TIDMSEIT
RNS Number : 4800V
SDCL Energy Efficiency Income Tst
04 December 2023
04 December 2023
SDCL Energy Efficiency Income Trust plc
("SEEIT" or the "Company")
Announcement of Interim Results for the six-month period ended
30 September 2023
SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or
the "Company") today announces its financial results for the
six-month period ended 30 September 2023. The full report can be
found at https://www.seeitplc.com/investors/ .
Highlights
-- Net Asset Value ("NAV") per share(APM) of 90.6p as at 30
September 2023 (September 2022: 106.1p), which includes a reduction
of 10.9p largely driven by a 100bps increase in the weighted
average unlevered discount rate to 8.7%.
-- Investment cash inflow from the portfolio(APM) of GBP47
million, an increase of c. 9% from the comparative period
(September 2022: GBP43 million).
-- Aggregate dividends(APM) of 3.12p per share declared for the
six month period to 30 September 2023 (September 2022: 3.0p), in
line with FY 24 target
-- Dividend cash cover(APM) of 1.1x for the six-month period to
30 September 2023 (September 2022: 1.2x)
-- Target dividend of 6.24p per share for the year to March 2024
is on track, a 4% year-on-year increase
-- Loss before tax of GBP89 million for the six-month period to
30 September 2023 (30 September 2022: loss of GBP1.5 million),
reflecting the unrealised loss of GBP129 million from increased
discount rates
-- Portfolio valuation(APM) of GBP1,066 million for the
six-month period to 30 September 2023 (March 2023: GBP1,100
million)
-- Investment of c.GBP93 million in organic investments and
existing commitments during the six-month period to 30 September
2023
Tony Roper, Chair of SEEIT, said:
"The Board and Investment Manager are listening carefully to
shareholders and are planning and taking action aimed at improving
the returns from SEEIT's investment portfolio and narrowing the
share price discount. Central to these actions are keeping the
Company's gearing low and scaling back investment, with appetite
focussed on the organic pipeline where the value impact is
greatest. The Company completed a GBP20 million share buyback
during the period and the Investment Manager is progressing
disposals to create liquidity for the Company and its shareholders.
Meanwhile the Investment Manager continues to meet with existing
and new investors to promote and support the marketability and
liquidity of the Company's shares."
Jonathan Maxwell, CEO of SDCL, the Investment Manager said:
"The 'higher for longer' interest rate and inflation
environment, and its impact on discount rates, created headwinds
for the Company's asset values and interim results for the period
to 30 September 2023, while wider market conditions made it a time
for caution in general. However, SEEIT's large, unique, and
diversified portfolio of over GBP1 billion of energy efficiency
projects continues to deliver good levels of cash flow to cover its
dividend and to offer a combination of income and capital growth.
The opportunity for upside from today's market price is compelling,
given that SEEIT's shares currently trade at a substantial discount
to NAV. The Board and Investment Manager are committed to taking
action aimed at reducing or closing the discount.
Meanwhile, as the International Energy Agency points out, only
energy efficiency can deliver 50% of global decarbonisation targets
by 2030. SEEIT is the only way to access a large-scale portfolio of
energy efficiency projects via a London Stock Exchange listed
investment company."
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 North America, the UK and Europe 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 shareholders 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.
The Company is targeting an attractive total return for
shareholders of 7-8 per cent. per annum (net of fees and expenses
and by reference to the initial issue price of GBP1.00 per Ordinary
Share), with a stable dividend income, capital preservation and the
opportunity for capital growth. The Company is targeting a dividend
of 6.24p per share in respect of the financial year to 31 March
2024. SEEIT's last published NAV per share was 90.6p as at 30
September 2023.
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 ("SDCL"), 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, Madrid, 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 Interim Statement
On behalf of the Board, I present the interim report and
financial statements (the "Interim Report") for SDCL Energy
Efficiency Income Trust plc ("SEEIT" or "the Company") for the six
months ended 30 September 2023 (the "period").
The economic and political climate has been particularly
challenging over the last 18 months. The war in Ukraine, volatile
energy prices, high inflation and sharp rises in interest rates
and, more recently, conflict in the Middle East have all increased
levels of uncertainty in financial markets and the cost of capital.
This has resulted in a risk to the health of the economies in which
many of the SEEIT's investments' end-customers have exposure.
While the defensive characteristics within SEEIT's portfolio,
such as contractual structures and the credit quality of
counterparties, provide some mitigation, slowing economic growth
has increased the risk to demand for energy and other services from
some of these customers. There is also downside risk to cash flows
from increased interest costs, although this is materially
contained by the prudent levels of gearing(APM) throughout the
portfolio and the proportion of fixed interest rates on the
portfolio-level debt which is high in the near term. Higher
risk-free rates have contributed to a reduction in valuation of our
operational assets during the period.
In addition to the valuation implications of the above, rising
fixed income yields and lacklustre performance by volatile equity
markets have led to a reassessment and rebalancing of portfolios by
many investors who have sought to de-risk, including in the income
focused investment trust market in the UK. Consequently, investment
trust share prices are generally trading at substantial discounts
to net asset values.
Nonetheless, the outlook for elevated energy costs and continued
energy security concerns reinforces the economic benefits of energy
efficiency solutions provided by SEEIT to its customers, delivering
them lower cost, cleaner and more reliable energy solutions.
Addressing the share price discount to net asset value(APM)
The Board was grateful for the high level of support shown by
shareholders voting to approve the continuation vote of the Company
at September's AGM and we are committed to ensuring that we deliver
the best outcome for shareholders. We are acutely aware of the
impact that the share price has on its shareholders' returns and
were disappointed to see the share price fall to a 34% discount to
NAV(APM) at the end of the Period, and subsequently fall further.
In our opinion, the share price has not entirely reflected the
portfolio's value or potential and is partly a function of wider
market dynamics. Regardless of market sentiment, protecting
shareholders' interests remains the priority and defines the
Board's decision-making. Both the Board and the Investment Manager
are listening carefully to shareholders and analysts and planning
actions accordingly.
The Investment Manager continues to manage the portfolio to keep
borrowings at relatively moderate levels. It is also actively
pursuing options to realise liquidity for the Company through
selective asset disposals.
The Company's Capital Allocation Policy has been updated to
reflect the current share price and market, and the Board is now
actively involved in agreeing any uses of capital with the
Investment Manager (which retains the delegated authority for all
investment decisions). These discussions recognise the scarcity of
capital and that any new investment and the associated returns must
be judged and justified against returning capital to
shareholders.
As well as continued focus on driving operational performance of
the existing assets, other steps include enhanced disclosure and
communication, and supporting the marketability and liquidity of
the shares through active engagement with existing and new
potential shareholders.
During the Period the Company bought back GBP20 million worth of
its own shares, supporting liquidity and demonstrating the Board's
willingness to take action. The Company will buy back further
shares in due course if it is deemed to be in the best interests of
shareholders.
Portfolio and financial performance
The Company's NAV(APM) has declined by 10.9 pence per share
during the period. The most significant factor was the use of
higher discount rates to value the portfolio of investments,
reflecting both the higher interest rate environment and increases
to the asset specific risk premium applied to certain US assets.
The combined impact was a 1.0% increase in the weighted average
unlevered discount rate to 8.7% (9.4% levered), contributing a
GBP129 million reduction to the reported net asset value.
Investment related valuation adjustments included uplifts made
in Oliva and Värtan Gas (as a result of favourable regulatory
outcomes), but also downward revisions to forecasts at
RED-Rochester and delays in projects brought into operations in
Onyx. After removing the impact of investment into the portfolio
and cash inflows from the portfolio, and incorporating portfolio
performance which includes the GBP129 million reduction due to
discount rates, the Portfolio Valuation (APM) reduced by GBP80
million.
During the period, the aggregate cash flow from investments was
in line with our expectations. For the year ending March 2024, the
Company is on track to deliver an aggregate dividend of 6.24 pence
per share covered by net operational cash received from
investments.
The Investment Manager takes an active approach to managing
issues that may arise from operational activities or construction
phases and there were no material events to report during the
period. Since setting out value growth opportunities in our March
2023 annual results, the Company has made measurable progress
advancing opportunities which create an uplift in NAV(APM) ,
pointing to the potential in the portfolio beyond that implied by
the weighted average valuation discount rate.
The Investment Manager's Report expands further on these
matters.
Balance sheet
The Company continues to pursue a prudent approach to debt with
a medium term target total gearing(APM) ratio at project level of
35% of the Company's NAV(APM) . During the period, portfolio-level
debt balances reduced in aggregate and the SEEIT Holdco's revolving
credit facility was drawn by GBP100 million for investments, most
of which were in support of existing projects, which resulted in a
total gearing(APM) ratio of 44%, of which 34% was at project level.
It is the intention that the total gearing(APM) ratio be brought
back into line with target through a combination of scheduled
amortisation of project level facilities from free cash flow,
application of surplus portfolio cash flows to repay the revolving
credit facility, and proceeds from asset disposals.
As I have already noted, making further investments at the
current time will be limited to those that meet the agreed Capital
Allocation Policy and where both the Board and the Investment
Manager agree that the forecast returns meet or exceed other
options for that capital. This means only 'organic' investments are
likely to be considered. Examples of 'organic' investments include
platforms, such as EVN and Onyx, where the management platforms
benefit from scale and could present the opportunity to realise
gains in the medium term. Accordingly, as a result of scaling back
of investment plans, the drawn revolving credit facility is not
expected to exceed GBP140 million at 31 March 2024.
Outlook
Since listing 5 years ago, the Company has assembled the only
listed energy efficiency portfolio of scale, offering
diversification and solid dividend yield having increased its
expected dividend by 25% from the initial dividend yield target for
its first full financial year.
Looking ahead, energy efficiency is expected to play an even
greater role in mitigating the climate impact of energy consumption
and aligning with decarbonisation goals. The Company's investments
are forecast to deliver growing cash flow cover of dividends, are
positively correlated to inflation and are expected to continue to
offer opportunity for incremental upside.
The Board and Investment Manager are committed to doing what we
can to deliver an improved outcome for the Company's shareholders
and will explore every option in our efforts to improve both the
returns from the investment portfolio and to narrow the share price
discount currently prevailing.
Tony Roper
Chair
4 December 2023
Investment Manager's Report
Macro-economic factors and impact on the Company
During the period, global market expectations of a 'higher for
longer' interest rate environment set in more firmly and while many
measures of inflation have fallen from their peaks, energy, food
and labour prices resulted in higher inflation than historical
levels. In addition, following the disruptions associated with the
Russia-Ukraine war, and while demand has been rebounding in the
period after the Covid-19 pandemic, increases in the cost of
materials for construction and supply chain constraints have been
apparent in both the United States and Europe.
The main impact of this for SEEIT's portfolio so far has been on
the valuation. The unlevered weighted average discount rate applied
to portfolio company cash flows has increased by approximately
100bps, driven in large part by the higher interest rate
environment. In combination with some adverse factors (on a net
basis) related to certain forward-looking cashflow assumptions in
the portfolio, this has resulted in a significant reduction in the
valuation of SEEIT's portfolio investments dominating the financial
result for the period. Detail on the valuation movements is set out
in the Financial Review and Valuation Update section.
Elevated interest rates are less impactful on cash flow than
they are on valuation owing to prudent gearing(APM) levels and
fixed interest rates associated with the portfolio level
gearing(APM) . In addition, the Company will continue to benefit
from the portfolio's positive correlation with inflation. The
Company's portfolio is also defensively positioned with respect to
a potential slowdown in the economy, with the majority of the
portfolio's value having revenues that are contracted with managed
exposure to demand risk, mitigating the impact on the portfolio of
unexpected reductions to RED-Rochester volumes during the period.
Over 60% of revenues are associated with investment-grade or
equivalent counterparties.
However, rising interest rates have had a material bearing on
reducing demand for income-based investment vehicles, as equity
income strategies have become less competitive in the face of the
high yield available on sovereign and corporate debt. The
consequence of this being that a general rebalancing of investment
portfolios is underway, causing a substantial loss of demand across
the income trust sector. However, the Company's shares have
recently been trading at a discount larger than the average of the
renewables and infrastructure sectors. The Investment Manager does
not believe the current share price to be representative of the
true value in the portfolio and is committed to taking action to
address the situation including:
-- progressing selective disposals to bolster the balance sheet;
-- maintaining a prudent capital structure;
-- improving the frequency and detail of communication with
existing and prospective shareholders, supporting the marketability
and liquidity of the shares;
-- focusing on delivering accretive projects and other upsides
to drive growth in Net Asset Value(APM) ;
-- considering buying further shares if it is in the interests
of shareholders, following the GBP20 million of shares bought in
the Period (at market value); and
-- subject to sufficient available capital, selective accretive
investment from the Company's organic pipeline, where returns meet
the requirements set out in the Capital Allocation Policy.
The Investment Manager is committed to maintaining regular, open
and meaningful channels of communication and engagement with
shareholders. Since the release of the March 2023 annual results in
June, between the Board and the Investment Manager meetings were
held with investors representing over 60% of the shareholder
register. The March 2023 Annual Report gave greater disclosure on
the portfolio investments including detailed presentation of the
six largest investments, enabling a better view of the dynamics and
risk mitigation associated with its portfolio.
Portfolio Update for the Period
Portfolio activity
This section provides an update on the performance of the
Company's six largest investments within its Portfolio(APM) , or
group of investments, making up c. 75% of the Company's portfolio
valuation(APM) as at 30 September 2023. These investments report on
a calendar year basis and the narrative reflects budgets and
actuals accordingly. Excluding Onyx where EBITDA is not a reported
KPI, the aggregate EBITDA of these large investments, is expected
to exceed the aggregate budget. Excluding Värtan Gas, where volumes
are not a reported KPI, the aggregate volumes delivered/produced
from these large assets expected to be below the aggregate budget.
Financial Review and Valuation Update also provides further details
on material movements affecting the valuation in these investments
during the Period.
RED-Rochester ("RED") - Project Equity Value: GBP180 million
(March 2023: GBP254 million)
RED-Rochester is the exclusive provider of select utility
services to customers within the Eastman Business Park ("EBP") in
the US, for which it has contractual and regulated utility-status
franchise rights. New leadership in the RED-Rochester team brings
continuing focus on reliable utility services operations as well as
growth initiatives supporting more than 110 customers.
Customer loads in the first half of 2023 were below budget due
to the unusually mild weather conditions and revisions to business
plans of a few EBP tenants. The full-year EBITDA impact of the
lower loads will be partially mitigated through operational costs
savings. The expected loads and EBITDA for the full year are
expected to be below budget, despite expected year on year growth
of EBITDA.
The management team continues its proactive approach to attract
new customers to EBP to secure future revenue, working closely with
landowners and regional business development entities, and has more
than doubled the number of potential new customers in this pipeline
over the period, notwithstanding also removing certain customers
from the pipeline which adversely affected the valuation during
this period.
Previously approved efficiency improvement projects are moving
forward on time and within budget, including the c. GBP70 million
investment in a cogeneration power plant which is estimated to
potentially add GBP5 - GBP10 million to NAV(APM) (additional to the
c. GBP70 million) if delivered in accordance with plan. During the
period, c. GBP16 million was invested in these projects, with a
further GBP10 million invested since 30 September 2023 and
approximately GBP5 million future equity investment is required to
complete the projects. The balance will be funded from RED
Rochester's internal resources, including project-level debt
secured with the existing lenders in October.
Since the period end, Li-Cycle which is one of the larger
customers in the business park, has announced a pause to
construction of its own facilities pending conclusion of a
strategic review, adding uncertainty to the timing and quantum of
Li-Cycle's projected demand for energy services. The current
expectation is that Li-Cycle will continue the construction work
however the uncertainty has been reflected in the valuation through
an increase to the asset specific discount rate applied to future
cash flows. Note 2 to the Condensed Interim Financial Statements
sets out the impacts of further downsides related to the Li-Cycle
project.
During the period, the Investment Manager and the RED management
team conducted an additional in-depth review of actual results and
how certain long-term assumptions were applied in the project
financial model. Several revenue and cost estimates have since been
revised, up and down, with a material net adverse impact on the
overall valuation. The assumptions made for the March 2023
valuation that allowed for an extension of life were however not
amended.
Project KPIs outlook for the full year
MMBTUs delivered Customer demand for the full year is expected to
to customers be below target
EBITDA Estimated EBITDA for the full year 2023 is below
budget
-------------------------------------------------
Primary Energy - Aggregate Projects Equity Value: GBP178 million
(March 2023: GBP195 million)
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. Aggregate
production and EBITDA across the whole portfolio remain in line
with the full year budget.
Management has focused on negotiating renewal of the Cokenergy
services contract with site host, the offtaker at four of the five
assets at Primary Energy. The terms which have been agreed in
principle, align with expectations in the March 2023 valuation as
well as de-risking certain elements of the contract by passing
through costs. The new terms introduce improved correlation of
revenues with inflation. The revised agreement is expected to be
signed in the coming weeks and the new terms increase the
attractiveness of potential add-on opportunities to further improve
plant reliability and efficiency which the Investment Manager is
reviewing.
The renewal of the Cokenergy services contract will provide the
Investment Manager with an opportunity to launch a process to
refinance Primary Energy's project-level debt, which is expected to
benefit from better terms and contribute positively to increasing
cash inflows to SEEIT.
Adjusting for FX, minor movements in operating costs,
re-contracting updates and increases in discount rates, the
valuation remained broadly flat.
Project KPIs outlook for year end
Average Net Production Net production for the full year is expected to be
in line with budget
EBITDA The project remains on track to deliver the full
year budgeted EBITDA
---------------------------------------------------
Onyx Renewables Partners ("Onyx") - Project Equity Value: GBP161
million (March 2023: GBP161 million)
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.
New leaders in Onyx's development and operations teams, together
with the focus on pipeline development, have positioned the
business to achieve significant growth in 2024 and beyond. Onyx
achieved a five-year high of 48MW in signed power purchase
agreements (PPAs) from January to September 2023 and is on track to
deliver a total of 75MW of signed PPAs in 2023, meeting budget and
securing a substantial part of the 2024 pipeline. In addition to
investment by SEEIT, the capital to build out the pipeline is
expected to come from third party debt, tax equity financing and
disposals.
In the short term, bottlenecks related to permitting that were
reported in the March 2023 Annual Report have persisted, resulted
in delays between mechanical completion and project commissioning,
and continue to adversely affect the number of projects becoming
operational in the short term. As a result, the MW capacity of
projects expected to reach commercial operations date (COD) in the
year is expected to be 22 MW, less than the 32MW assumption used
for the March 2023 valuation, with delayed projects being pushed to
next year. Permitting issues are being experienced across the
industry and do not impact the pipeline development, however the
slowdown delays the point at which SEEIT can generate revenues and
recognise value from newly constructed sites.
Onyx's operational projects have performed slightly below
expectations as a result of one-off factors and performance ratio,
and MWh production outturn result is accordingly below budget.
Increases in discount rate and asset specific risk premium
related to future pipeline have resulted in the overall value
remaining broadly constant when netted off against investment into
Onyx during the period. The increase to asset specific risk premium
has adopted the view that permitting delays currently being
experienced endure throughout 2024. Note 2 to the Condensed Interim
Financial Statements sets out the impacts of downsides to the
pipeline delivery assumption.
The Investment Manager is working with leadership at Onyx
Renewable Partners to grow the development pipeline, resolve
permitting related delays in fully constructed projects becoming
operational and focus on accelerating project progression between
contract signing and construction. The opportunity to cross sell
Onyx services into other SEEIT investments such as Primary Energy,
RED-Rochester and FES is being examined.
Project KPIs outlook for the full year
New projects reaching More than half of MWs budgeted to reach commercial
COD/PTO operations in the current year are expected to be
delayed until 2024.
Performance ratio The performance ratio is forecast slightly below
budget for the full year .
---------------------------------------------------
MWh produced (operational Production is forecast to be below budget for the
projects only) full year.
---------------------------------------------------
Oliva Spanish Cogeneration ("Oliva") - Aggregate Projects Equity
Value: GBP128 million (March 2023: GBP114 million)
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.
In the prior year, operations had been deliberately paused to
protect profitability threatened by the combination of gas price
volatility and delays in the Spanish Government's provision of
Ro/Ri guidance (an incentive scheme to provide a return on
operations and investments). The pauses were temporary pending
implementation of updates to the Ro/Ri scheme, which were published
in the period as expected. These updates provided a favourable
outlook compared to the year's budget and further improved
short-term visibility over cash flows, resulting in much-improved
project forecasts compared to 2022. The management team continues
to engage with the Spanish energy industry and government
stakeholders to push for greater predictability from the regulation
to mitigate the risk of the experience in 2022 repeating
itself.
During the period, the only notable performance issue was the
Cepuente site going offline for several months due to damage to the
export cable caused by the offtaker. This has now been rectified
and recovery of losses from the insurer and the offtaker are being
negotiated. The incident reduced the total energy production across
the sites, but the forecast for the full year remains in line with
budgets.
In addition to the above, Oliva's gas procurement team performed
ahead of budget during the period, despite adverse commodity
pricing impacts.
The combination of these factors has resulted in expectations
for strong outperformance in terms of EBITDA and cash flow for the
full year.
During the period end, the management team has made good
progress in agreeing an expected extension of the thermal offtake
contracts at the Celvi site.
The valuation increase in the period was mainly driven by the
Ro/Ri updates, updating a cautious position taken in the March 2023
valuation. The referenced outperformance to budget EBITDA expected
for the full year also positively contributed to valuation, with
reducing electricity price forecasts partially working against
these gains.
Project KPIs outlook for the full year
EBITDA Oliva is on track to exceed its full year budget
MWh produced Forecast aggregate production of the portfolio's 9 sites
is in line with budgets for the full year despite the outage
at Cepuente
--------------------------------------------------------------
UU Solar - Project Equity Value: GBP86 million (March 2023:
GBP96 million)
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.
Although technical performance, and hence electrical production,
has been lower than expected owing to a variety of technical issues
and delays in the related supply chain, favourable market rates for
the sales of electricity not used by UUW have mitigated the impact
on revenues. The Investment Manager has worked with Green Nation
(the asset manager) to resolve these issues through initiatives
such as installation of monitoring software across the portfolio
and repowering of equipment to increase availability. This has
resulted in performance that is generally improving through the
period, but the forecast outturn production and EBITDA for the full
year is expected to be below budget.
The Investment Manager and the customer, UUW, are continuing to
assess an opportunity to provide battery energy storage systems on
existing UU Solar sites. The concept could provide valuable
resilience services to UUW which SEEIT is uniquely positioned to
offer, presenting an interesting option to bring additional revenue
streams into the portfolio.
The reduction in the valuation has predominantly resulted from
distributions paid out in the period and discount rate
increases.
Project KPIs outlook for the full year
A vailability A vailability for the full year is expected to be
below budget
Average Net Production Net production for the full year is expected to be
below budget
---------------------------------------------------
EBITDA O n track to meet full year budget
---------------------------------------------------
Värtan Gas - Project Equity Value: GBP69 million (March 2023:
GBP65 million)
Värtan Gas owns and operates the regulated gas grid in
Stockholm, Sweden. The investment was fully operational from the
point of acquisition, with strong long-term yield metrics and
inflation correlation.
The periodic regulatory update in late 2022 relevant to Värtan
Gas changed both the WACC and Regulated Asset Base ("RAB") used in
calculating the value of the regulated investment, causing an
adverse impact on the March 2023 valuation. Värtan Gas's subsequent
appeal against the Energy Markets Inspectorate's regulatory
determination has been successful with respect to the calculation
of the RAB, with the resulting reversal of the adverse impacts
reflected in the March 2023 valuation as set out in Financial
Review and Valuation Update.
Värtan Gas has outperformed targets in relation to the biogas
content of the grid, and customer churn has been better than
budgeted. During the period, c.90% of the gas distributed in the
grid was locally produced renewable biogas, sourced primarily from
the city's wastewater facilities. To offset some of this positive
performance, management has observed some changes in customer
behaviours, for example restaurants being more diligent with gas
consumption to lower their operating costs, which has been
reflected in the valuation.
However, overall forecast EBITDA remains in line with budget for
the full year. After a new CEO was appointed at the start of the
year, the long-term strategy of Värtan Gas has been reviewed and
further developed with plans for the creation of new income
streams.
In addition to the successful regulatory appeal, significant
contributions to the movements in valuation over the period relates
to discount rate increases.
Project KPIs outlook for the full year
EBITDA Värtan Gas is on track to meet its full year
budget
% of Green Gas Värtan Gas is expected to outperform its targeted
share of biogas delivered for the full year.
-------------------------------------------------------
Outside of the six largest investments (consolidated where there
are multiple underlying projects), the portfolio operated in
aggregate materially in line with budget. In September 2023, The EV
Network hosted an opening ceremony attended by the UK's Chancellor
of the Exchequer for the UK's largest Electric Vehicle ("EV")
charging hub on the NEC Campus in Birmingham, capable of charging
180 EVs simultaneously. During the period the Huntsman Project also
successfully completed commissioning and became operational.
Investment activity
The March 2023 Annual Report identified the following areas of
investments focus:
-- 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 the
Onyx platform, whose remaining 50% was acquired from Blackstone in
June 2023.
Of a total GBP93 million investment in the 6 months to 30
September 2023, c. GBP55 million was invested in these and other
follow on investments. Portfolio investment activity also included
c. GBP35 million of contracted operational investments from the
pipeline. GBP25 million was invested in a portfolio of loan
facilities secured against an operational portfolio of LED lighting
projects in the USA held by Future Energy Solutions Lighting
Holdings ("FES"). The investment, which was made directly from
SEEIT and held independently from FES not only offered double-digit
returns and attractive cash yields on a standalone basis, but also
brought the potential to realise further upside from operating and
financial efficiencies across the FES portfolio. Note 10 to the
Condensed Interim Financial Statements sets out an analysis of
investments by project made in the period.
Since 31 March 2023, the investment focus became increasingly
selective with the Investment Manager declining more investments
into its organic pipeline as higher returns were targeted. Looking
forward the Board and the Investment Manager have updated the
Capital Allocations Policy with higher investment hurdle rates to
reflect current market conditions. This has led to a scaling back
of potential new investments and carefully focuses resources where
returns are most compelling. This includes completion of
construction of efficiency projects already committed to in
RED-Rochester and the organic platform investments, such as EVN and
Onyx, where the management platforms benefit from scale and could
present the opportunity to realise gains in the medium term.
Since 30 September 2023, the Company has invested a GBP33
million, and, subject to working capital and Capital Allocations
Policy considerations, could invest up to a further GBP7
million.
Financial Management Overview
Inflation
Inflation correlation is derived from a combination of explicit
linkage to revenues, through contract or regulatory mechanisms, and
de facto linkage applied on re-contracting events or through
discretionary annual tariff increases. Inflation correlation is a
relevant metric when evaluating new investment opportunities and
when re-contracting existing projects within the portfolio. The
Company's projects are in a number of different geographic regions,
which diversifies and mitigates the impact of inflation volatility
for the portfolio.
Positive inflation correlation on investment returns has
increased since 31 March 2023 as a result of increased contractual
inflation linkage related to new contracts and renewals.
Financing
The Investment Manager seeks to maintain a conservative level of
total gearing(APM) consistent with its tolerance for financial
risk. Total gearing(APM) is measured on a look-through basis by
including debt at Company level through to investment portfolio
level. The Company's investment policy provides for a target
medium-term gearing(APM) of 35% of NAV(APM) ("structural
gearing(APM) ") and a consolidated borrowing limit of 65% which
includes the structural gearing(APM) and acquisition financing
facilities used to finance the Company's investments, both
calculated at the time of borrowing.
Refinancing risk at the portfolio level is managed through low
gearing(APM) , staggered debt tenors and maintaining low absolute
levels of refinancing requirements over the medium term.
Analysis of consolidated debt exposure at 30 September 2023
Total gearing(APM) Fund level gearing(APM) Portfolio level
(% of NAV (APM) ) (% of NAV(APM) ) gearing(APM)
(% of NAV(APM) )
44% 10% via RCF
34%
March 2023: 32% March 2023: 0%
March 2023: 32%
Investments geared Weighted average interest Interest rate exposure
rate of portfolio debt of portfolio debt
13 (out of 57 investments)
5.7% 85% is fixed
March 2023: 14 (out March 2023: 5.8% March 2023: 80%
of 55)
------------------------------------- --------------------------------------
Portfolio level debt Weighted average life Portfolio debt repaid
by geography remaining on debt in six month period
80% in USA 4.0 years GBP12 million
19% in Europe
<1% in UK March 2023: 4.0 years September 2022:
March 2023: GBP18 million
79% in USA
20% in Europe
<1% in UK
------------------------------------- --------------------------------------
The structural gearing(APM) target is measured across the
portfolio, enabling the Company to optimise for efficiency and
risk, utilise debt where it can be most efficiently sourced and
enable a significant part of the portfolio (44 out of 57
investments) to operate on an unlevered basis. A large portion of
the structural gearing(APM) amortises from free cash flow generated
by the relevant investment and although the absolute exposure to
portfolio level gearing(APM) (in GBP terms) has reduced, as a
percentage it has increased due to the reduction in the Company's
NAV(APM) .
Changes to debt facilities at RED-Rochester have been agreed,
providing a new capex facility and extending the term such that
there is no refinancing requirement at investment level until at
least 2025. However the Investment Manager may look to optimise
through opportunistic project level refinancing; for example, the
Cokenergy re-contracting substantially improves the finance
capacity and risk from the perspective of a lender, from which the
Investment Manager anticipates improvement of terms whilst
retaining benefit from the long term interest rate swaps currently
in place.
The Company (via Holdco) also has a GBP180 million revolving
credit facility ("RCF") in place until June 2025, having recently
extended the expiry date by 12 months. The Company intends this to
be temporary finance, repayable through surplus distributions from
the portfolio, refinancing proceeds at investment level and
investment disposals which the Investment Manager is currently
pursuing.
Since the start of the period, the Holdco RCF has been drawn by
GBP100 million to fund investments, and based on investment outlook
could be GBP135 million - GBP 140 million drawn at 31 March 2024,
absent proceeds from a disposal in the period.
Hedging Update
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(APM)
arising from movements in foreign exchange rates, and the approach
to achieving this objective remains unchanged from previous
periods.
In line with the disclosure in the March 2023 Annual Report, the
Investment Manager is targeting hedging levels of around 75% to 90%
of its non-GBP investments, down from 90%-100% previously, to
balance the management of liquidity risk with impact of foreign
exchange volatility on NAV(APM) . In the period, the Investment
Manager has gradually reduced hedging levels to around 85%.
Ongoing Charges(APM)
The Portfolio's ongoing charges ratio(APM) increased to 1.07%
(September 2022: 0.93%), with the increase stemming predominantly
from the impact of increased discount rates and the associated
adverse impact on NAV(APM) as described elsewhere in this section,
whilst costs have remained in line with expectation.
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 period/year). The ongoing charges
percentage has been calculated on a portfolio basis(APM) to take
into consideration the expenses of the Company and Holdco.
Dividend distributions
In June 2023, the Company paid a fourth quarterly interim
dividend of 1.5 pence per share in respect of the year ended 31
March 2023. This brought the aggregate dividends paid to 6.00 pence
per share for the year ended 31 March 2023, meeting the target
guidance issued by the Company for that financial year.
A first quarterly interim dividend of 1.56 pence per share in
respect of the year ending 31 March 2024 was paid in September 2023
and in November 2023 the Company declared a second quarterly
interim dividend of 1.56 pence per share.
Cash cover(APM) for dividends paid
The financial period saw cash inflow from investments (on a
portfolio basis(APM) ) of GBP47.4 million, an increase of c. 9%
from the comparative period (September 2022: GBP43.3 million).
After allowing for fund level costs of GBP10.4 million (September
2022: GBP7.4 million), this enabled the Company to cover its cash
dividends paid in the six-month period of GBP33.3 million by 1.1x.
The Company remains on track to deliver a fully cash covered target
aggregate dividend of 6.24 pence per share for the year ending
March 2024 and the Investment Manager is targeting to grow the near
to medium-term cash cover levels to above the historic average of
around 1.2x.
Principal risks and uncertainties
The principal risks and uncertainties faced by the Company (and
its underlying investment via Holdco) are largely unchanged from
those described in the March 2023 Annual Report, although the
likelihood of certain risks crystalising has moved since the Annual
Report. The Investment Manager continues to employ suitable
mitigants to manage the principal risks and remains alert to the
uncertainties created by current markets, geopolitical events and
other macroeconomic issues.
The Board and the Investment Manager consider risks on a regular
basis and conduct reviews to evaluate the risks and mitigants
available to the Company, including assessment of potential impacts
through targeted stress testing.
Although some risks may be faced directly by the Company, most
of the risks are faced indirectly through the project investments
in the portfolio. The Investment Manager's risk assessments
therefore review the impact at the underlying investment level and
assess how they may influence the stated objective of the Company.
These assessments are both quantitative and qualitative and may,
for example, include financial performance risk, reputational risk,
climate risk and market risk. The key risk faced by the Company
during the period is the continuing discount to NAV(APM) of its
share price. The Investment Manager has set out it mitigating
strategies in the Investment Manager's Report
The key changes in portfolio risks since publishing the March
2023 Annual Report are summarised below.
Counterparty Credit Risk
The key credit risks arising within the portfolio relate to
respective offtake counterparties. Generally, the Investment
Manager seeks to ensure that the majority of revenues from projects
that the Company invests in (via Holdco) are associated with
investment-grade or equivalent counterparties. The proportion of
revenues that are such counterparties has remained at around 60%
(March 2023: 60%). The slowdown in economic growth and increases in
financing costs have been negative for counterparty risk generally.
However there are no material credit events or impairments to
highlight in this respect for the period and there have been no
significant credit events or impairments since the Company's IPO in
December 2018. The Investment Manager notes that, should a
prolonged recession be experienced in Europe and/or North America,
this could result in a deterioration of credit quality of some
counterparties and increase risk of a credit event.
Market Regulatory Risk
Market regulatory risks remain as described in the March 2023
annual report, however the regulatory outlooks relevant to Värtan
Gas and Oliva have stabilised with a consequent reduction in risk
to their near-term performance and valuation.
Investment Risks
Re-contracting: Agreement has been reached on renewal terms at
Cokenergy which, once signed, is expected to remove the largest
re-contracting risk which had been facing the portfolio.
Macro-economic factors could work in either direction for future
renewals, either deferring new investment by extending the life of
an asset or reducing the economic case for continued use of the
asset altogether.
Construction: Construction risk incorporates cost overruns and
delays which could result in financial under performance. As
reported in the Portfolio Activity section, Onyx has experienced
delays to permitting outside of its control which affect the start
of operations date. There is a risk these delays persist with
consequences for the rate of delivery of future pipeline. To
reflect the increased risk, the value of the pipeline has been
reduced and the Investment Manager is supporting the management
team in planning for the range of outcomes.
Demand risk: The risk to volumes has increased as a result of a
slowing economy and weakening of balance sheets, as illustrated by
the experience at RED-Rochester in the period where a downturn in
demand for a customer's product resulted in a reduction in demand
for energy supplied by SEEIT. Efforts continue to grow and
diversify the demand base of RED-Rochester's site and the valuation
has been adjusted downwards in reflection of the increased
risk.
Macroeconomic Risks
Macroeconomic instability has had an impact on the Company's
portfolio during the period through interest rates and inflation
across the jurisdictions in which SEEIT operates as well as factors
affecting demand and counterparty credit discussed above.
Interest rate : Market indicators show the risk of interest
rates rising or remaining at elevated levels for longer with
consequent impact on valuations through discount rate and financing
costs. Sensitivities to discount rates have been reported in Note 3
to the financial statements. Investment focus on the organic
pipeline has been tightened and return hurdles have been increased.
The Company will continue to manage its facilities at the
investment level on a longer-term basis and its revolving
acquisition facility as interim funding, as set out under Financing
within this section.
Inflation: The risk of inflation remaining elevated for longer
has increased. The portfolio has a positive correlation with
inflation, as illustrated in the sensitivity analysis (see Note 3
to the financial statements).
ESG
SEEIT's commitment to investing in low-carbon, energy efficient
energy solutions has ensured that the Company's focus on
Environmental, Social and Governance ("ESG") factors is integrated
into its operations. SEEIT's ESG Focus Areas organise its ESG
considerations into four categories, each of which are then
expanded upon in its Responsible Investment Policy ("RIP") and ESG
Principles. Both documents are located on SEEIT's website.
The Company's RIP and ESG Principles together lay out the ESG
considerations that are integrated into the Investment Manager's
investment due diligence and asset management processes. These
policies apply to all of SEEIT's investments and are overseen on a
day-to-day basis by the Investment Manager.
As the Company is an Article 9 Fund under the EU's Sustainable
Finance Disclosure Regulation ("SFDR") and a voluntary supporter of
the guidelines set out by the Task Force on Climate-related
Financial Disclosures ("TCFD"), the Investment Manager has been
reviewing SEEIT's policies and processes relating to these
mandatory and voluntary standards during the period. The Investment
Manager has undertaken several workstreams to update and refine the
Company's ESG-related disclosures, policies and procedures to
ensure it has best practice ESG management.
The Investment Manager has also worked to ensure that it fulfils
its own commitments to voluntary organisations such as the Glasgow
Financial Alliance for Net Zero ("GFANZ") and the United Nations
Principles for Responsible Investment ("UNPRI"), and that those
commitments are properly reflected in the operations of the
Company. This work has further supported the Company to attain its
sustainable objective of climate change mitigation through
reduction of greenhouse gas emissions as well as strengthened its
social and governance policies and standards.
Looking ahead, SEEIT remains dedicated to further enhancing its
ESG practices in alignment with emerging standards, regulations and
best practices.
Financial Review and Valuation Update
Key information as at 30 September 2023
Investment cash inflow from portfolio Portfolio Valuation (APM)
(APM)
GBP1,066 million
GBP47 million
Down from GBP1,100 million at March
Up 9% on a portfolio basis(APM) 2023
(2022: GBP43 million)
GBP89 million NAV per share (APM)
Loss before tax
90.6p
Reflects the unrealised loss of
GBP129 million from increased discount Down from 101.5p at March 2023
rates (September 2022: GBP1.5 million
loss).
-------------------------------------------
Analysis of Movement in NAV(APM)
As of 30 September 2023, the NAV per share(APM) is 90.6p, a
decrease of 10.9p from 101.5p at 31 March 2023. This decrease
reflects the impact of:
-- increase in portfolio discount rates (negative 11.9p);
-- changes to macroeconomic assumptions relating to inflation of 0.2p;
-- FX movements (net of portfolio and hedging movements) of 0.3p; and
-- portfolio performance of 3.3p.
Each of these movements is described in more detail further
below.
Portfolio Valuation( (APM)
Approach
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
of the Company's March 2023 Annual Report for further details on
the valuation methodology and approach. A reconciliation between
the Portfolio Valuation(APM) at 30 September 2023 and investment at
fair value shown in the financial statements is given in Note
10.
Movements in Portfolio Valuation
The Portfolio Valuation(APM) as at 30 September 2023 was
GBP1,066 million, a decrease of 3% compared with GBP1,100 million
as at 31 March 2023.
After allowing for investments of GBP93 million and cash
receipts from investments of GBP47 million, the Rebased Portfolio
Valuation(APM) is GBP1,146 million. Adjusting for changes in
macroeconomic assumptions, foreign exchange movements (excluding
the effect of hedging) and changes in discount rates, this resulted
in a portfolio return of GBP42 million, equating to a 3.7% return
in the period. The return takes into account a number of project
specific valuation movements described under Balance of Portfolio
Return below.
The weighted average remaining life of investments as at 30
September 2023 is 16.2 years (March 2023: 15.9 years), when
calculated purely on when current contracts end. When based on the
September 2023 Portfolio Valuation(APM) , which includes
assumptions for re-contracting and contract life extensions, the
weighted average remaining life is 26.4 years (March 2023: 28.0
years).
Further information on key investments and potential future
valuation movements can be found in Note 2.
Valuation Movements
A breakdown of the movement in the Portfolio Valuation(APM) in
the year is illustrated in the table below.
Valuation movements during the period to 30 September 2023
(GBP'm)
Portfolio Valuation - 31 March 2023 1,100
New investments 93
Cash from investments (47)
------
46
------------------------------------------------ ------ ----- ------------
Rebased Portfolio Valuation(APM) 1,146 % on Rebased
------------------------------------------------ ------ ----- ------------
Changes in macroeconomic assumptions 2 0.2%
Changes in foreign exchange 5 0.4%
Changes in discount rates (129) (11.3%)
Balance of portfolio return 42 3.7%
------
(80)
------------------------------------------------ ------ ----- ------------
Portfolio Valuation(APM) - 30 September
2023 1,066
------------------------------------------------ ------ ----- ------------
Return from the Portfolio off the Rebased Portfolio Valuation
(APM)
Each movement between the Rebased Portfolio Valuation(APM) of
GBP1,146 million and the 30 September 2023 valuation of GBP1,066
million is considered in turn below:
i) Changes in Macroeconomic Assumptions of GBP2 million:
-- Inflation assumptions: consistent with March 2023, the
approach in all jurisdictions is to apply a three-year near-term
bridge to the relevant long-term inflation assumption. Given the
persistently high global inflation since March 2023, this has
resulted in an uplift in the valuation due to higher than
previously assumed near-term inflation, compared with the
assumptions applied for the March 2023 valuation.
-- Tax rate assumptions: there were no changes to corporation
tax rate assumptions during the period.
ii) Changes in Foreign Exchange Rates of GBP5 million (before hedging):
-- The investment portfolio gained GBP5 million during the
period 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 2023 or since new investments were
made in the period.
-- 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 GBP2 million due to foreign exchange hedging.
-- Therefore, the overall foreign exchange movements did not
have a significant impact on NAV during the period, resulting in a
net gain of GBP3 million from foreign exchange movement.
iii) Changes in Valuation Discount Rates of GBP(129) million:
-- The discount rate used for valuing each investment represents
an assessment of the rate of return at which infrastructure
investments, with similar cash flow assumptions and risk profiles,
would trade on the open market.
-- During the period, there were further significant increases
in interest rates globally including in key geographical areas of
SEEIT's portfolio, thus continuing a trend from the last 12 to 18
months. This has stemmed from geopolitical uncertainties and a high
inflationary environment due, in part, to high energy costs.
-- 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 100bps to 8.7% on an unlevered basis
(March 2023: 7.7%). On a levered basis, which assumes existing
portfolio-level debt is refinanced at current market rates,
incorporating existing interest rate swaps into the interest cost
assumption, the weighted average discount rate has increased to
9.4% (March 2023: 8.5%).
-- This has led to an increase in discount rates across the
whole investment portfolio in this period that in aggregate
resulted in a decrease in the Portfolio Valuation(APM) of c. GBP129
million.
-- Of this adverse movement in discount rates, c. GBP29 million
relates to adjustments made to asset specific risk premiums. This
includes:
o an adjustment of c. GBP11 million to reflect the uncertainty
over Li-Cycle's future energy demand in light of their construction
delays factored into the valuation of RED-Rochester
o an adjustment of c. GBP12 million to reflect the risks
associated with achieving the targeted pipeline in Onyx, and
o an adjustment of c. GBP5 million to reflect a risk of the
value for which Renewable Energy Certificates ("REC's") can be sold
for in the USA after 2026.
-- Since March 2023, there has been very little market activity
to help set benchmarks for appropriate discount rates for the
investments in the Portfolio Valuation Valuation(APM) .
The Investment Manager reviews movements in discount rates for
each individual asset at each valuation date. The key approach to
the overall discount rate can be summarised as:
-- Risk free rate of each individual asset is assessed against
relevant government bonds, taking into account length of cash flows
and geography; and
-- Risk Premium takes into account asset specific premiums,
considering inter alia country risk, market risk, construction
risk, counterparty risk and credit risk
o Credit risk is determined by deducting the risk-free rate
applied to each asset from the most relevant corporate bond yield
curve, accounting for the credit rating and maturity of each asset.
Where counterparty is not rated, it may require some judgement to
determine the appropriate credit rating.
iv) Balance of Portfolio Return of GBP42 million:
-- This refers to the balance of valuation movements in the
period (excluding (i) to (iii) above), which provided an uplift of
GBP42 million. The balance of portfolio return reflects the net
present value of the cashflows unwinding over the period at the
average prevailing portfolio discount rate, and various additional
valuation adjustments described below. The portfolio delivered a
return of 3.7% in the period, lower than expected with details on
key movements described below.
The Portfolio Valuation(APM) as at 30 September 2023, and by
implication the return achieved over the period, includes a number
of key estimates and judgements of future cash flows expected from
different investments. In addition, specific adjustments to future
cash flows were required for events during the period that affected
the actual outcome from certain investments.
The key factors that have had a material impact on the September
2023 Portfolio Valuation(APM) listed out below, have had a value
impact of 1% or higher on the Company's NAV:
-- RED-Rochester
o During the period, the Investment Manager and the RED
management team conducted an additional in-depth review of actual
results and how certain long-term assumptions were applied in the
project financial model. Several revenue and cost estimates have
since been revised, up and down, with a material net adverse impact
on the overall valuation of c. GBP26 million.
o A combination of updates to projected loads, business
development assumptions, operating costs, labour costs and timing
of new efficiency projects, caused a reduction in the overall
valuation of c. GBP17 million
-- Oliva Spanish Cogeneration
o The Spanish Government published regulatory updates to the
RoRi (an incentive scheme to provide a return on operations and
investments) in the period that allows for a substantial reduction
in uncertainty and therefore greater ability to plan financial
optimisation of the plants in the near to medium term. The overall
positive impact on the September 2023 valuation was c. GBP30
million, which takes into account outperformance of actuals in the
first half of the year, upwardly revised expectations for the
second half of the year and a higher than previously forecasted
medium term outlook based on the latest regulatory updates, netted
off by a reduction of value from standard updates to commodity
pricing that form part of the regulatory updates.
-- Värtan Gas
o The periodic regulatory update in late 2022 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 March
2023 valuation. Värtan Gas has since successfully appealed against
the update, resulting in a c. GBP14 million positive impact on the
September 2023 valuation and thus substantially reversing the
adverse impact on the previous valuation.
Additional information and sensitivities are disclosed in the
critical estimates and judgements section of Note 2 in the full
Interim Report.
Summary Financial Statements
As described in detail in Note 2 of the March 2023 Annual
Report, 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 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 carried in Holdco, such as cash and debt balances 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 the statutory financial statements prepared under
UK adopted IFRS ("IFRS") as disclosed in note 1, 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.
Portfolio Basis Summary Income Statement
6 Month period to 6 Month period to 30 September
30 September 2023 2022
------------------------------------------------------------------------- -------------------------------------------
GBP'million Portfolio Holdco IFRS (Company) Portfolio Holdco IFRS (Company)
Basis reallocation Basis reallocation
----------------- -------------- ---------------- -------------------- --------- ---------------- --------------
Total
income/(loss) (79.5) (3.5) (83.0) 6.0 (1.9) 4.1
Expenses &
Finance
Costs (9.6) 3.5 (6.1) (7.5) 1.9 (5.7)
(Loss) before
Tax (89.1) - (89.1) (1.5) (1.5)
Loss) (89.1) - (89.1) (1.5) - (1.5)
----------------- -------------- ---------------- -------------------- --------- ---------------- --------------
Loss per share
(pence) (8.1) - (8.1) (0.2) - (0.2)
----------------- -------------- ---------------- -------------------- --------- ---------------- --------------
Portfolio Basis Balance Sheet
30 September 2023 31 March 2023
---------------------------------------------------------------------- ----------------------------------------------
GBP'million Portfolio Holdco reallocation IFRS (Company) Portfolio Holdco reallocation IFRS (Company)
Basis Basis
-------------------- ---------- ------------------- --------------- --------- ------------------- --------------
Investments at
fair value 1,065.5 (89.6) 975.9 1,099.6 28.3 1,127.8
Working capital (3.3) 2.4 (0.9) (39.9) 37.2 (2.7)
Debt (100.0) 100.0 - - - -
Net cash 20.7 (12.8) 7.9 65.7 (65.4) 0.3
Net assets
attributable
to Ordinary Shares 982.9 - 982.9 1,125.4 - 1,125.4
-------------------- ---------- ------------------- --------------- --------- ------------------- --------------
NAV per share
(APM) (pence) 90.6 - 90.6 101.5 - 101.5
-------------------- ---------- ------------------- --------------- --------- ------------------- --------------
-- Total income: Income at the Company level is the income it
receives from Holdco, which contrasts to Portfolio Basis(APM) where
the income is received from the portfolio assets.
-- Expenses & finance costs: Investment transaction costs
are incurred at Holdco only and therefore included in the Company
Income Statement as a movement in investment fair value.
-- Investment at fair value: Company valuation excludes Holdco's
other net assets (see note 10 for detailed reconciliation).
Portfolio Basis Cashflow Statement
30 September 2023 30 September 2022
--------------------------------------------------------------------------- ---------------------------------------
GBP'million Portfolio Holdco IFRS (Company) Portfolio Holdco IFRS
Basis reallocation Basis reallocation (Company)
------------------------- ----------- ---------------- ----------------- ---------- -------------- -----------
Cash from investments 47.4 54.3 101.7 43.3 (7.8) 35.5
Operating and finance
costs outflow (10.3) 2.3 (8.1) (7.4) 1.8 (5.6)
------------------------- ----------- ---------------- ----------------- --------- --------------- -----------
Net cash inflow before
capital movements 37.0 56.6 93.7 35.9 (6.0) 29.9
------------------------- ----------- ---------------- ----------------- --------- --------------- -----------
Cost of new investments
including acquisition
costs (93.6) 61.0 (32.6) (172.3) (54.7) (227.3)
Share capital raised
net of costs - - - 132.9 - 132.9
Share buybacks and
costs (20.1) - (20.1)
Movement in borrowings
and working capital 65.2 (65.2) - 2.0 (2.0) -
Movement in capitalised
debt costs and FX
hedging (0.1) 0.1 - (81.1) 81.1 -
Dividends paid (33.3) - (33.3) (28.8) - (28.8)
------------------------- ----------- ---------------- ----------------- --------- --------------- -----------
Movement in the period (44.9) 52.5 7.5 (111.7) 18.7 (93.0)
Net cash at start
of the period 65.6 (65.3) 0.3 170.9 (24.8) 146.1
------------------------- ----------- ---------------- ----------------- --------- --------------- -----------
Net cash at end of
the period 20.7 (12.8) 7.9 59.3 (6.1) 53.1
------------------------- ----------- ---------------- ----------------- --------- --------------- -----------
-- Investment cash inflows from the portfolio(APM) on a
Portfolio Basis were GBP47.4 million (2022: GBP43.3 million),
includes GBP47.2 million cash from portfolio investments plus other
interest income.
-- The total cost of investments by the SEEIT group on a
portfolio basis(APM) was GBP93.6 million (2022: GBP172.3 million),
including a further GBP90 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).
-- GBP101.7m Cash received from investments is made up of:
GBP50m dividend received, GBP47.5m loan principal, GBP4.0m interest
received on loan principal plus GBP0.2m other interest.
-- GBP8.1m Operating and finance costs is made up of GBP6.1m
fund expenses plus movement in debtors/creditors
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END
IR DZMGZGZNGFZZ
(END) Dow Jones Newswires
December 04, 2023 02:00 ET (07:00 GMT)
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