors would consider that
this would be for a reconstruction, reorganisation or winding
up.
Although the shareholder vote on continuation is outside of the
control of the Company, the Directors remain confident that the
Company's continuation vote will be passed and accordingly, having
considered this carefully believe that it is appropriate to
continue to adopt the going concern basis in preparing the
financial statements.
Ukraine conflict
In light of the events in Ukraine, the Board and the Investment
Manager have been monitoring its continual development and
performed an assessment of the current exposure to Ukraine, Russia
and Belarus (the "Region") and the potential impact to the
Company's and the portfolio companies' operations. The Company is a
UK registered public company. Currently neither the Company nor the
Investment Manager conducts business and operations in the Region;
therefore the Company is not subject to any direct impact by this
event.
With regards to the Company's investments, none of the portfolio
companies have business operations or client / supplier
relationships in the Region. Through this assessment, the Board and
the Investment
Manager duly considered any restriction imposed by the relevant
sanctions, and its impact on the portfolio companies and have
concluded there are no direct material implications.
Inflation and cost of energy crisis
The global impact of the Russian invasion of Ukraine on the oil
and gas prices is a significant contributor to inflation and cost
of living rises globally at present. The Company has carried out an
assessment of the impact of the global rise in inflation on its
portfolio and have concluded that overall there is a positive
correlation to inflation and there is no adverse impact. The
Directors are satisfied that the Company has sufficient resources
to continue in operation for the foreseeable future, a period of
not less than 12 months from the date of approval of the financial
statements. The Directors have reviewed the Company's financial
projections and cashflow forecasts, including the potential impact
from this and believe, based upon those projections and forecasts
and various risk mitigation measures in place, that it is
appropriate to prepare the financial statements on a going concern
basis.
Regular cashflow and business activity
The Company, through its investment in Holdco, benefits from a
portfolio of investments that have a range of long-term contracts
with a diversified set of counterparties across multiple sectors
and jurisdictions. A key risk facing the Company is that
counterparties to the investments may not be able to make their
contractual payments. The Directors have reviewed a cashflow
forecast to June 2024, taking into consideration potential changes
in investment and trading performance and applying a 10% reduction
in income to test the resilience of cashflows in the near term. The
forecast results in positive cashflows for the foreseeable future
that meets the liabilities as they fall due.
They also reviewed a severe downside scenario where the Company
receives no income from its investment for the next 12 months but
continue with existing committed payments for running the Company.
Even under this stress scenario, the Company would have sufficient
cash reserves to continue as a going concern. As at 31 March 2023,
the Company's net assets were GBP 1,125 million, including cash
balances of GBP 0.3 million.
Further amounts of cash are held by the Company's direct and
indirect subsidiaries (including Holdco which has c.GBP62 million
at the year-end), which are sufficient to meet current obligations
as they fall due. The major cash outflows of the Company are the
payment of dividends and payments relating to the investment in new
assets, both of which are discretionary.
The Company's single subsidiary, Holdco, has a RCF that has
adequate headroom in its covenants that have been tested for
historic and forward interest cover and loan to value limits. As at
31 March 2023, the facility was undrawn. The Company is a guarantor
to the RCF but has no other guarantees or commitments.
Closing summary
The Directors have considered the upcoming continuation vote,
impact from the Ukraine conflict and the cost of living crisis, and
relevant financial projections and cashflow forecasts.
The Directors are satisfied that the Company has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of approval of the
interim financial statements., and that it is appropriate to
prepare the financial statements on a going concern basis.
d) Segmental reporting
The Chief Operating Decision Maker ("CODM") being the Board of
Directors, is of the opinion that the Company is engaged in a
single segment of business, being investment in energy efficiency
projects to generate investment returns whilst preserving capital.
The financial information used by the CODM to manage the Company
presents the business as a single segment.
e) Foreign Currency Translation
Foreign currency and presentation currency
Items included in the financial statements of the Company are
measured using the currency of the primary economic environment in
which the entity operates, the Company's functional currency. The
financial statements are presented in pounds sterling which is the
Company's functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into pounds
sterling using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income.
f) Income
Dividend income and investment income from financial assets at
fair value through profit or loss is recognised in the Statement of
Comprehensive Income within investment income when the Company's
right to receive payments is established.
Fair value gains on financial assets at fair value through
profit or loss are recognised in the Statement of Comprehensive
Income at each valuation point.
Finance income comprises interest earned on cash held on
deposit. Finance income is recognised on an accruals basis. Loan
interest income is accounted for on an accruals basis using the
effective interest method.
g) Dividends payable
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when they are paid. In the case of final dividends, this is when
they are approved by the shareholders at the AGM.
h) Fund expenses
All expenses including investment management fees, transaction
costs, non-executive directors' fees are accounted for on an
accruals basis. Share issue expenses of the Company directly
attributable to the issue and listing of shares are charged to the
share premium account.
i) Acquisition costs
Acquisition costs are expensed to the Income Statement as they
are incurred.
j) Taxation
The Company is liable to UK corporation tax on its income.
Current tax is the expected tax payable on the taxable income for
the period, using tax rates that have been enacted or substantively
enacted at the date of the Statement of Financial Position. Fair
value movements and dividends received by the Company are exempt
from UK corporation tax.
k) Cash and cash equivalents
Cash and cash equivalents include deposits held at call with
banks and other short-term deposits with original maturities of
three months or less. Cash is spread across three banks including
at the Money market fund managed by JP Morgan. It is highly liquid
investment and readily convertible to a known amount of cash. There
is no expected credit loss as the bank institutions have credit
ratings of at least BBB+ and all cash is held at call from the
banks.
l) Financial instruments
Financial assets and financial liabilities are recognised in the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets are derecognised when the contractual rights to the
cashflows from the instrument expire or the asset is transferred
and the transfer qualifies for derecognition in accordance with
IFRS 9 Financial instruments.
Investments are recognised when the Company has control of the
asset. Control is assessed considering the purpose and design of
the investments including any options to acquire the investments
where these options are substantive. The options are assessed for
factors including the exercise price and the incentives for
exercise.
The Company classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value through
profit or loss; and
-- those to be measured at amortised cost.
At initial recognition, the Company measures investments in
energy efficiency projects at its transaction price net of
transaction costs that are directly attributable to the acquisition
of the financial asset. The Company subsequently measures all
investments at fair value and changes in the fair value are
recognised as gains/(losses) on investments at fair value through
profit or loss within investment income.
Financial liabilities are derecognised when the liability is
extinguished, that is when the contractual obligation is
discharged, cancelled or expired.
m) Trade and other receivables
Trade and other receivables are non-derivative financial assets
with fixed or determinable payments that not quoted in an active
market. Those includes Prepayments, VAT Receivable and other
receivables which are intercompany balances due from subsidiary.
Receivables are initially recognised at fair value. They are
subsequently measured at amortised cost, less any expected credit
loss.
The Company has assessed IFRS 9's expected credit loss model and
does not consider that there is a material impact on these
financial statements.
n) Trade and other payables
Trade and other payables include accruals and other payables and
initially are recognised at fair value, and subsequently
re-measured at amortised cost using the effective interest
method.
o) Share Capital and share premium
The Company's ordinary shares are not redeemable and are
classified as equity. Incremental costs directly attributable to
the issue of ordinary shares and share options are recognised as a
deduction in equity and are charged from the share premium account.
The costs incurred in relation to the IPO and subsequent
fundraisings of the Company were charged from the share premium
account.
3. Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS
requires the Directors to make judgements, estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
income and expense during the year. Actual results could differ
from those estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision only affects that period or in the period and future
periods if the revision affects both current and future
periods.
Judgements
Investment entity
As disclosed in Note 2, the Directors have concluded that the
Company continues to meet the definition of an investment entity as
defined in IFRS 10. This conclusion involved a degree of judgement
and assessment as to whether the Company met the criteria outlined
in the accounting standards.
Estimates
Investment valuations
The key area where estimates may be significant to the financial
statements is the valuation of the Company's single subsidiary,
SEEIT Holdco, which in turns holds investments in a portfolio that
are held at fair value (the "Portfolio Valuation(APM) ").
IFRS 13 establishes a single source of guidance for fair value
measurements and disclosures about fair value measurements. Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The Board of Directors has appointed the Investment Manager to
produce the Portfolio Valuation(APM) at 31 March 2023, which
includes estimates of future cashflows that have the potential to
have a material effect on the measurement of fair value.
The key estimates made include:
Discount rate
The weighted average unlevered discount rate (post tax) applied
in the 31 March 2023 valuation was 7.7% (2022: 7.0%) and 8.5% on a
levered basis (2022: 8.0%). The discount rate is considered one of
the most unobservable inputs through which an increase or decrease
would have a material impact on the fair value of investment at
fair value through profit or loss. An appropriate discount rate is
applied to each underlying asset. The range of discount rates
applied and its sensitivity to movements in discount rates is shown
in note 4.
Macroeconomic assumptions
Further estimates have been made on the key macroeconomic
assumptions that are likely to have a material effect on the
measurement of fair value being inflation, corporation tax and
foreign exchange which are further described in Note 4.
Investment specific cashflow assumptions and sensitivities
The below highlights several key investment specific estimates
made for the Portfolio Valuation(APM) at 31 March 2023:
Primary Energy - An estimate has been made to determine the
future demand for generation by the offtaker in the PCI asset. If
the demand assumed is 25% less than estimated, the Portfolio
Valuation(APM) at 31 March 2023 could be reduced by between GBP10
million and GBP20 million, assuming no other mitigants are
available.
An estimate in relation to the Cokenergy asset has been included
for the cash flows that can be generated through renewal of
contract terms with the counterparty after the expiry of the
existing contract terms. Although this assumption has not changed
materially since March 2022, if the actual increase in contractual
terms assumed for the Cokenergy investment is 50% less than
estimated, the Portfolio Valuation(APM) at 31 March 2023 could be
reduced by between GBP10 million and GBP20 million, assuming no
other mitigants are available.
Onyx - The process of converting development assets into
construction and then operational stages has been adversely
affected by delays in the financial year, however an estimate has
been made for the amount of megawatts that is expected to be become
mechanically complete and earn revenues in 2024 and 2025. If only
75% of the megawatts are achieved in each of 2024 and 2025, the
Portfolio Valuation(APM) at 31 March 2023 could be reduced by
between GBP5 million and GBP10 million, assuming no other mitigants
are available.
An estimate has been made for the amount of megawatts that is
expected to be deployed from the development pipeline in 2025 to
2029 which are valued on an EV multiple per MW. This estimate and
methodology has not changed since March 2022, however if only 50%
of the development pipeline is achieved, the Portfolio
Valuation(APM) at 31 March 2023 would be reduced by between GBP20
million and GBP30 million, assuming no other mitigants are
available.
Oliva Spanish Cogeneration - There are updates under the
regulatory regime governing the nine investments that have
currently been published in draft form and awaiting finalisation.
Key estimates are made by applying the draft legislation. If the
final legislation differs materially from the draft legislation and
no other changes are introduced, then the Portfolio Valuation(APM)
at 31 March 2023 could be reduced by between GBP10 million and
GBP20 million.
RED-Rochester - Estimates have been made regarding future
capital expenditure projects at the site and the expected increase
to overall revenues, the most material being the construction of a
cogeneration plant expected to complete in 2025. If the
cogeneration plant delivers only 75% of the energy savings
currently assumed, the Portfolio Valuation(APM) at 31 March 2023
would be reduced by between GBP10 million and GBP20 million.
Estimates have been included for revenues related to providing
electricity to customers based on projected demands and an assumed
power price charged to customers. If market power pricing is 25%
lower than assumed, the Portfolio Valuation(APM) at 31 March 2023
would be reduced by between GBP5 million and GBP10 million.
In addition, estimates have been included, based on projected
growth of earnings in the RED-Rochester business, that a gain share
pay-out will be made to the external asset management team tasked
with delivering the growth within the next seven years, linked to
the investment increasing its profitability. Furthermore, the
projected growth is assumed to deliver a business capable of
continuing to serve customers at the Eastman Business Park for a
further 20 years beyond the c. 20 years lifetime previously
assumed. Should only 15 years of the targeted economic life
extension occur, the Portfolio Valuation(APM) at 31 March 2023
would be reduced by between GBP10 million and GBP20 million,
assuming no other mitigants are available.
Värtan Gas - The future cashflows includes an assumption that
the management team will target a decline in customer numbers at a
year-on-year rate that is lower than the historic average decline.
There are also a number of accretive expansion opportunities for
the Värtan Gas investment in the Stockholm region's transport
sector for which estimates have been made around the future growth
profile in relation to decarbonisation targets and electrification.
If the recent historic average rate to customers is applied for the
next five years and no growth in revenue from transport is achieved
over the next ten years, the valuation may potentially reduce by
between GBP10 million and GBP20 million, assuming no other
mitigants are available.
4. Financial Instruments
Valuation methodology
As detailed in Note 1 and Note 11, the Company has a single
investment directly wholly owned holding company (Holdco). It
recognises this investment at fair value. To derive the fair value
of Holdco, the Company determines the fair value of investment held
directly or indirectly by Holdco and adjusts for any other assets
and liabilities. See Note 11 for a reconciliation of this fair
value. The valuation methodology applied by Holdco to determine the
fair value of its investments is described below.
The Directors have satisfied themselves as to the methodology
used and the discount rates and key assumptions applied in
producing the valuations. All investments are at fair value through
profit or loss.
For non-market traded investments (being all the investments in
the current portfolio), the valuation is based on a discounted
cashflow methodology and adjusted in accordance with the IPEV
(International Private Equity and Venture Capital) valuation
guidelines where appropriate to comply with IFRS 13 and IFRS 9,
given the special nature of infrastructure investments. Where an
investment is traded in an open market, a market quote is used.
Certain investments may be held at cost if in the early part of a
construction phase, however this will still be supported by a
discounted cashflow analysis or similar method to determine fair
value. For certain investments, fair value is determined through
assuming a price that can be achieved per MW.
The Investment Manager exercises its judgement in assessing the
expected future cashflows from each investment based on the
project's expected life and the financial models produced for each
project company and adjusts the cashflows where necessary to take
into account key external macroeconomic assumptions and specific
operating assumptions. Assumptions for future cashflows may include
successful recontracting and project life extensions as well as
cashflow linked to assumptions made on growth rates and further
business development opportunities within existing projects.
The fair value for each investment is then derived from the
application of an appropriate market discount rate (on an unlevered
basis) to reflect the perceived risk to the investment's future
cashflows and the relevant year end foreign currency exchange rate
to give the present value of those cashflows. Where relevant,
project level debt balances are then netted off to arrive at the
valuation for each investment The discount rate takes into account
risks associated with the financing of an investment such as
investment risks (e.g. liquidity, currency risks, market appetite),
any risks to the investment's earnings (e.g. predictability and
covenant of the income) and a thorough assessment of counterparty
credit risk, all of which may be differentiated by the phase of the
investment.
Specific risks related to each asset that can be attributed to
the Ukraine conflict or climate-related risks are assessed and
where required, adjustments are made to expected future cashflows
or reflected in the asset specific discount rate that is
applied.
The Investment Manager uses its judgement in arriving at the
appropriate discount rate. This is based on its knowledge of the
market, taking into account intelligence gained from its bidding
activities, discussions with financial advisers in the appropriate
market, and publicly available information on relevant
transactions.
All the operational investments included in the valuation have
an underlying contract for energy services. The valuation is based
on the future expected cashflow derived from these contracts. For
the March 2023 valuation the assumed cashflows match the maturity
of the underlying contract or regulatory life of the asset except
in the case of RED-Rochester, four of the assets in Primary Energy,
the assets in Oliva, and the development assets in Onyx and EVN
where it is assumed that future contract extensions are achieved
and hence the expected cashflows are currently projected to extend
beyond the maturity date of the existing contract with the
counterparty.
For the valuation as at 31 March 2023, the Directors
commissioned a report from an independent third-party valuation
expert to provide their assessment of the appropriate discount rate
range for each investment (excluding small investments with an
aggregate value of less than 2% of the Portfolio Valuation(APM) )
in order to further benchmark the valuation prepared by the
Investment Manager.
The valuation methodology is materially unchanged from the
Company's IPO and has been applied consistently in each subsequent
valuation. Different measures are used to derive fair value, as
summarised below:
Valuation approach Investments % of Portfolio
Valuation(APM)
Discounted cashflow
("DCF") All remaining investments 95%
--------------------------- ----------------
Turntide
Iceotope
Held at cost EVN (Zood construction) 3%
--------------------------- ----------------
Onyx Development
Price per MW Pipeline 2%
--------------------------- ----------------
Total 100%
----------------
Fair value measurement by level
IFRS 13 requires disclosure of fair value measurement by level.
Fair value measurements are categorised into Level 1, 2 or 3 based
on the degree to which inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety which are described as follows:
-- Level 1 inputs are quoted prices in active markets for
identical assets or liabilities that the Company can access at the
measurement date;
-- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
-- Level 3 inputs are unobservable inputs for the asset or liability.
The following summarises the significant methods and assumptions
used in estimating the fair values of financial instruments.
Investment at fair value through Level 1 Level 2 Level 3
profit or loss GBP'millions GBP'millions GBP'millions
================================== =============== =================== ==================
31 March 2023 - - 1,127.8
31 March 2022 - - 928.2
================================== =============== =================== ==================
The Company's indirect investments have been classified as level
3 as the investments are not traded and contain unobservable
inputs. As the fair value of the Company's equity and loan
investments in the Holdco is ultimately determined by the
underlying fair values of the SPV investments or debt schedules,
the Company's sensitivity analysis of reasonably possible
alternative input assumptions is the same across all its
investments. The reconciliation of Level 3 fair value is disclosed
in Note 11.
Valuation Assumptions
31 March 2023 31 March 2022
=========== =============== ============================== =====================
Inflation UK (RPI) 7.8% declining to 3.0% 7.9% declining to
rates by 2025, 3.0% p.a. long-term 3.5% by 2024, 2.75%
p.a. long-term
=========== =============== ============================== =====================
UK (CPI) 6.6% declining to 1.5% 6.0% declining to
by 2025, 2.0% p.a. long-term 2.3% by 2024, 2.00%
p.a. long-term
=========== =============== ============================== =====================
Spain (CPI) 4.6% declining to 2.1% 5.8% declining to
by 2025, 2.0% p.a. long-term 1.7% by 2024, 2.00%
p.a. long-term
=============== ============================== =====================
Sweden (CPI) 7.0% declining to 2.2% 3.4% declining to
by 2025, 2.0% p.a. long-term 2.0% by 2024, 2.00%
p.a. long-term
=============== ============================== =====================
Singapore 5.0% declining to 2.0% 3.2% declining to
(CPI) by 2025, 2.0% p.a. long-term 2.0% by 2024, 2.00%
p.a. long-term
=============== ============================== =====================
Ireland (CPI) 5.8% declining to 2.3% 4.8% declining to
by 2025, 2.0% p.a. long-term 2.0% by 2024, 2.00%
p.a. long-term
=============== ============================== =====================
USA (CPI) 3.7% declining to 2.1% 6.3% declining to
by 2025, 2.0% p.a. long-term 2.0% by 2024, 2.00%
p.a. long-term
=========== =============== ============================== =====================
Tax rates UK 25% 19% to 2023, 25%
thereafter
=========== =============== ============================== =====================
Spain 25% 25%
=========================== ============================== =====================
Sweden 20.6% 21.4%
=========================== ============================== =====================
Singapore 17% 17%
=========================== ============================== =====================
Ireland 12.5% 17%
=========================== ============================== =====================
USA 21% Federal & 3-9% State 21% Federal & 3-9%
rates State rates
=========== =============== ============================== =====================
Foreign
exchange
rates EUR/GBP 0.88 0.84
=========== =============== ============================== =====================
SEK/GBP 0.08 0.08
=========================== ============================== =====================
SGD/GBP 0.61 0.56
=========================== ============================== =====================
USD/GBP 0.81 0.76
=========================== ============================== =====================
Discount rates
The discount rates used for valuing each investment are
described in the Valuation Methodology section above. The discount
rates used for valuing the investments in the portfolio are as
follows:
31 March 2023 31 March 2022
Weighted Average discount rate (on
unlevered basis) 7.7% 7.0%
Discount rates 4.75% to 10.25% 4.0% to 10.0%
==================================== ==================== ==================
Sensitivities
The sensitivities below show the effect on Net asset value(APM)
of assuming a different range for each key input assumption, in
each case applying a range that is considered to be a reasonable
and plausible outcome for the market in which the Company has
invested.
Discount rates
The discount rates that are applied to each project's forecast
cashflow, form in aggregate the single most important judgement and
variable for the purposes of valuing the portfolio. The sensitivity
shown in this section shows the sensitivity of changing the
underlying discount rates for each underlying project and where
such a project has debt in place, the sensitivity takes into
account the levered discount rate of the project.
Discount rate NAV/share -0.5% Net asset +0.5% change NAV/share
impact change value impact
=============== =========== ============ ================ ================= ===========
31 March 2023 5.0p GBP55.1m GBP1,125.4m (GBP50.3m) (4.5p)
=============== =========== ============ ================ ================= ===========
31 March 2022 4.5p GBP44.1m GBP1,073.1m (GBP40.6m) (4.1p)
=============== =========== ============ ================ ================= ===========
Inflation rates
The Company's exposure to inflation via its investment portfolio
is currently largely to the USA and Europe with c.59% and c.37% of
NAV respectively although the level of exposure to changes in
inflation in underlying investments in each geography varies. The
investment portfolio as at 31 March 2023 has a positive correlation
to inflation with approximately half of the current portfolio by
value having revenues that are partly or wholly inflation
linked.
The Company's portfolio includes investments that benefit from
fixed or escalating revenues that are not directly linked to
inflation. This includes the assets in Primary Energy where
periodic recontracting is assumed in the valuation. It is assumed
that the renewed revenue contracts (subject to negotiations)
entered into in future years reset the revenues at such a level
that it materially offsets increases to project level costs such as
O&M that is materially inflation-linked, effectively offsetting
the effect of inflation. Within the portfolio of Oliva Spanish
Cogeneration assets there is some natural offsetting or protection
between revenues and costs for inflation increases and decreases.
The assumption in the Värtan Gas investment is that the regular
renewals of customer contracts (typically annually) include
inflationary increases to the tariffs charged, however it is also
assumed that this would not result in the charges being above the
regulatory cap and that the full inflationary increase is not
passed on to the customer each time. In the current portfolio there
are several investments with no or negligible exposure to
inflation, notably the where investments are structured as senior
debt loan investments.
As a result of the continued high inflationary environment, the
Company has changed the sensitivity to inflation as at 31 March
2023 to 1.00% (31 March 2022: 0.5%)
NAV/share -1% (2022: +1% (2022: NAV/share
Inflation impact -0.5%) Net asset +0.5%) impact
rate change value change
=============== =========== =============== ================ =============== ===========
31 March
2023 (1.5p) (GBP16.4m) GBP1,125.4m GBP18.3m 1.7p
=============== =========== =============== ================ =============== ===========
31 March 2022 (1.1p) (GBP10.5m) GBP1,073.1m GBP11.9m 1.2p
=============== =========== =============== ================ =============== ===========
Corporation tax rates
The sensitivity is shown on the basis that corporation tax rates
remain at the sensitised level for the remainder of any period in
which cashflow is assumed for that project and that no mitigations
that may be available are applied. Key mitigants available include
portfolio structuring changes including gearing(APM) , and the
option available to the Company to use interest streaming of
dividend distributions to shareholders in the future, whereby a
portion of the dividend distribution is designated as interest,
allowing net taxable interest income to be reduced.
The sensitivity mainly shows the unmitigated impact of changes
in US, Swedish, Irish, Singaporean and Spanish tax rates. The
exposure to UK corporation tax at project level has negligible
sensitivity to the sensitised movements in UK corporation tax rates
because of UK entities within the group being able to offset
aggregate profits and losses, whilst in Spain the impact is reduced
for similar reasons.
Corporation NAV/share -5% Net asset NAV/share
tax rate impact change value +5% change impact
=============== =========== ============= ================ =============== ==============
31 March
2023 2.7p GBP29.5m GBP1,125.4m (GBP29.8m) (2.7p)
=============== =========== ============= ================ =============== ==============
31 March 2022 3.2p GBP31.7m GBP1,073.1m (GBP33.0m) (3.3p)
=============== =========== ============= ================ =============== ==============
Foreign exchange rates
The Portfolio Valuation(APM) assumes foreign exchange rates
based on the relevant foreign exchange rates against GBP at the
reporting date. A change in the foreign exchange rate by plus or
minus 10% (GBP against Euro, Swedish Krona, Singapore Dollar and US
Dollar) has the following effect on the NAV, with all other
variables held constant. The effect is shown after the effect of
current level of hedging which reduces the impact of foreign
exchange movements on the Company's NAV.
Foreign exchange NAV/share -10% NAV/share
rate impact Change Net asset value +10% change impact
================== ============ ============ ==================== ================ ===========
31 March 2023 0.8p GBP9.0m GBP1,125.4m (9.0m) (0.8p)
================== ============ ============ ==================== ================ ===========
31 March 2022 0.8p GBP8.3m GBP1,073.1m (GBP7.6m) (0.8p)
================== ============ ============ ==================== ================ ===========
5. Investment Income
Year ended Year ended
31 March 2023 31 March
GBP'millions 2022
GBP'millions
Dividend income 57.5 33.7
(Loss)/Gain on investment at fair value
through profit or loss (Note 11) (74.3) 47.8
Loan interest income 9.0 7.3
Investment (loss)/income (7.8) 88.8
========================================= =============== ==============
Loan interest income is in respect of coupon bearing loan notes
issued to the Company by Holdco (Note 15) for the year ended 31
March 2023. The loan notes accrue interest at 6%, are unsecured and
repayable in full on 18 April 2039. Loan Interest income is
recognised on the Statement of Comprehensive Income on an accruals
basis. The loss/gain on investment is unrealised.
6. Fund Expenses
Year ended Year ended
31 March 2023 31 March 2022
GBP'millions GBP'millions
============================================= ================ ================
Investment management fees (Note 15) 9.6 7.2
Non-executive directors' fees (Note 16) 0.3 0.3
Other expenses 1.3 1.0
Fees to the Company's independent auditors:
- for the audit of the statutory financial
statements 0.7 0.4
* for audit-related assurance services 0.1 0.1
Fund Expenses 12.0 9.0
============================================= ================ ================
As at 31 March 2023, the Company had no employees (31 March
2022: nil) apart from Directors in office. The Company confirms
that it has no key management personnel, apart from the Directors
disclosed in Directors' Remuneration Report of the Annual Report.
There is no other compensation apart from those disclosed. Other
expenses include professional fees, administration fees,
irrecoverable VAT and other fees in relation to the running of the
Company.
7. Tax
The tax for the year shown in the Statement of Comprehensive
Income is as follows.
Year ended Year ended
31 March 2023 31 March 2022
GBP'millions GBP'millions
(Loss)/Profit for the year before taxation (18.6) 79.8
Tax on (loss)/profit on ordinary activities
for the year multiplied by the standard
rate of corporation tax of 19% ( 31 March
2022: 19%) (3.5) 15.2
Fair value movements (not subject to
taxation) 14.1 (9.1)
Dividends received (not subject to taxation) (10.9) (6.4)
Surrendering of tax losses to unconsolidated
subsidiaries 0.3 0.3
Total tax charge - -
============================================== =============== ================
The corporation tax rate will increase from 19% to 25% with
effect from 1 April 2023. No deferred tax was recognised in the
periods.
8. (Loss)/Earnings per Ordinary Share
Year ended Year ended
31 March 2023 31 March 2022
============================================ ================ ===============
(Loss)/Profit for the year (GBP'millions) (18.6) 79.8
Weighted average number of ordinary shares
('000) 1,056,150 795,954
(Loss)/ Earnings per ordinary share
(pence) (1.8) 10.0
============================================ ================ ===============
There is no dilutive element during the financial year and
subsequent to the financial year.
9. Dividends
Year ended Year ended
31 March 2023 31 March
GBP'millions 2022
GBP'millions
============================================= =================== ==============
Amounts recognised as distributions to
equity holders during the year:
Fourth quarterly interim dividend for the
year ended 31 March 2021 of 1.375p per
share - 9.3
First quarterly interim dividend for the
year ended 31 March 2022 of 1.405p per
share - 9.5
Second quarterly interim dividend for the
year ended 31 March 2022 of 1.405p per
share - 12.7
Third quarterly interim dividend for the
year ended 31 March 2022 of 1.405p per
share - 12.7
Fourth quarterly interim dividend for the 13.9 -
year ended 31 March 2022 of 1.405p per
share
First quarterly interim dividend for the 14.9 -
year ended 31 March 2023 of 1.5p per share
Second quarterly interim dividend for the 16.6 -
year ended 31 March 2023 of 1.5p per share
Third quarterly interim dividend for the 16.6 -
year ended 31 March 2023 of 1.5p per share
Total Dividends 62.0 44.2
============================================= =================== ==============
All dividends have been paid out of distributable reserves.
Further information on distributable reserves can be found in Note
12.
In June 2023, the Company declared a fourth interim dividend for
the year ended 31 March 2023 of 1.5p per share which is expected to
result in a cash payment of approximately GBP16.5 million on 30
June 2023.
10. Net assets per share
31 March 2023 31 March 2022
Shareholders' equity (GBP'millions) 1,125.4 1,073.1
Number of ordinary shares ('000) 1,108,709 990,288
Net assets per ordinary share (pence) 101.5 108.4
======================================= ========================== ============
11. Investment at fair value through profit or loss
The Company recognises the investment in Holdco, its single
directly owned holding company, at fair value. Holdco's fair value
includes the fair value of each of the individual project companies
and holding companies in which the Holdco holds a direct or an
indirect investment, along with the working capital of Holdco.
Year ended Year ended
31 March 2023 31 March
GBP'millions 2022
GBP'millions
========================================== ================ ===============
Brought forward investment at fair value
through profit or loss 928.2 572.6
Loan investments in year - 96.8
Equity investments in year 292.4 223.0
Loan Principal repaid in year (18.5) (12.0)
Movement in fair value (74.3) 47.8
Closing investment at fair value through
profit or loss 1,127.8 928.2
========================================== ================ ===============
Movement in fair value is recognised through Investment Income
in the Statement of Comprehensive Income (see Note 5).
Of the closing investment at fair value through profit and loss
balance, GBP131 million (31 March 2022: GBP150 million ) relates to
loan investment (also see Note 5) and GBP996 million (31 March
2022: GBP778 million ) relates to equity investment.
A reconciliation between the Portfolio Valuation(APM) , being
the valuation of the Investment Portfolio held by Holdco, and the
Investment at fair value through profit or loss per the Statement
of Financial Position is provided below. The principal differences
are the balances in Holdco for cash and working capital.
31 March 2023 31 March
GBP'millions 2022
GBP'millions
========================================= ==================== =====================
Portfolio Valuation 1,099.6 912.7
Holdco cash 65.4 24.9
Holdco debt - -
Holdco net working capital (37.2) (9.4)
Investment at fair value per Statement
of Financial Position 1,127.8 928.2
========================================== ========================== ==============
Investments by the Company
During the year ended 31 March 2023, the Company invested
GBP292.4 million (31 March 2022: GBP320 million) into Holdco for
new portfolio investments and to fund acquisition costs.
Acquisition costs are expensed to the income statement at Holdco as
they are occurred.
Portfolio Investments, via Holdco
During the year ended 31 March 2023, Holdco invested GBP236
million ( 31 March 2022: GBP300 million) in new portfolio
investments. The Company announced the following investment
activity in the period:
Investment/
Project Investment/Commitment Type Location Commitment
Date Amount
-------------------------- -------------------------------- ----------------- ------------- -----------------
Baseload Various in the period New Sweden c.GBP4m
Turntide May 2022 New USA c.GBP8m
Iceotope June 2022 New UK c.GBP3m
UU Solar July 2022 New UK c.GBP100m
On.Energy August 2022 New USA c.GBP4m
Biotown Various in the period Organic USA c.GBP1m
Onyx Various in the period Organic USA c.GBP50m
Spark US Energy Efficiency Various in the period Organic USA c.GBP12m
II
Tallaght Hospital Various in the period Inorganic Ireland c.GBP4m
EV Network Various in the period Organic UK c.GBP23m
FES Lighting Various in the period Organic USA c.GBP6m
Lycra Various in the period Organic Singapore c.GBP3m
Bloc November 2022 New UK c.GBP0.2m
RED-Rochester January 2023 Organic USA c.GBP16m
-------------------------- -------------------------------- ----------------- ------------- -----------------
12. Share capital and share premium
Year ended Year ended
31 March 2023 31 March 2022
Ordinary Shares of GBP0.01 '000 '000
======================================== =============== ===============
Authorised and issued at the beginning
of the year 990,288 677,087
======================================== =============== ===============
Shares Issued - during the year 118,421 313,201
======================================== =============== ===============
Authorised and issued at the end
of year 1,108,709 990,288
======================================== =============== ===============
Share capital Share Premium
GBP'millions 'millions
=================================== ============== ==============
Total as at 1 April 2022 9.9 925.1
=================================== ============== ==============
Issue of ordinary shares 1.2 133.8
=================================== ============== ==============
Costs of issue of ordinary shares - (2.1)
=================================== ============== ==============
Total as at 31 March 2023 11.1 1,056.8
=================================== ============== ==============
In September 2022, the Company issued 118,421,053 new ordinary
shares at a price of 114p per share raising gross proceeds of
GBP135 million.
The Company currently has one class of ordinary share in issue.
All the holders of the GBP 0.01 ordinary shares, which total
1,108,709k (31 March 2022: 990,288k) and are fully paid (31 March
2022: fully paid), are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at general
meetings of the Company.
On 3 April 2023, the company announced the commencement of a
Share Buyback Programme. The Share Buyback Programme will be funded
from the Company's surplus liquidity and operating cashflows from
the portfolio and only undertaken where the Board and the
Investment Manager believe it to be in the shareholders' best
interests at the prevailing share price and accretive to NAV per
ordinary Share.
The Company has allocated up to GBP20 million of its FY2024
operational income from SEEIT Holdco to the Share Buyback Programme
and will review this allocation on an ongoing basis considering the
Company's ongoing liquidity position, the opportunity cost of
investing in its own shares versus investing in its existing
portfolio or pipeline of asset opportunities, as well as the
discount to NAV that the shares are trading at.
Other distributable reserves were created through the
cancellation of the Share Premium account on 12 March 2019. This
amount is capable of being applied in any manner in which the
Company's profits available for distribution, as determined in
accordance with the Companies Act 2006, are able to be applied.
Other distributable reserves and Retained Earnings are detailed
in the Statement of Changes in Shareholders' Equity.
13. Financial risk management
Financial risk management objectives
The objective of the Company's financial risk is to manage and
control risk exposure of the underlying investment portfolio held
by Holdco. The Board is responsible for overseeing the management
of financial risks, however the review and management of financial
risks is delegated to the Investment Manager. The Investment
Manager monitors and manages the financial risks relating to the
operations of the Company through internal procedures and policies
designed to identify, monitor and manage the financial risks to
which the Company is exposed.
These risks include market risk (including price risk, currency
risk and interest rate risk), credit risk and liquidity risk.
Price risk
The value of the investments directly and indirectly held by the
Company is affected by the discount rate applied to the expected
future cashflows and as such may vary with movements in interest
rates, inflation, power prices, market prices host demand for
energy services and competition for these assets.
Currency risk
Currency risk is the risk that the fair value or future
cashflows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The Company receives loan
interest, loan principal and dividends from its single investment,
Holdco, in sterling. However, the Company is indirectly exposed to
currency risk through its Holdco as its investments include
non-sterling investments are held in euro, US dollar, Singapore
dollar and Swedish krona.
The Company monitors its foreign exchange rate exposures using
its near-term and long-term cashflow forecasts. Its policy is to
use foreign exchange hedging to provide protection to the level of
sterling distributions that the Company aims to pay over the
medium-term, where considered appropriate. This may involve the use
of forward exchange.
Interest rate risk
Interest rate risk is the risk that the fair value or future
cashflows of a financial instrument will fluctuate because of
changes in market interest rates.
The Company, via Holdco, invests indirectly in loans in project
companies, usually with fixed interest rate coupons. Where floating
rate debt is owned, the primary risk is that the portfolio's
cashflow will be subject to variation depending on changes to base
interest rates. The portfolio's cashflows are continually monitored
and re-forecasted to analyse the cashflow returns from
investments.
The Company's policy is to ensure that interest rates are
sufficiently hedged, when entering into material medium/long-term
borrowings, to protect the Company and portfolio companies' net
interest margins from significant fluctuations in interest rates.
This may include engaging in interest rate swaps or other rate
derivative contracts at the subsidiary level under direction of the
Company.
The Company's financial assets and financial liabilities are at
a pre-determined interest rate, as a result the Company is subject
to limited exposure to risk due to fluctuations in the prevailing
levels of market interest rates.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in a financial loss to the
Company through a reduction in future expected cash receipts.
The key counterparties are the project companies in which the
Company makes indirect investments via Holdco. The projects
companies' near-term cashflows forecasts are used to monitor the
timing of cash receipts from project counterparties and are
reviewed regularly to demonstrate the projects' ability to pay
interest and dividends when they fall due.
The Company does not have any significant credit risk exposure
to any single counterparty in relation to trade and other
receivables. On-going credit evaluation is performed on the
financial condition of accounts receivable.
As at 31 March 2023, there were no receivables considered
impaired (31 March 2022: nil). At an investment level, the credit
risk relating to significant counterparties is reviewed on a
regular basis and potential adjustments to the discount rate are
considered to recognise changes to these risks where
applicable.
The Company maintains its cash and cash equivalents across
various banks to diversify credit risk. These are subject to the
Company's credit monitoring policies including the monitoring of
the credit ratings issued by recognised credit rating agencies. The
Company's cash and deposits are held with counterparties that meet
strict investment rating criteria per the Company's treasury
policy.
The Company is at risk of credit loss on its loans, receivables,
cash and deposits. Underlying investments are held by Holdco at
fair value using discounted cashflows. Receivables are primarily
intercompany and taxation. While cash and cash equivalents are
subject to the impairment requirements of IFRS 9, there was no
identified credit loss.
The Company's maximum exposure to credit risk over financial
assets is the carrying value of those assets in the Statement of
Financial Position.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Board of
Directors has established an appropriate liquidity risk management
framework for the management of the Company's short-, medium- and
long-term funding and liquidity management requirements. The
Company manages liquidity risk by maintaining adequate reserves by
monitoring forecast and actual cashflows and by matching the
maturity profiles of assets and liabilities.
Risk is spread by holding cash at three separate banking
institutions and the Company also ensures that Holdco has
sufficient banking facilities by continuously monitoring forecast
and actual cashflows and matching the maturity profiles of
financial assets and liabilities.
Unconsolidated project companies are subject to contractual
agreements that may impose temporary restrictions on their ability
to distribute cash. Such restrictions are not deemed significant in
the context of the overall liquidity.
Liquidity risk (continued)
The table below shows the maturity of the Company's
non-derivative financial assets and liabilities. The amounts
disclosed are contractual, undiscounted cashflows and may differ
from the actual cashflows received or paid in the future as a
result of early repayments. Balances due within 12 months equal
their carrying balances as the impact of discounting is not
significant.
Up to Between 3 Between 1
3 months and 12 months and 5 years Total
As at 31 March 2023 GBP'millions GBP'millions GBP'millions GBP'millions
============================= ================== =================== ================== ==================
Assets
Cash and cash equivalents 0.3 - - 0.3
Trade and other receivables 0.6 - - 0.6
Liabilities
Trade and other payables (3.3) - - (3.3)
Total (2.4) - - (2.4)
Up to Between 3 Between
3 months and 12 months 1 and 5 years Total
As at 31 March 2022 GBP'millions GBP'millions GBP'millions GBP'millions
============================= ================== =================== =================== ==================
Assets
Cash and cash equivalents 146.1 - - 146.1
Trade and other receivables - - - -
Liabilities
Trade and other payables (1.5) - - (1.5)
============================= ================== =================== =================== ====================
Total 144.6 - - 144.6
============================= ================== =================== =================== ====================
Capital management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximizing the return to
shareholders. In accordance with the Company's investment policy,
the Company's principal use of cash (including the proceeds of the
IPO) has been to fund investments via Holdco as well as ongoing
operational expenses.
The Board, with the assistance of the Investment Manager,
monitors and reviews the broad structure of the Company's capital
on an ongoing basis. The capital structure of the Company consists
entirely of equity (comprising issued capital, distributable
reserves and retained earnings).
The Company is not subject to any externally imposed capital
requirements.
14. Related undertakings
The following table shows the Company's single direct subsidiary
(SEEIT Holdco Limited). Appendix A lists the company's indirect
subsidiaries through SEEIT Holdco Limited.
Country of incorporation Shareholding at
Investment & Place of Business 31 March 2023
====================== =============================== ==================
SEEIT Holdco Limited United Kingdom 100%
15. Related parties
The Company and Sustainable Development Capital LLP (the
"Investment Manager") have entered into the Investment Management
Agreement pursuant to which the Investment Manager has been given
responsibility, subject to the overall supervision of the Board,
for active discretionary investment management of the Company's
portfolio in accordance with the Company's investment objective and
policy.
As the entity appointed to be responsible for risk management
and portfolio management, the Investment Manager is the Company's
AIFM. The Investment Manager has full discretion under the
Investment Management Agreement to make investments in accordance
with the Company's investment policy from time to time. This
discretion is, however, subject to: (i) the Board's ability to give
instructions to the Investment Manager from time to time; and (ii)
the requirement of the Board to approve certain investments where
the Investment Manager has a conflict of interest in accordance
with the terms of the Investment Management Agreement. The
Investment Manager also has responsibility for financial
administration and investor relations, advising the Company and its
group in relation to the strategic management of the portfolio,
advising the Company in relation to any significant acquisitions or
investments and monitoring the Company's funding requirements.
Under the terms of the Investment Management Agreement, the
Investment Manager will be entitled to a fee calculated at the rate
of:
-- 0.9%, per annum of the adjusted NAV in respect of the Net
Asset Value(APM) of up to, and including, GBP750 million; and
-- 0.8%, per annum of the adjusted NAV in respect of the Net
Asset Value(APM) in excess of GBP750 million.
The management fee is calculated using an adjusted NAV which is
the latest published NAV at the relevant time, less uncommitted
cash and adjusted on a daily basis for new acquisitions, new cash
committed to investments, disposals and changes in amounts of debt
drawn.
The management fee accrues monthly and is invoiced monthly in
arrears. During the year ended 31 March 2023, management fees of
GBP9.6 million (31 March 2022: GBP7.2 million) were incurred of
which GBP2.5 mi llion (31 March 2022: GBP0.7 million) was payable
at the year-end.
During the year ended 31 March 2023, GBP292.4 million (31 March
2022: GBP319.9 million) of funding was provided by the Company to
the Holdco for investment acquisitions and the repayment of the RCF
utilised by Holdco.
15. Related parties (continued)
During the year ended 31 March 2023, coupon bearing loan notes
of GBPnil (31 March 2022: GBP96.8 million) were issued which accrue
interest at 6%. During the year ended 31 March 2023, Holdco had
repaid coupon bearing loan notes of GBP18.5 million (31 March 2022:
GBP12.0 million). In the year to 31 March 2023, GBP8.9 million
interest had accrued on the loan notes (31 March 2022: GBP7.3
million) of which GBP0.2 million is outstanding at the year-end (31
March 2022: GBPnil).
All of the above transactions were undertaken on an arm's length
basis and there have been no changes in material related party
transactions since the last annual report.
16. Key management personnel transactions
The Directors of the Company, who are considered to be key
management, received fees for their services. Their fees were
GBP0.3m (disclosed as non-executive directors' fees in Note 6) in
the year (31 March 2022: GBP0.3m) which included GBP289k for
Director salaries (31 March 2022: GBP254k), GBP18k for national
insurance contributions (31 March 2022: GBP18k) and GBP10k for the
reimbursement of expenses (31 March 2022: GBP3k).
17. Guarantees and other commitments
The Company is the guarantor of the RCF between Holdco and
Investec Bank plc.
The company holds a revolving-credit facility (RCF) that it
holds through its wholly owned subsidiary, SEEIT Holdco amounting
to GBP180 million. The RCF, which is SONIA linked and has a margin
of 2.65%, expires in June 2024 with options to extend for a further
two years and includes an accordion function for a further GBP20
million increase on an uncommitted basis.
18. Events after the reporting period
The Directors have evaluated subsequent events from the date of
the financial statements through to the date the financial
statements were available to be issued.
Between April and June 2023, the Company made the following
investments, via SEEIT Holdco:
-- A further c. GBP2.3 million in RED-Rochester
-- A further c. GBP2.2 million in FES Lighting
-- A further c. GBP5.1 million in Onyx
-- A further c. GBP6.9 million in Spark US Energy Efficiency II
-- A new investment of c. GBP1.2 million into CPP Biomass
-- A new investment of c. GBP2.3 million into thermal energy storage company .
-- Acquisition of remaining 50% stake on Onyx's development
platform for an initial c. GBP4.0 million plus performance related
contingent deferred consideration in future periods
On 3 April 2023, the company announced the commencement of a
Share Buyback Programme. See note 12 for further details.
GLOSSARY OF FINANCIAL ALTERNATIVE PERFORMANCE MEASURES
("APM")
The Company uses APM's to provide shareholders and stakeholders
with information it deems relevant to understand and assess the
Company's historic performance and its ability to deliver on the
stated investment objective.
Measure Calculation Why the Company 31 March 31 March Reconciliation/cross
uses the APM 2023 2022 reference
(comparison)
Gross All assets It provides GBP1,128.7m GBP1,074.6m Statement of Financial
Asset of the Company a metric that Position shows Non-current
Value (Non-current allows for assets and Current assets)
("GAV") assets and useful analysis
current assets) of underlying
portfolio
exposures
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Net Asset Net assets It provides GBP1,125.4m GBP1,073.1m NAV is shown on the Statement
Value attributable a metric that of Financial Position
("NAV") to Ordinary allows for
Shares by useful comparison
deducting to similar
gross companies
liabilities and that allows
(GBP3.3m) from for useful
gross assets year-on-year
(GBP1,128.7m) comparisons
of the Company
---------------- -------------------- ------------ ------------- ----------------------------------------------------
NAV
(GBP1,125.4m), This provides
divided shareholders
by total with a metric
shares that allows
in issue for tracking
1,108.7m the Company's NAV per share shown on
NAV per at the balance performance the Statement of Financial
share sheet date year on year 101.5p 108.4 Position
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Interim
dividends
paid and
movement
in NAV per
share over
the course
of the
relevant
period,
divided
by opening
NAV
NAV return
in the period:
Dividends
paid:
5.9p
NAV movement:
-6.9p
This provides
NAV return shareholders
since IPO: with a metric
Dividends that allows
Total paid: for tracking Referred to in the Highlights
Return 21.6p the Company's section and Financial
on NAV NAV movement: performance Review and Valuation
basis 3.5p year on year (0.9%) 11.2% Update
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Portfolio Portfolio Basis See Financial n/a n/a Reconciliation provided
Basis includes the Review and in Financial Review and
impact if Valuation Valuation Update
Holdco for detailed
(the Company's description
only direct
subsidiary)
were to be
consolidated
on a
line-by-line
basis
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Ongoing In accordance Used as a 1.02% 1.00% Discussed in Financial
Charges with AIC metric in Review and Valuation
Ratio guidance, the investment Update
defined as company industry Reconciliation of expenses
annualised to compare used in ongoing charges
ongoing charges cost-effectiveness calculation GBP'm
on portfolio ---------------------
basis (i.e. Fund expenses
excluding (income statement) 11.8
investment ------------------------- -----------
costs and other Less Company
non-recurring expenses excluded
items) GBP11.4m from definition
divided by of ongoing charges (0.5)
the average ------------------------- -----------
published Add Holdco expenses
undiluted included in
net asset value definition of
in the year ongoing charges 0.1
GBP1,142m ------------------------- -----------
Total annualised
A ongoing expenses 11.4
--------------------- -----------
Average NAV
(includes March
22, Sept 22
B and March 23) 1,119.2
--------------------- -----------
Ongoing charges
(A/B) 1.02%
------------------------- -----------
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Portfolio The fair value It provides GBP1,100m GBP913m Reconciliation provided
Valuation of all relevant in Financial Review and
investments information Valuation Update
in aggregate of the value
that are held of the underlying
directly or investments
indirectly held indirectly
by Holdco by the Company
from which
it is ultimately
expected to
derive its
future revenues.
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Cash Cash at bank To provide GBP65.7m GBP170.9m Reconciliation provided
on Portfolio of the Company relevant in Financial Review and
Basis and Holdco information Valuation Update
to shareholders
of the Company's
ability for
new investments,
working capital
and payment
of dividends
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Investment Cash received This provides GBP85.1m GBP64.7m Referred to in Financial
cash from the shareholders Review and Valuation
inflow portfolio with a metric Update
from investments that allows
the at Holdco for tracking
portfolio during the Company's
the period performance
year on year
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Operational
cash inflow
from
investments
into Holdco
less fund Provides a
expenses metric for
in the Company the level
and Holdco, of cash generated
divided by enabling the Net cash inflow (portfolio
Dividend dividends paid Company to basis) divided by dividends
cash to pay dividends paid in Statement of
cover shareholders to shareholders 1.2x 1.1x Changes in Equity
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Cumulative Excess cash Provides a GBP29.2m GBP19.1m Referred to in Financial
excess inflow from metric for Review and Valuation
cash investments the number Update
cover net of of times the
dividends Company can
paid to pay dividends
shareholders, to shareholders
on a cumulative
basis since
IPO
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Consolidated
outstanding
debt at Holdco
and investment
level To indicate
(GBP361.0m) the Company's
divided by direct and
NAV at the indirect exposure Referred to in the Chair's
year-end to debt Statement and the Investment
Gearing (GBP1,125.4m) obligation. 32% 34% Manager's Report
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Operational Cash inflow Used in dividend GBP71.4 GBP52.9 Referred to in Financial
Cashflow from cash cover Review and Valuation
investments calculation Update
net of
operating
and finance
costs
---------------- -------------------- ------------ ------------- ----------------------------------------------------
Rebased Portfolio Used to derive GBP1,068.6m GBP788.6 Referred to in Financial
Valuation Valuation the fair value Review and Valuation
(Portfolio brought movement of Update
basis) forward, the portfolio.
plus new
investments
(including
transaction
costs) during
the period
less cash from
investments.
---------------- -------------------- ------------ ------------- ----------------------------------------------------
[1] The target dividend stated above by the Company is based on
a projection by the Investment Manager and should not be treated as
a profit forecast for the Company
[2] Per SEEIT's ESG Report, November 2022
(APM) Alternative Performance Measure: See Glossary Of Financial
Alternative Performance Measures for further details for APM's used
throughout this report.
[3] Net of fees and expenses by reference to the IPO Share Price
of 100.0 pence per share
[4] The target dividend stated above is based on a projection by
the Investment Manager and should not be treated as a profit
forecast for the Company
[5] Cashflows are derived from a combination of existing
contracts, future growth assumed from existing contracts and
extended or new contracts in the future
[6] A total commitment of c.GBP21m (EUR25m), of which c.GBP4m
had been deployed by 31 March 2023
[7] A total commitment of up to c.GBP9m (US$10m), of which
c.GBP4m had been deployed by 31 March 2023
[8] A total commitment of c.GBP6m ($8m), of which c.GBP0.2m had
been deployed by 31 March 2023
[9] A total commitment of up to c.GBP6m (EUR6m), of which
c.GBP4m had been deployed by 31 March 2023
[10] GBP4m ($5m) upfront consideration, plus performance related
contingent deferred consideration in future periods
[11] With opportunity to undertake construction/development
stage accretive capital enhancements
[12] Unaudited figures
[13] Million British Thermal Units. This KPI represents annual
heat demand from the customers.
[14] Unaudited figures
[15] MWh actual / MWh expected based on budget and available
irradiance
[16] Unaudited figures
[17] Unaudited figures
[18] Combination of electrical and thermal energy
[19] Unaudited figures
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June 28, 2023 02:00 ET (06:00 GMT)
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