Final Results
PREMIER MITON GLOBAL RENEWABLES TRUST PLC (the “Company”)
Annual Results announcement for the year ended 31 December 2020
All page references relate to the annual report and accounts.
COMPANY SUMMARY
| Group | Premier Miton Global Renewables Trust PLC (the “Company”) (formerly Premier Global Infrastructure Trust PLC), and its wholly-owned subsidiaries PGIT Securities 2020 PLC (in voluntary liquidation) and PMGR Securities 2025 PLC. |
| Capital Structure | |
| Ordinary Shares (1p each) | 18,138,480 (as at 1 March 2021) |
| The Ordinary Shares are entitled to all of the Company’s net income available for distribution by way of dividends. On a winding-up, they will be entitled to any undistributed revenue reserves and any surplus assets of the Company after the Zero Dividend Preference Shares (“ZDPs”/”ZDP Shares”) accrued capital entitlement and payment of all liabilities. The Ordinary Shareholders have the right to receive notice of, to attend and to vote at all general meetings of the Company. The Ordinary Shares are qualifying investments for ISAs. | |
| Zero Dividend Preference Shares (1p each) Issued by PMGR Securities 2025 PLC | 14,217,339 |
| The 2025 ZDP Shares (“2025 ZDPs”) will have a final capital entitlement of 127.6111p on 28 November 2025, equivalent to a gross redemption yield from the date of issue of 5.0% per annum, subject to there being sufficient capital in the Company. The 2025 ZDPs are qualifying investments for ISAs. |
| Investment Manager | Premier Fund Managers Ltd (“PFM Ltd”), is a subsidiary of Premier Miton Group plc |
| (“PMI Group”). PMI Group had £12.0 billion of funds under management at 31 December 2020. PFM Ltd is authorised and regulated by the Financial Conduct Authority (“FCA”). The Company’s portfolio is managed by James Smith. Premier Portfolio Managers Limited (“PPM”) is the Company’s Alternative Investment Fund Manager. PPM has delegated the portfolio management of the Company’s portfolio of assets to PFM Ltd. | |
| Management Fee | 0.75% per annum of the gross assets under management, charged 40% to revenue and 60% to capital. |
COMPANY HIGHLIGHTS FOR THE YEAR TO 31 DECEMBER 2020
| 31 December | 31 December | ||
| 2020 | 2019 | % change | |
| Total Return Performance | |||
| Total Assets Total Return(1)# | 16.5% | 19.0% | |
| FTSE Global Core Infrastructure 50/50 Total Return Index(2) | (6.1%) | 21.2% | |
| FTSE All-World Index Total Return(2) (GBP) | 13.3% | 22.3% | |
| FTSE All-Share Index Total Return(2) (GBP) | (9.7%) | 19.1% | |
| Ongoing charges(3)# | 1.76% | 1.66% | |
| Ordinary Share Returns | |||
| Net Asset Value per Ordinary Share (cum income)4 | 173.48p | 144.94p | 19.7% |
| Mid-market price per Ordinary Share(2) | 157.50p | 130.00p | 21.2% |
| Discount to Net Asset Value# | (9.2%) | (10.3%) | |
| Revenue return per Ordinary Share | 9.32p | 10.81p | (13.8%) |
| Dividends declared per Ordinary Share | 10.20p | 10.20p | 0.00% |
| Net Asset Value Total Return(5)# | 29.5% | 38.9% | |
| Share Price Total Return2# | 31.0% | 38.3% | |
| Zero Dividend Preference Share Returns (2019: 2020 ZDP Shares) | |||
| Net Asset Value per Zero Dividend Preference Share(4) | 100.42p | 120.41p | |
| Mid Market Price per Zero Dividend Preference Share(2) | 103.50p | 121.00p | |
| Premium to Net Asset Value # | 3.1% | 0.5% | |
| Hurdle Rates(6)# | |||
| Ordinary Shares | |||
| Hurdle rate to return the share price of 157.50p at 28 November 2025 | 0.9% | ||
| Zero Dividend Preference Shares | |||
| Hurdle rate to return the redemption share price for the 2025 ZDPs of 127.6111p at 28 November 2025 | (16.2%) | ||
| Balance Sheet | |||
| Gross Assets less Current Liabilities (excluding Zero Dividend Preference Shares) | £45.7m | £55.2m | (17.2%) |
| Zero Dividend Preference Shares | (£14.3m) | (£29.0m) | (50.8%) |
| Equity Shareholders’ Funds | £31.4m | £26.2m | 19.8% |
| Gearing(7)# | 31.3% | 52.5% | |
| Zero Dividend Preference Share Cover (non-cumulative)(8)# | 2.32x | 1.76x |
# Alternative performance measure (“APM”). See Glossary of Terms for definitions and Alternative Performance Measures on pages 76 to 80.
(1) Source: PFM Ltd. Based on opening and closing total assets plus dividends marked “ex-dividend” within the period.
(2) Source: Bloomberg.
(3) Ongoing charges have been based on the Company’s management fees and other operating expenses as a percentage of average gross assets less current liabilities over the year (excluding the ZDPs accrued capital entitlement).
(4) Articles of Association basis.
(5) Source: PFM Ltd. Based on opening and closing NAVs with dividends marked “ex-dividend”.
(6) Source PFM Ltd. Hurdle rate definition, and comparative hurdle rates for the previous year, can be found in the Glossary of Terms and Alternative Performance Measures on pages 76 to 80.
(7) Source: PFM Ltd. Based on Zero Dividend Preference Shares divided by Gross Assets Less Current Liabilities at the end of each year.
(8) Source: PFM Ltd. Non-cumulative cover = Gross assets at year end divided by final repayment of ZDPs plus management charges to capital.
CHAIRMAN’S STATEMENT FOR THE YEAR TO 31 DECEMBER 2020
Introduction
2020 was an extraordinary year for both the world and financial markets. At the start of the year, we could never have anticipated what was to come. I am delighted to say that the team at Premier Miton has continued to work very much as normal, albeit from home. The Board and the Manager have met regularly, in a virtual format, during the course of the year and have made some very significant decisions regarding the future of the Company.
The Company has changed its investment policy to focus on global renewable energy, making it the only investment trust dedicated to investment in listed companies in this space. Accordingly, the Company also changed its name to reflect the change of investment policy. We were also delighted to be awarded the London Stock Exchange Green Economy Mark in January this year.
The Zero Dividend Preference Shares (“ZDP Shares”) were refinanced and, although the Board had hoped that the take-up of the ZDP offer would be higher, we are comfortable with the lower level of gearing, which the Board believes is appropriate going forward. It should be noted that the smaller ZDP issue will result in a somewhat lower level of dividend. However, it will reduce the financing cost charged to the Company’s capital account so leading to a higher net asset value than would have been the case with a larger ZDP issue.
Obviously, 2020 was a very difficult year. Markets fell dramatically in March when it became apparent that the pandemic was taking hold globally. However, since then there has been a very significant recovery in many world markets and stocks, including those sectors in which the portfolio is invested.
The pandemic did little to change many of the market trends prevalent in recent years. The US markets recorded another year of gains as growth strategies once again out-performed value. UK markets continued to be a laggard, having in the main a value biased “old economy” composition, coupled with further Brexit uncertainty throughout the year.
However, with the valuations of a large part of the US market looking stretched to say the least, and with a Brexit deal now signed, relative performance in 2021 could potentially look rather different. The value of the US Dollar is also a key consideration, and with the Democrats now having a clean sweep of Congress; many commentators are expecting it to weaken.
The economic legacy of the response to the pandemic will be with us for a long time, with very high government debt balances and possibly permanent changes to the way we live, work and spend. The task for policy makers will be to ensure that a health crisis does not turn into a longer lasting economic one.
Performance
I am pleased to say that against this difficult and volatile background, the performance of the Premier Miton Global Renewables Trust PLC (the “Trust”/“Company”) was very strong. The total assets total return, measuring the return on the portfolio including all income and costs, (including the costs associated with the ZDP refinancing of £0.41 million), was 16.5%. The Trust’s geared capital structure amplified the return such that the total return on net assets to Ordinary Shareholders was 29.5%. Based on share price, Ordinary Shareholders saw a total return of 31.0%.
This performance was well ahead of market indices against which the Board measures the performance of the Trust. While the FTSE All-World Index returned 13.3%, driven mainly by a strong US market, the FTSE Global Core Infrastructure 50/50 Index returned a negative 6.1%, and FTSE All Share Index returned a negative 9.7% (all indices GBP, total return).
There are a couple of factors relating to the Trust’s out-performance worth highlighting. Firstly, during the market rout in the first quarter, the Manager acted to limit losses by taking a short index futures position against the major markets to which the portfolio was exposed. This gave a cash profit, which was then re-invested into the market at a very attractive entry point, resulting in further gains. In total, equity market hedging gains in the year amounted to £2.89 million.
Secondly, the Trust’s portfolio, being mainly exposed to contracted and regulated underlying revenue streams, was in reality not as exposed to the economic situation as either the market as a whole, or those areas of infrastructure, such as transport and some of the more customer-exposed utilities, which are yet to see a meaningful recovery. As discussed in more detail below, the Manager took advantage of market movements in the first half to increase substantially the weighting to renewable energy investments. The renewables sector then recovered strongly during the second half of the year, leading to an improving portfolio value.
It is very pleasing to see the reception by the market of this performance and the new investment policy. Over the early part of 2021 the shares closed their discount to NAV and subsequently traded at a premium, enabling the Company to block list 1,800,800 Ordinary Shares, from which 50,000 have been issued as of the date of this report. We are keen to see the Trust grow as this will improve the cost efficiency of the Trust and increase liquidity for shareholders.
Portfolio positioning
The Company entered 2020 with a diverse infrastructure portfolio, although with relatively high weightings to renewable energy and utility companies. However, the portfolio also contained some exposure to US oil and gas infrastructure, telecoms assets and modest exposures to transportation.
The portfolio changed markedly during the year, with a substantial increase in renewable energy investment, and the disposal of holdings in other areas of infrastructure that no longer complied with the revised investment policy. The geographical spread of investments remained relatively stable, although with an increase in developed market exposures funded by a reduction in emerging markets.
Investment policy and name change
Renewable energy has been the Trust’s highest sector weighting, at about 30%, since 2017, and over that time it has provided the portfolio with some of its best returns. It offers investors highly visible, contracted and modestly risked revenue streams, together with solid growth prospects as the world seeks to reduce carbon emissions.
Both the Board and the Manager were surprised therefore to see the renewable energy sector fall in line with markets during the first half of the year. This gave the Manager an opportunity to not only increase exposure to this attractive sector, but also to more fundamentally reassess the Company’s investment policy. Therefore, in conjunction with the Manager, the Board undertook an evaluation of the Trust’s future direction and policy, and concluded that shareholders would be best served by the Trust moving to a more focussed policy of investment in renewable energy and other sustainable infrastructure investments. This reflects not only the current global policy environment, which encourages the build out of zero carbon electricity generation, but also the technological advancements of recent years which has resulted in renewable energy being the lowest cost form of energy production.
We are grateful to shareholders for giving their approval to this change at shareholder meetings in October 2020, and the Company changed its name from Premier Miton Global Infrastructure Trust PLC to Premier Miton Global Renewables Trust PLC shortly afterwards in November 2020.
The Board has also reviewed its current usage of indices for performance comparison purposes. Unfortunately, the few renewable or clean energy indices that exist tend to focus on technology companies rather than the asset based infrastructure companies in which the portfolio invests, or have an inappropriate geographical construction. We have, for the time being, therefore decided to continue with the Company’s existing set of performance comparators.
Life extension
I am pleased to report that at the Company’s AGM in April 2020, shareholders approved a resolution to allow the Company to continue in existence as an Investment Trust until the AGM in 2025.
ZDP Shares refinancing
The 2020 ZDP Shares matured at the end of November 2020 at a final value of £30.25 million. These were refinanced through an issue of new 2025 ZDP Shares and through a cash repayment.
Of the 24.07 million 2020 ZDP Shares in issue prior to their maturity, rollover elections were received in respect of 8.65 million shares, which at their final value of 125.6519p per 2020 ZDP Share, resulted in demand from existing investors for £10.87 million of new 2025 ZDP Shares. In addition, £3.35 million new 2025 ZDP Shares were placed to new investors, resulting in a total issue of £14.22 million 2025 ZDP Shares (being 14.22 million shares at a 100p issue price per share). The balance of 2020 ZDP Shares, worth some £16.03 million, were repaid using cash raised from sales of portfolio investments.
The new 2025 ZDP Shares will mature on 28 November 2025 at a final value of 127.6111p per share, equivalent to an annual capital accretion rate of 5.0% per year from issue.
The Board had decided that a lower level of ZDPs would be more appropriate going forward, but we had hoped that the take up would be higher than it turned out to be. The low demand for the 2025 ZDP Shares, we believe, reflected a diminished appetite for smaller less liquid ZDP issues and a general move away from the asset class by some institutional investors. In the circumstances we were pleased at the level achieved.
The smaller ZDP issue has some implications for the Trust that are important for shareholders to understand. Firstly, the Company is now substantially less geared at 31.3% (calculated as debt / gross assets), at the year-end compared to 52.5% at the end of 2019. This should reduce the volatility of the Ordinary Share net asset value and as such reduce risks to shareholders.
Secondly, because the refinancing caused the portfolio to fall in size by £16 million, income generation is expected to be lower than in prior years. Shareholders will recall that ZDP shares, having no call on the Company’s income account, act to increase revenue earnings, and a lower ZDP issue results in lower revenue earnings. The Board, in conjunction with the Manager, has now reviewed the anticipated level of net revenue earnings based on the new capital structure, and barring unforeseen events or market conditions, expects revenue earnings will be sufficient to support a dividend of at least 7.0 pence per Ordinary Share in 2021.
Thirdly, the lower ZDP liability will result in lower financing costs charged through the Company’s capital account. We expect the 2021 financing costs to be some £0.6 million lower than those in 2019, the last full year of issue of the 2020 ZDP shares. This saving is equivalent to 3.9 pence per Ordinary Share, and is roughly equal to the expected fall in net revenue earnings, leaving Ordinary Shareholders in a similar net position financially, but with the benefit of lower gearing risk.
Income and dividends
As it became clear that the new 2025 ZDP Share issue would be of a substantially smaller size than the 2020 ZDP Shares, the Manager progressively sold down the portfolio in order to have sufficient cash to repay redeeming ZDP shareholders. This was done over several weeks in order to minimise pricing risk. As a result, the income generation of the portfolio in the second half of the year was below that originally expected. For the year as a whole, net revenue earnings were 9.32p some 13.8% lower than in 2020. On an underlying basis, dividends received from investee companies were largely in line with prior years, and did not see the material reductions suffered in many equity sectors.
Despite the lower net revenue earnings, the Board has resolved to utilise historic revenue reserves to hold the total dividend paid in respect of 2020 to the same level as 2019. Your Board has therefore declared a 4th interim dividend of 2.70p (2019: 2.70p) which brings the total dividends declared for the year to 10.20p (2019: 10.20p). The 4th interim dividend will be paid on 31 March 2021, with the shares to be marked ex-dividend on 4 March 2021.
Shareholder relations
The Company’s Annual General Meeting (“AGM”) will be held on 28 April 2021. At the time of writing, it looks unlikely that it will be possible to have the meeting open to shareholders in person. We will make efforts to ensure that a presentation by the Manager is added to the website ahead of the AGM which will be held virtually. Shareholders will need to vote ahead of the meeting and will be able to submit questions ahead of the meeting so that they can be answered by the Manager and the Board.
There are a number of resolutions contained in the Notice of AGM that need your attention. Three of these are the usual ones that we include, namely to permit the issuance of new shares, the disapplication of pre-emption rights and the authority to buy back shares. This year, however, we are also seeking to amend the investment policy restrictions to ensure that they are suitable for the new investment policy which was approved by shareholders in 2020. In addition, we are seeking to make amendments to the articles of association of the Company to bring them up to date and to permit the conduct of electronic AGMs. We do not intend to use this permission unless exceptional circumstances prevail such as the current pandemic.
Shareholders can find additional details regarding your Company, including factsheets and articles on topics relating to both the renewables sector and the Company, on Premier Miton’s website at: www.premiermiton.com.
Environmental, Social, Governance
Given the change of investment policy, ESG measures are now an integral part of the Manager’s approach to running the portfolio. Further, Premier Miton is a signatory to the Principles for Responsible Investment, an organisation which assists signatory firms develop and maintain responsible investment practices.
By its very nature the Trust’s portfolio has strong environmental credentials. However, there is one remaining legacy holding which does not comply with the new investment policy, Indian power generator OPG Power Ventures. The Manager will seek to exit this position over time, but does not at this point consider its current valuation to reflect a reasonable level at which to sell. The Board are, for the time being, supportive of the delay in the sale of this asset, balancing both the new investment policy and its fiduciary responsibilities to shareholders.
Outlook
Despite the continuing difficult economic and health situation, we enter 2021 with some hope for another profitable year.
In the US, the Presidential election is now over. As predicted, President Trump refused to accept the outcome of the vote, but this has not had the negative market impact that had been feared. Further, it is expected that the Biden Presidency, particularly now that it has full control of Congress, will pursue policies that are in alignment with combatting global warming, which should be of benefit to the Trust’s portfolio.
In the United Kingdom, we now have what looks to be a final resolution to the drawn out saga of Brexit. We hope that the scars of recent years can heal over time and the UK and Europe can move forward in a spirit of cooperation. The development of UK environmental regulation continues apace, not least with the ambitions highlighted in the Government’s ten-point environmental plan.
In Europe, all eyes will be on the carbon market, (where carbon pricing remains well below that of the UK). A continued further increase is necessary to achieve the EU Commission’s targets for carbon reduction, and this has the potential to be a positive dynamic for the portfolio.
China, as ever, receives a bad press for its environmental performance. However, the development of its renewable energy sector continues to be rapid, and with costs having fallen to grid parity, new development is not reliant on Government subsidy and intervention.
Much has been reported about valuations within the renewable energy sector. However, most of the portfolio’s investments do not feature particularly highly within renewable energy indices, and have therefore not been inflated by the large inflows into exchange-traded funds which track these indices. As such, we remain hopeful for further good performance of the Company.
Gillian Nott OBE
Chairman
2 March 2021
INVESTMENT MANAGER’S REPORT FOR THE YEAR TO 31 DECEMBER 2020
Performance overview
The portfolio produced an excellent return in 2020, outperforming global equity markets, and recording a substantial out-performance of the infrastructure sector. We were able to take advantage of market dislocation in the first quarter to reposition the portfolio further towards renewable energy, which we identified as presenting a particularly strong investment proposition at that time. This was given a further boost from gains made on market hedging which we were able to reinvest at a low point in the market.
As part of a diversified infrastructure portfolio, the Trust has been investing in renewable energy for several years, with renewables being the portfolio’s largest exposure, at approximately one third of the portfolio, since 2017. The underlying drivers behind the growth of renewables have accelerated over this period, namely government and international policies aimed at combatting climate change, together with a continual reduction in costs. The Company’s change of investment policy – to invest in a dedicated renewable energy portfolio – will allow the Trust to take full advantage of this fundamental change in the global economy.
Government policy was undoubtedly the most important growth factor during the early development of renewable energy. However, we believe that falling costs will increasingly be the major force behind further growth as renewables out-compete other forms of electricity generation.
While renewables have already seen, and will continue to see, strong growth within the electricity generation sector, attention will now increasingly focus on those “harder to decarbonise” areas such as transportation, space heating, and agriculture. According to the European Environment Agency, electricity generation is responsible for just over 20% of European greenhouse gas emissions, so policies are increasingly required to address other sources of carbon emissions.
A large part of this will come from a gradual process of “electrification”, whereby electricity replaces fossil fuels in areas such as space heating, passenger transportation and light industry. Renewable energy can also be used to manufacture “green” hydrogen (via electrolysis of water), which can then be used as a zero carbon substitute for fossil fuels in areas where electricity is not feasible, such as heavy industry, air transportation and sea freight. While this may seem fanciful to many, it is important to understand that the technology enabling this exists today; what is required is for the development of the necessary infrastructure, which will in turn, over time, drive down costs to a competitive level.
Portfolio segmentation
The Trust is seeking to offer investors a diversified global exposure to renewable and sustainable infrastructure through investment in publicly listed companies. This differentiates the Trust from many other clean energy investment funds, including exchange-traded funds, which often have a more technology-oriented profile.
We believe that focussing on contracted and regulated infrastructure investments offers an attractive risk / reward dynamic for long-term investment. This approach offers both high visibility of earnings and dividends, and some protection against market downturns such as that experienced in 2020.
Most renewable energy installations sell their output at pre-determined long-term prices, reducing commodity and market risks. Such sales may be to a government agency through a tariff system, or as is increasingly common, to a high-credit corporate buyer. Risks that remain include variability of the weather, operational availability, and construction cost over-runs. We tend to view weather-related risks as balancing themselves out over the medium term, and the other risks are, in the main, internal and can be mitigated through operational excellence.
The portfolio is classified according to asset type, based on a new segmental structure that reflects the policy change approved during 2020. The portfolio has exposure to a wide range of sub-sectors, aiming to invest not just in wind and solar assets, but in the full energy production and delivery matrix, including energy storage, electricity transmission networks and utilities that own high quality renewable development businesses.
One important distinction to make is that a typical renewable energy installation may be owned by a renewable energy developer, or by a yield company (“yieldco”), a company set up with the purpose of acquiring assets, and then holding them for the long term to pay a sustainable dividend to investors. The former offers higher potential returns as the company deploys its own capital on speculative development projects that may or may not come to fruition, but this comes with a somewhat higher risk as a result. Yieldcos prefer to remove construction risks and typically acquire recently constructed projects, then operate them as cost effectively as possible. They therefore forgo developer margin in return both for greater visibility, and the benefit of having all assets producing revenues from day one.
PORTFOLIO SECTOR CLASSIFICATION 2020
| 2020 | |
| Yieldcos & funds | 31.9% |
| Renewable energy developers | 20.1% |
| Renewable focused utilities | 11.9% |
| Biomass generation and production | 10.5% |
| Waste to energy | 5.3% |
| Energy storage | 4.7% |
| Renewable technology and service | 4.7% |
| Electricity networks | 4.2% |
| Liquidation portfolio | 3.2% |
| Renewable financing and energy efficiency | 3.0% |
| Carbon markets | 0.5% |
Yieldcos and Funds
This was another successful year for the Trust’s investments in renewable energy yieldcos. Operational and financial performance was maintained despite the difficult global backdrop. North American listed assets performed well as a result of monetary easing and the exiting from bankruptcy proceedings of US utility The Pacific Gas and Electricity Company (“PG&E”). PG&E is a large scale buyer of US west coast renewable energy with whom some of the portfolio’s investments have power sales contracts (and which have thankfully emerged from the proceedings unscathed).
Atlantica Sustainable Infrastructure (formerly Atlantica Yield) remained the largest holding, and saw its share price gain 43.9% (having gained 34.6% in 2019). It continues to perform well operationally and was active in acquiring new investments during 2020. Canadian listed Transalta Renewables, another longer-term holding, gained 40.2%, while Clearway Energy A Shares increased by 54.6%. Clearway was one of the major beneficiaries of the closure of the PG&E bankruptcy. Brookfield Renewable Energy Partners, mainly a hydro-based business, once again recorded an exceptional performance, its shares gaining 71.4%. NextEra Energy Partners, was one of the portfolio’s largest contributors to returns in 2020, having been acquired at market lows, and then sold down toward the end of the year.
New Energy Solar is an Australian listed investor in predominantly US solar assets, although with some Australian solar investments. This was a new investment in 2020, and was acquired at a steep discount to asset value.
The UK renewable investment companies, while performing well on a fundamental basis, and maintaining their dividend policies, fared less well in share price terms. The portfolio’s two UK renewable energy investment companies, NextEnergy Solar Fund, and Greencoat UK Wind saw their shares fall by 14.3% and 10.7% respectively, as they reduced their asset valuations on lower long-term energy price forecasts. The portfolio still recorded healthy gains on these positions during 2020 however, having substantially increased exposure during market lows in the second quarter.
Despite their recent lacklustre performance, we believe the UK renewable investment companies have several attractions. Firstly, there is the possibility that UK power prices could increase in coming years on the back of the closure of nuclear and older thermal plants, combined with higher carbon pricing. Secondly, we believe that these companies calculate asset values using conservative assumptions, and the benefits of “yield compression” are yet to be properly reflected. In the event that inflation increases, their high level of revenue indexation through the renewable obligation certificate scheme would provide a high degree of valuation protection.
Renewable Energy Developers
Northland Power, one of the Trust’s largest holdings throughout the year and the portfolio’s largest contributor to performance, saw its shares gain 67.9% as it completed its third North Sea wind farm and advanced its offshore wind development project pipeline in Taiwan, Canada, and Korea. The holding was reduced in size toward the year-end as we now feel its valuation more closely reflects fair value.
In Europe, we have increased the investment in RWE, a German company that historically has been more of a thermal power generator, but now earns most of its earnings from renewable energy, having completed the acquisition of Innogy’s renewables business. It is one of the world’s largest offshore wind farm developers, with a substantial global development pipeline, and coming years will see it wind down its European thermal generation business to concentrate on renewable energy. Its shares gained 26.4% in 2020. Acciona, a Spanish-based global wind developer, gained 24.4% despite its earnings being held back by its contracting business, which was badly affected by lockdown but is thankfully only a small part of the group. Further down the portfolio, Solaria, a Spanish solar developer and a new holding in 2020, made a very strong contribution to portfolio returns despite its modest weighting, recording a share price increase of 247.6%.
Despite China being the world’s largest generator of renewable energy, renewables still form a relatively small part of the generation mix. China has the ambition to be carbon neutral by 2060, so renewables look set to continue their growth path. The Trust’s two Chinese renewable energy developers, China Suntien Green Energy and China Longyuan Power Group saw their share prices gain 5.8% and 57.6% in the year respectively. With high levels of capital expenditure, we expect to see strong earnings growth over the next few years. The slow receipt of receivables from the Chinese renewable subsidy fund is more a timing issue than a credit concern we believe, and with future projects now being built on a zero subsidy basis, this should become less of an issue over time.
PORTFOLIO GEOGRAPHICAL ALLOCATION
| 2020 | 2019 | |
| North America | 26.22% | 23.64% |
| United Kingdom | 20.73% | 9.61% |
| Global | 17.59% | 18.38% |
| Europe (excluding UK) | 16.52% | 7.27% |
| China | 14.12% | 20.56% |
| India | 3.15% | 2.69% |
| Latin America | 1.68% | 7.55% |
| Asia (excluding China) | 0.00% | 6.62% |
| Middle East | 0.00% | 3.19% |
PORTFOLIO MARKET CLASSIFICATION PROFILE
| 2020 | 2019 | |
| Large Cap (> £10bn) | 17.4% | 19.0% |
| Medium Cap (£2bn to £10bn) | 40.9% | 32.3% |
| Small Cap (£250m to £2bn) | 23.1% | 42.0% |
| Micro Cap (< £250m) | 18.6% | 6.6% |
Renewable Focussed Utilities
Utilities often have high quality renewables businesses, benefiting from the parent’s expertise in energy sales, contracting, and grid connections, plus close relations with planning and regulatory authorities.
In the UK, SSE made good progress in selling non-core assets such as their upstream exploration and production (“E&P”) and waste to energy businesses, releasing capital to develop their North Sea wind development projects. Their shares gained a modest 4.3%. Fortum completed its acquisition of a majority stake in German power generator Uniper, the logic of which we remain unconvinced about. However, Fortum’s large scale nuclear and hydro businesses stand to be major beneficiaries of any increase in carbon pricing, so we intend to retain the stake for the time being. Fortum’s share price lost 10.5% in 2020.
In North America, we have built a position in Algonquin Power and Utilities, which specialises in owning smaller regional utilities and has a sizable and rapidly growing renewables business. Its shares gained 14.0% in 2020.
PORTFOLIO CONCENTRATION
| 2020 | 2019 | |
| 10 largest investments | 49.81% | 48.16% |
| 11th to 20th | 30.95% | 28.82% |
| 21st to 30th | 13.56% | 16.31% |
| 30th onwards | 5.68% | 6.71% |
Other segments
Generation from biomass is one of the few forms of renewable energy that can be called to run on demand. Drax Group, which operates the large Drax power station which it converted from coal, is therefore a key component of the UK power system. It also owns a pumped hydro storage asset (shown on the cover of this report), and energy storage will become increasingly important we believe. Drax’s shares gained 19.4% in 2020.
Pinnacle Renewable Energy is a Canadian-based manufacturer of biomass wood pellets from sustainable forestry and sawmill waste. We believe it stands to benefit from coal power stations, particularly in Asia and Europe, converting to biomass. A slowdown in the forestry industry during the first half hurt operations and the shares fell by 8.1% in 2020.
The portfolio has held a large position in Chinese waste to energy company China Everbright Environment, which changed its name from China Everbright International during the period, for several years. Despite another year of strong earnings and operational growth, its shares were again weak, falling by 29.9%.
Transmission network operators are key both in delivering renewable energy from where it is generated to where it is required, and in the increasingly complex task of managing an electricity grid that has a large component of renewable energy. We have therefore retained the holding in National Grid. However, a relatively challenging regulatory review of UK assets in the year pushed the shares down by 8.4%. We feel that the market is largely ignoring the value in National Grid’s fast-growing US business.
Battery storage is an essential component of running a renewables-based system, smoothing variable generation loads and maintaining frequency tolerance. Gresham House Energy Storage Fund has maintained a rapid pace of development in the UK, and saw its shares increase by 4.7%, whilst also maintaining an attractive dividend.
Lastly, the Trust has made a couple of technology investments. Ocean Sun is developing a floating solar technology, while Fusion Fuels produces hydrogen from concentrated solar panels. We made strong gains on each in the year. However, while we believe these companies have high potential, investments in technology will remain a small part of the portfolio.
Currency and hedging
The Trust made index hedging gains of £2.89 million overall, having made gains in the first half but hedging losses in the second. We had expected the re-emergence of the virus in late 2020 to upset markets, but this turned out not to be the case.
Currency hedging losses of £0.54 million were recorded in the year. The currency losses reflect the relatively higher hedge position during market turmoil in the first half, during which time sterling fell sharply.
Now that the immediate Brexit-related risks look to be behind us, we feel sterling has the potential to appreciate gradually over time. As such, we believe it is prudent to maintain a sterling weighting in the portfolio at a level that is at least equal to the value of the ZDP Shares liability, which is of course a sterling liability. Without currency hedging, the Trust would have a short sterling bias, given that sterling-denominated investments are likely to be lower than the size of the ZDP liability. The position will be kept under review depending on market movements.
Outlook
The portfolio performed well in 2020 and with underlying growth continuing apace, we believe that the sector should continue to offer good returns. As ever, we will err on the side of caution when it comes to valuations, preferring those infrastructure companies with solid and well-contracted asset bases producing earnings and dividends now, over some of the higher valued areas of the sector.
James Smith
Premier Fund Managers Limited
2 March 2021
INVESTMENT PORTFOLIO AT 31 DECEMBER 2020
| Value | % total | Ranking | Ranking | |||
| Company | Activity | Country | £000 | investments | 2020 | 2019 |
| Atlantica Sustainable Infrastructure(1) | Yieldcos & funds | Global | 3,195 | 7.1 | 1 | 1 |
| TransAlta Renewables | Yieldcos & funds | North America | 2,873 | 6.3 | 2 | 15 |
| China Everbright Environment(2) | Waste to energy | China | 2,406 | 5.3 | 3 | 4 |
| Drax Group | Biomass generation and production | United Kingdom | 2,286 | 5.1 | 4 | 33 |
| New Energy Solar | Yieldcos & funds | North America | 2,055 | 4.5 | 5 | – |
| China Suntien Green Energy | Renewable energy developers | China | 2,021 | 4.5 | 6 | 27 |
| SSE | Renewable focused utilities | United Kingdom | 1,949 | 4.3 | 7 | 19 |
| Clearway Energy ‘A’ | Yieldcos & funds | North America | 1,947 | 4.3 | 8 | 20 |
| National Grid | Electricity networks | Global | 1,903 | 4.2 | 9 | 12 |
| Gresham House Energy Storage Fund | Energy storage | United Kingdom | 1,855 | 4.1 | 10 | 34 |
| Pinnacle Renewable Energy | Biomass generation and production | North America | 1,817 | 4.0 | 11 | – |
| Fortum | Renewable focused utilities | Europe (ex. UK) | 1,770 | 3.9 | 12 | 9 |
| RWE | Renewable energy developers | Europe (ex. UK) | 1,701 | 3.8 | 13 | – |
| OPG Power Ventures | Liquidation portfolio | India | 1,423 | 3.1 | 14 | 17 |
| China Longyuan Power | Renewable energy developers | China | 1,327 | 2.9 | 15 | 11 |
| Algonquin Power and Utilities | Renewable focused utilities | North America | 1,321 | 2.9 | 16 | – |
| Acciona | Renewable energy developers | Europe (ex. UK) | 1,306 | 2.9 | 17 | 36 |
| Ocean Sun | Renewable technology and service | Global | 1,286 | 2.8 | 18 | – |
| Northland Power Income Fund | Renewable energy developers | Global | 1,044 | 2.3 | 19 | 3 |
| GCP Infrastructure Investments | Renewable financing and energy efficiency | United Kingdom | 979 | 2.2 | 20 | 35 |
| NextEnergy Solar Fund | Yieldcos & funds | United Kingdom | 879 | 1.9 | 21 | – |
| Brookfield Renewable Energy Partners | Yieldcos & funds | North America | 850 | 1.9 | 22 | 24 |
| Greencoat UK Wind | Yieldcos & funds | United Kingdom | 737 | 1.6 | 23 | – |
| Solaria Energía y Medio Ambiente | Renewable energy developers | Europe (ex. UK) | 635 | 1.4 | 24 | – |
| Omega Geracao | Yieldcos & funds | Latin America | 625 | 1.4 | 25 | 30 |
| China Everbright Greentech | Biomass generation and production | China | 620 | 1.4 | 26 | 26 |
| Greencoat Renewable | Yieldcos & funds | Europe (ex. UK) | 576 | 1.3 | 27 | – |
| Fusion Fuel Green | Renewable technology and service | Europe (ex. UK) | 542 | 1.2 | 28 | – |
| SDCL Energy Efficiency | Renewable financing and energy efficiency | United Kingdom | 394 | 0.9 | 29 | – |
| Avangrid | Renewable focused utilities | North America | 332 | 0.7 | 30 | – |
| NextEra Energy Partners | Yieldcos & funds | North America | 294 | 0.6 | 31 | – |
| Neoen | Renewable energy developers | Global | 280 | 0.6 | 32 | – |
| Gore Street Energy Storage Fund | Energy storage | United Kingdom | 279 | 0.6 | 33 | – |
| OHT | Renewable technology and service | Europe (ex. UK) | 275 | 0.6 | 34 | – |
| Pacifico Renewables | Yieldcos & funds | Europe (ex. UK) | 253 | 0.6 | 35 | – |
| Innergex Renewable | Renewable energy developers | North America | 235 | 0.5 | 36 | – |
| KFA Global Carbon | Carbon markets | Global | 233 | 0.5 | 37 | – |
| 7C Solarparken AG | Renewable energy developers | Europe (ex. UK) | 205 | 0.5 | 38 | – |
| Orsted | Renewable energy developers | Europe (ex. UK) | 195 | 0.4 | 39 | – |
| Polaris Infrastructure | Renewable energy developers | Latin America | 132 | 0.4 | 40 | – |
| US Solar Fund | Yieldcos & funds | North America | 117 | 0.3 | 41 | – |
| 45,152 | 99.8% |
| Value | % total | |||
| Unquoteds | Activity | Country | £000 | investments |
| PMGR Securities 2025 PLC | ZDP subsidiary | United Kingdom | 50 | 0.1 |
| PGIT Securities 2020 PLC | ZDP subsidiary (in liquidation) | United Kingdom | 50 | 0.1 |
| Total investments | 45,252 | 100.0% |
(1) Formerly Atlantica Yield.
(2) Formerly China Everbright International
REVIEW OF TOP TEN HOLDINGS AT 31 DECEMBER 2020
| 1. | Atlantica Sustainable Infrastructure (formerly Atlantica Yield) |
| Market cap: £3.0 billion | |
| www.atlantica.com | |
| Atlantica Sustainable Infrastructure (“Atlantica”) operates renewable energy plus some conventional thermal generation and electricity transmission assets. It operates as a yield company, its sponsor being Algonquin Power and Utilities Corp., a company also owned within the portfolio. Atlantica has a commitment to maintain at least 80% of gross earnings from low-carbon assets, and it sits in the first percentile of the Sustainalytics ESG rankings. Their assets are located in the US, Europe, South Africa and Latin America, and have a weighted average remaining contract length of 18 years, offering exceptional visibility. Strong cash flows have allowed the company to pay down project level debt and to increase distributions to shareholders over time, plus make new investments – with new solar and district heating assets having been acquired in the year. Atlantica’s share price increased by 43.9% during 2020. | |
| 2. | TransAlta Renewables |
| Market cap: £3.3 billion | |
| www.transaltarenewables.com | |
| Transalta Renewables is a Canadian yield company, operating mainly wind energy assets, but also with some hydro, gas, and solar assets. It operates predominantly in Canada, and also in Australia. It benefits from a highly contracted portfolio, with a remaining average contract life of 12 years. It has only modest debt balances and we believe this will enable it to have a higher than average growth profile, and to benefit financially from improved balance sheet efficiency over time. It announced a substantial acquisition of new Canadian and US wind assets in December from its sponsor, Transalta Corporation, at a price that we judge to be attractive. Transalta Renewables’ share price gained 40.2% in 2020. | |
| 3. | China Everbright Environment |
| (formerly China Everbright International) | |
| Market cap: £2.5 billion | |
| www.cebenvironment.com | |
| China Everbright Environment is a leading waste to energy and wastewater treatment company operating in mainland China. Despite having recorded exceptional growth over several years, it still managed to increase electricity production by 22% in 2019 and by a further 41% in the first half of 2020. However, concerns over possible regulatory changes pushed the shares down by 29.9% in the year. The shares trade at a relatively low valuation multiple, and we believe this over-discounts regulatory risks. Further, we believe that the company can continue to record earnings growth in the future, as not only the waste market grows, but as landfill volumes divert to waste to energy plants. | |
| 4. | Drax Group |
| Market cap: £1.5 billion | |
| www.drax.com | |
| Drax Group operates the UK’s largest renewable energy facility, the Drax power station in Yorkshire, which it converted from coal to biomass pellets manufactured from sustainable wood waste, benefiting from UK subsidy schemes lasting through to 2027. It is also one of the world’s largest producers of biomass from its facilities in the US, and as such is partially self-sufficient in fuel. It also owns the Cruachan pumped storage hydro plant in Scotland, which we view as a strategic asset. Further, the company is developing carbon capture and storage technology, which would enable the Drax power station to operate with negative emissions, and generate revenue from removing CO2 Drax’s shares rose by 19.4% in 2020. | |
| 5. | New Energy Solar |
| Market cap: £173 million | |
| www.newenergysolar.com.au | |
| New Energy Solar is an Australian based solar investor, with the majority of its assets located in the US, although having two sites in Australia. The US portfolio is newly constructed, and had some modest operational issues in the year, which have now been resolved, although the Australian assets have performed ahead of expectation. Unfortunately, the company has struggled to appeal to an Australian investor base, with the result that at December 2020 the shares stood at a 29.0% discount to their net asset value and fell by 36.4% in the year. The company is taking steps to demonstrate value however, with a stake in one of the larger US assets having been sold, and the Australian assets having recently been put up for sale. | |
| 6. | China Suntien Green Energy |
| Market cap: £865 million | |
| www.suntien.com | |
| China Suntien is a Chinese wind farm developer, also having a natural gas distribution and logistics business. The company’s operations are mainly located in the province of Hebei in Northern China with its operating profit split approximately 70% in favour of wind farms, 30% natural gas. Growth has been strong in recent years, with wind power generation increasing by 15.1% in 2019 and by 10.5% in 2020 as the company expands further into China away from its home province. Gas volumes have also been very strong, up 23.0% in 2019 and by 8.9% in 2020, and natural gas has a key environmental role to play in displacing coal usage. Suntien’s shares gained 5.8% in 2020. | |
| 7. | SSE |
| Market cap: £15.6 billion | |
| www.sse.com | |
| In recent years, a successful disposal programme has seen SSE transform itself from a broad energy company, encompassing energy retailing, upstream production and thermal power generation, to being a focussed energy networks and renewables operator. The company is now much less exposed to competitive businesses and commodity risks. The disposal programme has helped generate capital for renewables developments, and the next few years will see SSE embark on a major expansion of its wind business in the North Sea, including the giant Dogger Bank project, which when completed will be the world’s largest offshore wind farm. SSE’s shares gained 4.3% in 2020, held back by a challenging regulatory review in its Scottish electricity transmission business. | |
| 8. | Clearway Energy |
| Market cap: £2.5 billion | |
| www.investor.clearwayenergy.com | |
| Clearway Energy (“Clearway”) is a diversified owner and operator of renewable energy assets in the US plus some gas generation assets used as standby capacity. It operates as a yield company, and in 2020 made several acquisitions at we believe attractive prices, from its sponsor Clearway Energy Inc. With several assets under contract to The Pacific Gas and Electric Company (“PG&E”), Clearway benefited from PG&E’s Chapter 11 bankruptcy proceedings being finalised during the year, with its sales contracts remaining unchanged, and freeing up cash trapped at subsidiary level due to banking covenants. Clearway’s shares gained 54.6% during the year. | |
| 9. | National Grid |
| Market cap: £30.7 billion | |
| www.nationalgrid.com | |
| National Grid (“Grid”) is best known as the owner and operator of the UK’s high-voltage electricity and high-pressure gas transmission networks. Electricity transmission assets are increasingly important and complex infrastructure systems, essential to the delivery and growth of renewable energy. Grid is also taking the lead on issues such as the development of high voltage rapid vehicle charging infrastructure and rationalisation of offshore wind farm transmission. Grid’s US business is, we believe, underappreciated, and has grown steadily over recent years. In the 12 months to March 2020 the US accounted for almost half of group operating profit, and with US capital expenditure being about 60% of the group total, we expect that Grid’s earnings will be increasingly US weighted in future. A challenging UK transmission review caused the shares to lose value in 2020, falling by 8.4%. | |
| 10. | Gresham House Energy Storage Fund |
| Market cap: £392 million | |
| www.greshamhouse.com | |
| Gresham House Energy Storage Fund (“Gresham”) is a UK closed-end investment company set up to exploit the growing opportunities for battery storage. The rapid development of renewable energy in the UK has led to increased volatility and short term mismatches between supply and demand, which in turn has caused balancing costs to rise sharply as National Grid procures short-term energy to meet a shortfall in supply, or pays generators not to run at times of excess supply. Battery storage is a more efficient and lower cost method of managing fluctuations, however to date; most of Gresham’s revenue have in fact come from frequency response services, ensuring that the transmission grid operates within a stated tolerance of 50HZ. We therefore believe balancing revenues will progressively add to value over time. Gresham was very active in acquiring new sites during the year funded by new equity. Its share price increased by 4.7% in 2020 while also maintaining an attractive dividend. |
STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2020
The Directors submit to the shareholders their Strategic Report, Directors’ Report and the Audited Financial Statements of the Company for the year ended 31 December 2020.
Business Model and Strategy
Business and tax status
The Company is an investment trust and its principal activity is portfolio investment. In the opinion of the Directors, the Company has conducted its affairs during the period under review, and subsequently, so as to maintain its status as an investment trust (see page 18 for tax description). This allows the Company to obtain an exemption from paying taxes on the profits made from the sale of its investments. Investment trusts offer a number of other advantages for investors, including access to investment opportunities that might not be open to private investors and to professional stock selection skills at low cost.
The Company is an investment company as defined in Section 833 of the Companies Act 2006. The Company is not a close company for taxation purposes.
High income
The full year dividend for 2020 totalled 10.2p (10.2p for 2019) representing a yield of 6.48% on the year end share price.
The chart on page 3 shows the annual dividends paid by the Company over the past five years.
Long term growth in capital value
The asset value of the Company’s portfolio will be heavily influenced by performance of the renewable energy sector, other sustainable infrastructure sectors and global stock markets.
At a General Meeting held on 9 October 2020, an ordinary resolution was passed to amend and restate the Company’s investment objective and policy to read as follows:
Investment objective
The investment objectives of the Company are to achieve a high income from, and to realise long-term growth in the capital value of its portfolio. The Company seeks to achieve these objectives by investing principally in equity and equity related securities of companies operating primarily in the renewable energy sector, as well as other sustainable infrastructure investments.
Investment policy
The investment policy of the Company is that, in normal market conditions, the portfolio of the Company should consist primarily of a diversified portfolio of equity and equity-related securities of companies operating in the renewable energy sector, as well as other sustainable infrastructure investments. There are no restrictions on the proportion of the portfolio of the Company which may be invested in any one geographical area or asset class but no more than 15 per cent. of the Company’s assets, at the time of acquisition, will be invested in securities issued by any investee company. The Company may also invest up to 15 per cent. of its gross assets in investment companies provided they themselves invest in renewable energy and other sustainable infrastructure. However, not more than 10 per cent. of the Company’s gross assets may be invested in other UK listed closed-ended investment funds unless such funds themselves have published investment policies to invest not more than 15 per cent. of their total assets in other UK listed closed-ended investment funds (provided they themselves invest in renewable energy and other sustainable infrastructure). The Company may invest up to 15 per cent. of its gross assets in unquoted securities.
There are no borrowings under financial instruments or the equivalent of financial instruments but investors should be aware of the gearing effect of ZDP shares within the Group’s capital structure. The Company’s policy is not to employ any gearing through long-term bank borrowing. The Group can, however, employ gearing through the issue of ZDP shares by a subsidiary of the Company. The Group is not subject to a maximum level of such gearing save that the number of new ZDP shares that may be issued is limited by the applicable cover test in respect of those ZDP shares.
The Company will manage and invest its assets in accordance with its published investment policy. Any material change to this policy will only be made with the approval of Ordinary Shareholders by ordinary resolution and the prior sanction of a special resolution of ZDP shareholders, unless otherwise permitted by the Listing Rules.
Investment restrictions
The Company will not:
| 1) | invest more than 10%, in aggregate, of the value of its gross assets at the time the investment is made in other UK listed closed-ended funds, provided that this restriction does not apply to investments in any such closed-ended funds which themselves have stated investment policies to invest no more than 15% of their total assets in other listed closed-ended funds; |
| 2) | invest more than 15% of its gross assets in listed closed-ended funds; |
| 3) | invest more than 15% of the Company’s assets, at the time of acquisition, in a single security; |
| 4) | invest more than 15% of its gross assets in unquoted securities; |
| 5) | invest more than 20% (calculated at the time of any relevant investment) of its gross assets in other collective investment undertakings (open-ended or closed-ended); |
| 6) | expose more than 20% of its gross assets to the creditworthiness or solvency of any one counterparty (including the counterparty’s subsidiaries or affiliates); |
| 7) | invest in physical commodities; |
| 8) | cross-finance between the businesses forming part of its investment portfolio including provision of undertakings or security for borrowings by such businesses for the benefit of another; |
| 9) | operate common treasury functions as between the Company and an investee company; or |
| 10) | conduct any significant trading activity. |
Following the change of Investment Policy approved at the Company’s General Meeting held in October 2020, an ordinary resolution will be proposed at the Company’s 2021 Annual General Meeting to revise the Investment Policy. Further details are provided in the Chairman’s Statement on page 6, the Directors’ Report on pages 32 and 33 and the Notice of Annual General Meeting on pages 87 and 88.
In addition to the above restriction on investment in a single company the Board seeks to achieve a spread of risk in the portfolio through monitoring the country and sector weightings of the portfolio.
There will be a minimum of twenty stocks in the portfolio. The Company is geared through ZDP Shares but does not use other gearing on a long-term basis.
The Directors meet with the Investment Manager regularly to discuss the portfolio.
Viability statement
The Directors have assessed the viability of the Company over a three year period, taking into account the Company’s position at 31 December 2020.
A period of three years has been chosen for the purposes of the assessment of viability as the Board believes that this reflects a suitable time horizon for reviewing the Company’s circumstances and strategy, taking into account the investment policy, liquidity of investments, potential impact of economic cycles, nature of operating costs, dividends and the availability of funding. In its assessment of the viability of the Company, the Directors have carried out a robust assessment of the Company’s emerging and principal risks detailed on pages 18 to 20 and in particular:
| (i) | The potential for a fall in value of the investment portfolio. |
| (ii) | The potential impact on the Company of Brexit and potential changes in either the Company’s investment or operating environment. |
| (iii) | The Company’s ability to represent an attractive investment, including the potential for Company’s shares to trade at a level close to Net Asset Value, to pay an attractive level of dividend, and maintain acceptable levels of Gearing and Zero Dividend Preference Share Cover. |
| (iv) | The operational resilience of service providers and their ability to fulfil their obligations to the Company during lockdown measures. |
| (v) | Looking beyond the three-year horizon, the Board is conscious that there will be a ZDP maturity and a continuation vote in 2025. Therefore, testing calculations performed by the Fund Manager illustrating the effects on Gearing and Zero Dividend Preference Share Cover given specified reductions in value of the portfolio included: |
| a) the Company’s ability to repay the final capital entitlement of the ZDP Shares on 28 November 2025; | |
| b) the potential for a fall in the value of the investment portfolio; and | |
| c) the impact on the Company should the shareholders vote not to pass the continuation vote scheduled to take place at the 2025 annual general meeting of the Company, which would oblige the Directors to follow the provisions in the Articles of Association and put forward proposals to the effect that the Company would be wound up, liquidated, reorganised, unitised or to find some other suitable solution that would be satisfactory to the shareholders. |
The Directors also considered the Company’s income and expenditure projections and took into account the fact that the Company’s investments principally comprise liquid securities listed on recognised stock exchanges.
Based on the assessment undertaken as outlined above, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and to meet its liabilities as they fall due over the three year period to December 2023.
Return per share – basic
Total return per Ordinary Share is based on the net total gain on ordinary activities after taxation of £7,006,000 (31 December 2019: net total gain £7,702,000).
These calculations are based on the number of 18,088,480 Ordinary Shares in issue during the year to 31 December 2020 (2019: 18,088,480).
The return per Ordinary Share can be further analysed between revenue and capital as below:
| Year ended | Year ended | |||
| 31 December | Year ended | 31 December | Year ended | |
| 2020 | 31 December | 2019 | 31 December | |
| Pence per | 2020 | Pence per | 2019 | |
| Ordinary Share | £000 | Ordinary Share | £000 | |
| Net revenue return | 9.32p | 1,685 | 10.81p | 1,955 |
| Net capital gain | 29.41p | 5,321 | 31.77p | 5,747 |
| Net total gain | 38.73p | 7,006 | 42.58p | 7,702 |
The basic returns per share are equivalent to the fully diluted returns per share. Full details can be found in note 18 on page 68.
Dividends
During the year the following dividends were paid:
| Payment date | Dividend pence (net per share) | |
| Fourth Interim for the year ended 31 December 2019 | 31 March 2020 | 2.70p |
| First Interim for the year ended 31 December 2020 | 30 June 2020 | 2.50p |
| Second Interim for the year ended 31 December 2020 | 30 September 2020 | 2.50p |
| Third Interim for the year ended 31 December 2020 | 30 December 2020 | 2.50p |
Subsequent to the year end but in respect of the year ended 31 December 2020 the Directors have declared a fourth interim dividend of 2.70p, payable on 31 March 2021 to members on the register at the close of business on 5 March 2021. The shares will be marked ex-dividend on 4 March 2021. This dividend relates to the year ended 31 December 2020 but in accordance with International Financial Reporting Standards, it is recognised in the period in which it is paid. Further dividend details can be found in note 7 on page 63.
Net asset value
The net asset value per Ordinary Share, including revenue reserve, at 31 December 2020 was 173.48p based on net assets as at 31 December 2020 of £31,379,000 divided by number of Ordinary Shares in issue of 18,088,480 (31 December 2019: 144.94p). The net asset value of a ZDP Share at 31 December 2020 was 100.42p based on the accrued capital entitlement as at 31 December 2020 of £14,276,375 divided by the number of ZDP shares in issue of 14,217,339.
Alternative Investment Fund Management Directive (“AIFMD”)
The Company appointed Premier Portfolio Managers Limited (“PPM”) to act as its Alternative Investment Fund Manager (“AIFM”) pursuant to an Alternative Investment Fund Management Agreement entered into by the Company and the AIFM on 20 January 2015 (the “AIFM Agreement”) as amended and restated from time to time.
Up to and throughout 2020, the Manager has been entitled to receive a fixed fee of £20,000 per annum in respect of its appointment as AIFM. From 2021 the Manager will no longer charge this fee, and will provide AIFM services within the management fee.
The Company and PPM also entered into a depositary agreement with Northern Trust Global Services SE (“NT”) pursuant to which NT was appointed as the Company’s depositary for the purposes of AIFMD.
In accordance with AIFMD regulations the Company has published a pre investment disclosure document which can be found on the Company’s area on Premier Miton’s website at: www.premiermiton.com.
PRIIPs KIDs
The Company has published a Key Information Document (“KID”) in compliance with the Packaged Retail and Insurance-based Investment Products (“PRIIPs”) Regulation. KIDs for the Ordinary and the ZDP Shares can be found on the Company’s area on Premier Miton’s website at: www.premiermiton.com.
The Company is not responsible for the information contained in the KID. The process for calculating the risks, costs and potential returns are prescribed by regulation. The figures in the KID may not reflect the expected returns for the Company and anticipated returns cannot be guaranteed.
Foreign Account Tax Compliance Act (“FATCA“)
The Company has registered with the US Internal Revenue Service as a Reporting Financial Institution under the FATCA legislation.
Investment trust tax status
The Company has been approved by HM Revenue & Customs (“HMRC”) as an investment trust in accordance with Sections 1158 and 1159 of The Corporation Tax Act 2010, subject to the Company continuing to meet the eligibility conditions. In the opinion of the Directors, the Company has conducted its affairs during the period under review, and subsequently, so as to maintain its status as an investment trust and satisfy the conditions for continued approval.
Principal and emerging risks associated with the Company (also see note 21 on pages 68 to 75)
The Board has carried out a robust assessment of the Company’s emerging and principal risks. These are set out below.
Structure of the Group and gearing
The Ordinary Shares issued by the Company and the ZDP Shares issued by its subsidiary, PMGR Securities 2025 PLC have different characteristics. Returns generated by the Company’s underlying portfolio are apportioned in accordance with the respective entitlements of each class of share. As the Ordinary Shares and ZDP Shares have different rights both during the life of the Company and on a winding-up, shareholders and prospective investors are advised to give careful consideration to their choice of class or classes of share (see page 1 for details of these entitlements).
The Company employs no gearing in the form of bank loans or bonds. The Ordinary Shares are geared by the prior ranking entitlement ZDP Shares issued by its subsidiary.
Dividend levels
Dividends paid on the Company’s Ordinary Shares principally rely on receipt of dividends and interest payments from the securities in which the Company invests. The Board monitors the income of the Company and reviews an income forecast for the current financial year at its regular quarterly Board meetings.
Currency risk
The Company invests in overseas securities and its assets are therefore subject to currency exchange rate fluctuations. The Company may hedge against foreign currency movements affecting the value of the investment portfolio where adverse movements are anticipated but otherwise takes account of this risk when making investment decisions.
Liquidity risk
The Company invests principally in liquid securities listed on recognised stock exchanges. The Company may invest up to 15% of its gross assets in unquoted securities. These securities may have limited liquidity and be difficult to realise. The investment limits set are monitored at each Board meeting. The Company held no unquoted securities during the year.
Market price risk
Since the Company invests in financial instruments, market price risk is inherent in these investments. In order to minimise this risk, a detailed analysis of the risk/reward relationship of each investee company is undertaken by the Investment Manager. The Board regularly reviews reports on the portfolio produced by the Investment Manager. The Investment Manager has the ability to utilise financial derivatives for efficient portfolio management purposes, and carried out market hedging transactions during the year to mitigate downside risks from market volatility.
Discount volatility
Being a closed-ended company, the Company’s shares may trade at a premium or discount to their net asset value. The magnitude of this premium or discount fluctuates daily and can vary significantly. Thus, for a given period of time, it is possible that the market price could decrease despite an increase in the net asset value of the Company’s shares. The Directors review the discount levels regularly. The Investment Manager actively communicates with the Company’s major shareholders and potential new investors, with the aim of managing discount levels.
Operational
Like most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager and the Company’s other service providers. The security, for example, of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. The Board reviews, at least annually, the performance of all the Company’s third party service providers, as well as reviewing service providers’ anti-bribery and corruption policies to address the provision of the Bribery Act 2010. The Board and Audit Committee regularly review statements on internal controls and procedures provided by Premier Fund Managers Ltd and other third parties and also subject the books and records of the Company to an annual external audit.
Accounting, legal and regulatory
In order to continue to qualify as an investment trust, the Company must comply with Section 1158 of the Corporation Tax Act 2010. A breach of Section 1158 could lead to the Company being subject to capital gains tax on gains within the Company’s portfolio. Section 1158 qualification criteria are continually monitored by the Investment Manager and the results reported to the Board at its regular meetings. The Company must also comply with the Companies Act, the Listing Rules and the EU Market Abuse Regulation. The Board relies on the services of the administrator, Premier Portfolio Managers Limited and its professional advisers to ensure compliance with the Companies Act and the Listing Rules. The Company is also required to comply with the AIFMD and has appointed Premier Portfolio Managers Limited (“PPM”) as its Alternative Investment Fund Manager and PPM is responsible for ensuring compliance with the AIFMD (see page 18).
Political and regulatory risk
The Company invests in regulated businesses which may be subject to political or regulatory interference, and may be required to set pricing levels, or take investment decisions, for political rather than commercial reasons. In some less developed economies, including those in which the Company invests, there are increased political and economic risks as compared to more developed economies. These risks include the possibility of various forms of punitive government intervention together with reduced levels of regulation, higher brokerage commissions, less reliable settlement and custody practices, higher market volatility and less reliable financial reporting. Such factors are out of the control of the Board and the Investment Manager, and the Board monitors the performance of its investments at each Board meeting.
Brexit risk
The Directors do not believe that the departure of the United Kingdom from the European Union (“EU”) presents a significant risk to the Company in that the investment portfolio consists of equity investments in companies that have only modest levels of cross border trade. In addition the Company has no material activities or shareholders based in the EU. However, Brexit does raise the possibility that in the future the Company may be adversely affected by divergence between UK and EU financial regulation leading to operational changes in areas such as trading, settlement, custody, and rates of withholding tax levied on income received.
Covid-19 risks
The global Covid-19 pandemic has presented the Company with portfolio risks arising from market volatility, and also operational risks arising from Government policy which has necessitated changes to methods of working for both the Company Manager and also the Company’s service providers. The Company invests in renewable energy businesses which provide an essential product and which the Directors believe have a below average exposure to reductions in levels of economic activity. The Board of Directors, the Investment Manager, and the Company’s service providers, have switched to remote working methods with no material loss of efficiency or functionality noted.
Culture
The Directors are of the opinion that establishing and maintaining a healthy corporate culture amongst the Board and in its interaction with the Investment Manager, Shareholders and other stakeholders will support the delivery of its purpose, values and strategy. The Board seeks to promote a culture of openness, transparency and integrity through ongoing dialogue and engagement with its stakeholders, principally the Investment Manager.
The Board strives to ensure that its culture is in line with the Company’s purpose, values and strategy and will consider this through its annual evaluation processes. There are also policies and procedures in place to assist with maintaining a culture of good governance that include those relating to Directors’ dealings in the Company’s Shares, conflicts of interest, bribery and tax evasion.
The Board seeks to appoint appropriate third-party service providers and evaluates their services on a regular basis as described on page 22. Their ongoing appointments are not only reflective of their performance by reference to their contractual and service level obligations, but also take into account the extent to which their individual corporate cultures align with those of the Company. The Board considers the culture of the Investment Manager and other stakeholders, including their policies, practices and behaviour, through regular reporting from these stakeholders and in particular during the annual review of the performance and continuing appointment of all service providers.
Key performance indicators
The Company’s Directors meet regularly to review the performance of the Company and its shares. The key performance indicators (“KPIs”) used to measure the progress and performance of the Company over time are as follows:
| 1) | The performance against a set of reference points. The Investment Manager’s performance is not assessed against a formal benchmark but rather against a set of reference points which are more general in nature and intended to be representative of the broad spread of assets in which the portfolio invests. These references include the FTSE Global Core Infrastructure 50/50 Total Return Index, FTSE All-World Total Return Index and FTSE All-Share Total Return Index (see Company highlights on page 2). |
| 2) | The performance against the peer group. The assessment of the Investment Manager’s performance against companies which invest in similar, but not necessarily the same, securities allows the Board to evaluate the effectiveness of the Company’s investment strategy. |
| 3) | The performance of the Company at the gross asset level. This shows how the assets attributable to shareholders as a whole have performed (see Company Highlights Total Assets Total Return). |
| 4) | The performance of the Ordinary Shares, both in terms of share price total return (i.e. accounting for dividends received) and in terms of net asset value total return. The share price performance is the measure of the return that shareholders have actually received and will reflect the impact of widening or narrowing of discounts to NAV (see graphs on page 3). |
| 5) | Ongoing charges. The annualised ongoing charges figure for the year was 1.76% (2019: 1.66%). This figure, which has been prepared in accordance with the recommended methodology of the Association of Investment Companies represents the annual percentage reduction in shareholder returns as a result of recurring operational expenses. |
The Board reviews each year an analysis of the Company’s ongoing charges figure and a comparison with its peers. The Company also calculates summary cost indicators for publication in the KID, available on the Company’s website.
All of these areas were examined throughout the year and the table below summarises the key indicators:
| As at or year to: | As at or year to: | ||
| 31 December | 31 December | ||
| 2020 | 2019 | % change | |
| Total Return Performance | |||
| Total Assets Total Return(1)# | 16.5% | 19.0% | |
| FTSE Global Core Infrastructure 50/50 Index Total Return(2) (GBP) | (6.1%) | 21.2% | |
| Ordinary Share Performance | |||
| Net Asset Value per Ordinary Share (cum income) | 173.48p | 144.94p | 19.7% |
| Revenue Return per Ordinary Share | 9.32p | 10.81p | (13.8%) |
| Net dividends declared per Ordinary Share | 10.20p | 10.20p | 0.00% |
| Discount to Net Asset Value# | 9.2% | 10.3% | |
| Ongoing charges(3)# | 1.76% | 1.66% |
# Alternative performance measure (“APM”). See Glossary of Terms for definitions and Alternative Performance Measures on pages 76 to 80.
(1) Source: PFM Ltd. Based on opening and closing total assets plus dividends marked “ex-dividend” within the period.
(2) Source: Bloomberg.
(3) Ongoing charges have been based on the Company’s management fees and other operating expenses as a percentage of average gross assets less current liabilities over the year (excluding the ZDPs accrued capital entitlement).
Future prospects
The Board’s main focus is the achievement of a high income from the portfolio together with the generation of long-term capital growth. The future of the Company is dependent upon the success of the investment strategy. The investment outlook and future developments of the Company are discussed in both the Chairman’s statement on pages 4 to 6 and the Investment Manager’s report on pages 7 to 10.
Board diversity policy
The Nomination Committee considers diversity, including the balance of skills, knowledge, including gender and experience, amongst other factors when reviewing the composition of the Board and appointing new directors, but does not consider it appropriate to establish targets or quotas in this regard. As at the end of 2020, the Board comprised two female non-executive directors and one male non-executive director. The Company has no employees.
Environmental, social and governance (“ESG”) issues
The Company has no employees, property or activities other than investments, so its direct environmental impact is minimal. In carrying out its activities and in its relationships with service providers and their employees, the Company aims to conduct itself responsibly, ethically and fairly.
The Company invests primarily in companies operating renewable energy assets, or facilitating the delivery of renewable energy to customers. As such its portfolio is primarily exposed to those companies which aim to address the following Sustainable Development Goals, as adopted by the United Nations:
• Affordable and clean energy:
Ensure access to affordable, reliable, sustainable and modern energy for all.
• Industry, innovation and infrastructure:
Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation.
• Climate Action:
Take urgent action to combat climate change and its impacts.
In January 2021 the Company received London Stock Exchange’s Green Economy Mark, a classification which is awarded to companies and funds that are driving the global green economy. To qualify for the Green Economy Mark, companies and funds must generate at least 50% of their total annual revenues from products and services that contribute to the global green economy.
The Fund Manager integrates Governance and Social responsibility into its investment process, and actively engages with investee companies in order deliver improved outcomes for all stakeholders. The Fund Manager takes an active approach to voting on company resolutions at annual general meetings of investee companies. Premier Miton is a signatory to the Principles for Responsible Investment, an organisation which encourages and supports its signatories to incorporate environmental, social, and governance factors into their investment and ownership decisions.
Prevention of the facilitation of tax evasion
In response to the implementation of the Criminal Finances Act 2017, the Board has adopted a zero-tolerance approach to the criminal facilitation of tax evasion. A copy of the Company’s policy on preventing the facilitation of tax evasion can be found on the Company’s website: www.premiermiton.com. The policy is reviewed annually by the Audit Committee.
Social, community and human rights
The Company does not have any specific policies on social, community or human rights issues as it is an investment company which does not have any physical assets, property, employees or operations of its own.
For and on behalf of the Board
Gillian Nott OBE
Chairman
2 March 2021
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006 and applicable law and have elected to prepare the parent Company financial statements on the same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
• state whether they have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006;
• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility of the Directors in respect of the annual financial report
We confirm to the best of our knowledge:
• the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
• the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
For and on behalf of the Board
Gillian Nott OBE
Chairman
2 March 2021
Group Income Statement
for the financial year ended 31 December 2020
| Year ended 31 December 2020 | Year ended 31 December 2020 | Year ended 31 December 2020 | Year ended 31 December 2019 | Year ended 31 December 2019 | Year ended 31 December 2019 | ||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | |
| Gains on investments held at fair value | |||||||
| through profit or loss | 8 | – | 5,028 | 5,028 | – | 5,810 | 5,810 |
| Gains on derivative financial instruments | – | 2,894 | 2,894 | – | – | – | |
| (Losses)/gains on forward currency contracts | 13 | – | (541) | (541) | – | 1,831 | 1,831 |
| Losses on foreign exchange | 13 | (1) | (94) | (95) | – | (335) | (335) |
| Income | 2 | 2,471 | – | 2,471 | 2,764 | – | 2,764 |
| Investment management fee | 3 | (160) | (240) | (400) | (164) | (245) | (409) |
| Other expenses | 4 | (532) | – | (532) | (473) | – | (473) |
| Reconstruction costs | 4 | – | (406) | (406) | – | – | – |
| Profit before finance costs and taxation | 1,778 | 6,641 | 8,419 | 2,127 | 7,061 | 9,188 | |
| Finance costs | 5 | (5) | (1,320) | (1,325) | (1) | (1,314) | (1,315) |
| Profit before taxation | 1,773 | 5,321 | 7,094 | 2,126 | 5,747 | 7,873 | |
| Taxation | 6 | (88) | – | (88) | (171) | – | (171) |
| Profit for the year | 1,685 | 5,321 | 7,006 | 1,955 | 5,747 | 7,702 | |
| Return per Ordinary Share (pence) – basic | 18 | 9.32 | 29.41 | 38.73 | 10.81 | 31.77 | 42.58 |
The total column of this statement represents the Group’s profit or loss, prepared in accordance with IFRS.
As the parent of the Group, the Company has taken advantage of the exemption not to publish its own separate Income Statement as permitted by the Companies Act 2006. The Company’s total comprehensive profit for the year ended 31 December 2020 was £7,006,000 (2019: £7,702,000).
The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies (“AIC”).
All items derive from continuing operations; the Group does not have any other recognised gains or losses.
All income is attributable to the equity holders of the Company. There are no minority interests.
The notes on pages 57 to 75 form part of these financial statements.
Consolidated and Company Balance Sheets
as at 31 December 2020
| Group | Company | Group | Company | ||
| 2020 | 2020 | 2019 | 2019 | ||
| Notes | £000 | £000 | £000 | £000 | |
| Non current assets | |||||
| Investments at fair value through profit or loss | 8 | 45,152 | 45,252 | 53,629 | 53,679 |
| Current assets | |||||
| Debtors | 10 | 141 | 141 | 216 | 216 |
| Forward foreign exchange contracts | 13 | 194 | 194 | 519 | 519 |
| Cash at bank | 361 | 361 | 1,049 | 1,049 | |
| 696 | 696 | 1,784 | 1,784 | ||
| Total assets | 45,848 | 45,948 | 55,413 | 55,463 | |
| Current liabilities | |||||
| Other creditors | 11 | (193) | (193) | (209) | (209) |
| Zero Divided Preference Shares | 11 | – | – | (28,987) | – |
| Intercompany payable | 11 | – | (50) | – | (29,037) |
| (193) | (243) | (29,196) | (29,246) | ||
| Total assets less current liabilities | 45,655 | 45,705 | 26,217 | 26,217 | |
| Non-current liabilities: | |||||
| amounts falling due after more than one year | |||||
| Zero Dividend Preference Shares | 12 | (14,276) | – | – | – |
| Intercompany payable | 12 | – | (14,326) | – | – |
| Net assets | 31,379 | 31,379 | 26,217 | 26,217 | |
| Equity attributable to Ordinary Shareholders | |||||
| Share capital | 14 | 181 | 181 | 181 | 181 |
| Share premium | 15 | 8,701 | 8,701 | 8,701 | 8,701 |
| Redemption reserve | 88 | 88 | 88 | 88 | |
| Capital reserve | 16 | 13,664 | 13,664 | 8,343 | 8,343 |
| Special reserve | 7,472 | 7,472 | 7,472 | 7,472 | |
| Revenue reserve | 1,273 | 1,273 | 1,432 | 1,432 | |
| Total equity attributable to Ordinary Shareholders | 31,379 | 31,379 | 26,217 | 26,217 | |
| Net asset value per Ordinary Share (pence) | 19 | 173.48 | 173.48 | 144.94 | 144.94 |
The financial statements on pages 52 to 75 of Premier Miton Global Renewables Trust PLC, company number 4897881, were approved by the Board and authorised for issue on 2 March 2021 and were signed on its behalf by:
Gillian Nott OBE
Chairman
The notes on pages 57 to 75 form part of these financial statements.
Consolidated Statement of Changes in Equity
for the financial year ended 31 December 2020
| Ordinary | Share | |||||||
| share | premium | Redemption | Capital | Special | Revenue | |||
| capital | reserve | reserve | reserve* | reserve** | reserve** | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| For the year ended | ||||||||
| 31 December 2020 | ||||||||
| Balance at 31 December 2019 | 181 | 8,701 | 88 | 8,343 | 7,472 | 1,432 | 26,217 | |
| Profit for the year | – | – | – | 5,321 | – | 1,685 | 7,006 | |
| Ordinary dividends paid | 7 | – | – | – | – | – | (1,844) | (1,844) |
| Balance at 31 December 2020 | 181 | 8,701 | 88 | 13,664 | 7,472 | 1,273 | 31,379 |
| Ordinary | Share | |||||||
| share | premium | Redemption | Capital | Special | Revenue | |||
| capital | reserve | reserve | reserve* | reserve** | reserve** | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| For the year ended | ||||||||
| 31 December 2019 | ||||||||
| Balance at 31 December 2018 | 181 | 8,701 | 88 | 2,596 | 7,472 | 1,321 | 20,359 | |
| Profit for the year | – | – | – | 5,747 | – | 1,955 | 7,702 | |
| Ordinary dividends paid | 7 | – | – | – | – | – | (1,844) | (1,844) |
| Balance at 31 December 2019 | 181 | 8,701 | 88 | 8,343 | 7,472 | 1,432 | 26,217 |
* Distributable for the purpose of redemption of shares.
** Distributable reserves.
The notes on pages 57 to 75 form part of these financial statements.
Company Statement of Changes in Equity
for the financial year ended 31 December 2020
| Ordinary | Share | |||||||
| share | premium | Redemption | Capital | Special | Revenue | |||
| capital | reserve | reserve | reserve* | reserve** | reserve** | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| For the year ended | ||||||||
| 31 December 2020 | ||||||||
| Balance at 31 December 2019 | 181 | 8,701 | 88 | 8,343 | 7,472 | 1,432 | 26,217 | |
| Profit for the year | – | – | – | 5,321 | – | 1,685 | 7,006 | |
| Ordinary dividends paid | 7 | – | – | – | – | – | (1,844) | (1,844) |
| Balance at 31 December 2020 | 181 | 8,701 | 88 | 13,664 | 7,472 | 1,273 | 31,379 |
| Ordinary | Share | |||||||
| Share | premium | Redemption | Capital | Special | Revenue | |||
| capital | reserve | reserve | reserve* | reserve** | reserve** | Total | ||
| Notes | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| For the year ended | ||||||||
| 31 December 2019 | ||||||||
| Balance at 31 December 2018 | 181 | 8,701 | 88 | 2,596 | 7,472 | 1,321 | 20,359 | |
| Profit for the year | – | – | – | 5,747 | – | 1,955 | 7,702 | |
| Ordinary dividends paid | 7 | – | – | – | – | – | (1,844) | (1,844) |
| Balance at 31 December 2019 | 181 | 8,701 | 88 | 8,343 | 7,472 | 1,432 | 26,217 |
* Distributable for the purpose of redemption of shares.
** Distributable reserves.
The notes on pages 57 to 75 form part of these financial statements.
Consolidated and Company Cashflow Statements
for the financial year ended 31 December 2020
| Group | Company | Group | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| Profit before taxation | 7,094 | 7,094 | 7,873 | 7,873 |
| Adjustments for | ||||
| Finance costs | 1,325 | 1,325 | 1,315 | 1,315 |
| Gains on investments held at fair value through profit or loss | (5,028) | (5,028) | (5,810) | (5,810) |
| Gains on derivatives financial instruments | (2,894) | (2,894) | – | – |
| Losses/(gains) on forward foreign exchange contracts | 541 | 541 | (1,831) | (1,831) |
| Losses on foreign exchange | 95 | 95 | 335 | 335 |
| Decrease/(increase) in other receivables | 94 | 94 | (6) | (6) |
| (Decrease)/increase in other payables | (14) | 36 | 80 | 80 |
| Overseas taxation paid | (107) | (107) | (135) | (135) |
| Net cash flow from operating activities | 1,106 | 1,156 | 1,821 | 1,821 |
| Investing activities | ||||
| Purchases of investments | (39,358) | (39,408) | (16,587) | (16,587) |
| Proceeds from sales of investments | 52,863 | 52,863 | 15,131 | 15,131 |
| Cash flows from derivatives | 2,894 | 2,894 | – | – |
| Cash flows from forward foreign exchange contracts | (216) | (216) | 1,570 | 1,570 |
| Net cash flow from investing activities | 16,183 | 16,133 | 114 | 114 |
| Financing activities | ||||
| Payment to 2020 ZDP Shareholders with “B” rights | (19,381) | – | – | – |
| Issue of 2025 Zero Dividend Preference Shares | 3,349 | – | – | – |
| Movement in intercompany financing balances | – | (16,032) | – | – |
| Dividends paid | (1,844) | (1,844) | (1,844) | (1,844) |
| Bank interest paid | (6) | (6) | – | – |
| Net cash flow from financing activities | (17,882) | (17,882) | (1,844) | (1,844) |
| (Decrease)/increase in cash and cash equivalents | (593) | (593) | 91 | 91 |
| Losses on foreign exchange | (95) | (95) | (335) | (335) |
| Cash and cash equivalents, beginning of the year | 1,049 | 1,049 | 1,293 | 1,293 |
| Cash and cash equivalents at end of the year | 361 | 361 | 1,049 | 1,049 |
The notes on pages 57 to 75 form part of these financial statements.
Notes to the Financial Statements
for the financial year ended 31 December 2020
1.ACCOUNTING POLICIES
1.1 Principal accounting policies adopted by the Company
(a) Basis of preparation
The financial statements of the Group and Company have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. These comprise standards and interpretations of the International Accounting Standards and Standing Interpretations Committee as approved by the International Accounting Standards Committee (“IASC”) that remain in effect.
The Directors believe that having considered the Company’s investment objectives (shown on page 1), risk management policies and procedures (pages 68 to 75), nature of portfolio and income and expense projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for a period of at least 12 months from the date these financial statements were approved.
Specifically the Directors have taken into account:
• The shareholder approval at the AGM held in April 2020 to continue the Company’s life until 2025
• The refinancing of the ZDP Shares to November 2025
• The reduction in gearing seen over the past two years resulting from positive investment performance and a smaller ZDP Shares issue from November 2020
• That aside from ZDP Shares, the Company has no significant liabilities
• The Company’s assets consist of readily realisable securities
• The Company’s operating costs are well covered by revenue income
• Cash flows are closely matched to income and the company carries no material receivable balances
• There is no litigation or other disputes outstanding against the Company
• The Company maintains an adequate cash balance to manage its affairs in an orderly manner. The Portfolio consists of liquid securities which can be realised to generate additional cash balances if required
• The Company, its Fund Manager, and all main service providers have switched to working from home during the lockdown conditions existing during 2020 and into 2021. No significant operational impacts have been noted resulting from this change of working practice.
• The Trust’s investment policy is to invest in renewable energy and other sustainable infrastructure. The Directors believe this is a relatively low risk area of equity investment with highly contracted revenue streams and policy support from Governments.
In taking these considerations into account, the Directors have also considered potential downside scenarios as set out below:
• The Directors have considered the potential impact of the Covid-19 pandemic and have concluded that they do not expect this to have a material impact on the Company’s own operations or those of investee companies. While the pandemic has given rise to increased levels of market volatility, the Company’s investment portfolio consists of companies providing an essential product under largely contracted or regulated terms. Increased levels of market volatility has been mitigated through hedging of both equity markets and currencies.
• The Directors have considered the potential of impact of Brexit on the portfolio and the Company and have concluded that Brexit is not expected to have any material impact.
For these reasons, the Directors consider that the use of the going concern basis is appropriate.
The financial statements have also been prepared in accordance with the Statement of Recommended Practice (“SORP”) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies (“AIC”) in November 2014 (and updated in October 2019) where the SORP is consistent with IFRSs.
In the current financial period the Company has applied to the following amendments to standards:
Amendments to IFRS 3 ‘Definition of Business’ (effective for accounting periods on or after 1 January 2020).
Amendments to IAS 1 & IAS 8 ‘Definition of Material’ (effective for accounting periods on or after 1 January 2020).
Amendments to IFRS 9, IAS 39 and IFRS 7 ‘Interest Rate Benchmark Reform’ (effective for accounting periods on or after 1 January 2020).
There is no material impact on the financial statements or the amounts reported from the adoption of these amendments to the standards.
(b) Basis of consolidation
The consolidated financial statements are made up to 31 December each year and incorporate the financial statements of the Company and its wholly-owned subsidiaries, PMGR Securities 2025 PLC, and PGIT Securities 2020 PLC (in members’ voluntary liquidation). Subsidiaries are consolidated from the date of their acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of subsidiaries used in the preparation of the Consolidated Financial Statements are based on consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising therefrom, are eliminated.
It is the Company’s judgement that it meets the definition of an investment entity within IFRS 10. The criteria which define an investment entity are as follows:
• an entity that obtains funds from one or more investors for the purpose of providing those investors with investment services.
• an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both.
• an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.
Assessment of an investment entity
The Board has agreed with the recommendation of the Audit Committee that the Company meets the definition of an investment entity as it satisfies each of the criteria above and that this accounting treatment better reflects the Company’s activities as an investment trust. Specifically, as an investment trust, the Company’s principal activity is portfolio investment and the investment objectives of the Company (stated in the Strategic Report on page 15) are to achieve a high income and to realise long term growth in the capital value of its portfolio. The Company will seek to achieve these objectives by investing principally in the equity and equity-related securities of companies operating primarily in the energy and water sectors, as well as other infrastructure investments.
PMGR Securities 2025 PLC, the Company’s wholly-owned subsidiary, incorporated on 21 October 2020, is being consolidated in the accounts as it is not in itself an investment entity.
(c) Presentation of Statement of Comprehensive Income
In order to better reflect the activities of the Company as an investment trust company, and in accordance with guidance issued by the AIC, supplementary information which analyses the Consolidated Income Statement between items of a revenue and capital nature has been presented alongside the Consolidated Income Statement. In accordance with the Company’s Articles of Association, dividends can only be distributed from net revenue income, and the distribution of surpluses from realisations of investments is prohibited. Additionally, net revenue is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Section 1158 of the Corporation Tax Act 2010.
(d) Use of estimates and judgements
The preparation of these financial statements did not require the use of any key estimates.
The Directors believe that there is one key judgement, being the functional currency of the Company. Although the Company invests in investments denominated in various jurisdictions with various currencies, it has been determined that the functional currency is sterling as the entity is listed on a sterling stock exchange in the UK, and its investment manager is also UK based and its dividends and expenses are paid in sterling. Accordingly, the financial statements are presented in UK pounds sterling rounded to the nearest thousand pounds.
(e) Income
Dividend income from investments is taken into account by reference to the date the security becomes ex-dividend. Special dividends are credited to capital or revenue in the Consolidated Income Statement, according to the circumstances surrounding the payment of the dividend. UK dividends are accounted for net of any tax credits.
Overseas dividends and other income that are subject to withholding tax are grossed up.
Interest receivable on deposits is accounted for on an accruals basis. The fixed return on a debt security is recognised on a time apportionment basis so as to reflect the effective interest rate on the debt security.
(f) Expenses
All expenses are accounted for on an accruals basis and are charged as follows:
• the basic investment management fee, is charged 40% to revenue and 60% to capital;
• the finance costs representing the accrued capital entitlement of the ZDP Shares is allocated to capital;
• investment transaction costs are allocated to capital;
• other expenses are charged wholly to revenue; and
• reconstruction costs relating to repayment and issuance of ZDP Shares are charged wholly to capital.
(g) Taxation
The charge for taxation is based upon the net revenue for the year. The tax charge is allocated to the revenue and capital accounts according to the marginal basis whereby revenue expenses are first matched against taxable income arising in the revenue account; the effect of this for the year ended 31 December 2020 was that all the deductions for tax purposes went to the revenue account.
Deferred taxation will be recognised as an asset or a liability if transactions have occurred at the balance sheet date that give rise to an obligation to pay more taxation in the future, or a right to pay less taxation in the future. An asset will not be recognised to the extent that the transfer of economic benefit is uncertain.
Due to the Company’s status as an Investment Trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
(h) Investments held at fair value through profit or loss
Upon initial recognition investments are designated by the Company “at fair value through profit or loss”. They are accounted for on the date they are traded and are included initially at fair value which is taken to be their cost. Subsequently investments are valued at fair value which is the bid market price for listed investments. Unquoted investments are valued at fair value by the Board which is established with regard to the International Private Equity and Venture Capital Valuation Guidelines by using, where appropriate, latest dealing prices, valuations from reliable sources and other relevant factors.
Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the Consolidated Income Statement within “gains/(losses) on investments held at fair value through profit or loss”.
The investments in the Company’s subsidiaries, PMGR Securities 2025 plc, and PGIT Securities 2020 PLC (in members’ voluntary liquidation), are held at fair value, considered to be equal to the net asset value of each.
(i) Dividends
Interim and final dividends are recognised in the year in which they are paid.
(j) Foreign currency
Transactions denominated in foreign currencies are translated into sterling at actual exchange rates as at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the Consolidated Income Statement as appropriate. Foreign exchange movements on investments are included in the Consolidated Income Statement within gains on investments.
(k) Derivatives
Forward currency contracts entered into for hedging purposes are held at fair value through profit or loss and changes in fair value are recognised in the capital column of the Consolidated Income Statement.
(l) Zero Dividend Preference Shares
The ZDP Shares are classified as a financial liability and shown as a liability in the Group balance sheet. The ZDP Shares are initially measured at fair value being the proceeds of issue less transaction costs and are subsequently measured at amortised cost under the effective interest rate method.
The provision for compound growth entitlement of the ZDP Shares is recognised through the Consolidated Income Statement and analysed under the capital column as a finance cost (as shown in note 5).
(m) Special reserve
The Special Reserve was created by the Court cancellation of the share premium account on 12 November 2003 and is a distributable reserve to be used for all purposes permitted under the Companies Act 2006 (as amended) including the buyback of shares and the payment of dividends.
1.2 Accounting standards issued but not yet effective
At the date of authorisation of these financial statements the following standards and amendments to standards, which have not been applied in these financial statements, were in issue, but not yet effective:
IFRS 17, ‘Insurance contracts’ (effective for accounting periods on or after 1 January 2023).
IFRS 9, IAS 39, IFRS 7, IFRS 16 and IFRS 4: Interest Rate Benchmark Reform – phase 2 (amended) (effective for accounting periods on or after 1 January 2021).
Amendments to IAS1 ‘Classification of liabilities as current or non-current’ (effective for accounting periods on or after 1 January 2023).
The Company does not believe that there will be a material impact on the financial statements or the amounts reported from the adoption of these standards.
2. INCOME
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| £000 | £000 | |
| Income from investments: | ||
| UK dividends | 751 | 560 |
| Overseas dividends | 1,717 | 2,201 |
| Bank interest | 3 | 3 |
| Total income | 2,471 | 2,764 |
3. INVESTMENT MANAGEMENT FEE
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| £000 | £000 | |
| Charged to Revenue: | ||
| Investment management fee (40%) | 160 | 164 |
| Charged to Capital: | ||
| Investment management fee (60%) | 240 | 245 |
| 400 | 409 |
The Company’s AIFM is Premier Portfolio Managers Limited (“PPM”) under an agreement terminable by giving not less than six months written notice. Under the AIFM agreement, PPM is entitled to receive from the Company a management fee, payable monthly in arrears, of 0.75% per annum of the gross assets of the Company.
PPM has delegated the management of the Company’s portfolio of assets to Premier Fund Managers.
4. OTHER EXPENSES
| Year ended | Year ended | ||
| 31 December | 31 December | ||
| 2020 | 2019 | ||
| £000 | £000 | ||
| Charged to Revenue: | |||
| Secretarial services | 79 | 75 | |
| Administration expenses | 332 | 276 | |
| Depositary fees | 25 | 24 | |
| Auditor’s remuneration | – audit services | 32 | 25 |
| – audit services for subsidiary | – | 8 | |
| Directors’ fees and expenses | 64 | 65 | |
| 532 | 473 | ||
| Charged to Capital: | |||
| Reconstruction costs | 406 | – | |
| 406 | – |
Reconstruction costs represent costs relating to the refinancing of the 2020 ZDP Shares and issue of the 2025 ZDP Shares
5. FINANCE COSTS
| Year ended 31 December 2020 | Year ended 31 December 2020 | Year ended 31 December 2020 | Year ended 31 December 2019 | Year ended 31 December 2019 | Year ended 31 December 2019 | |
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Bank Interest | 5 | – | 5 | 1 | – | 1 |
| Provision for compound growth entitlement | ||||||
| of the ZDP Shares | – | 1,320 | 1,320 | – | 1,314 | 1,314 |
| 5 | 1,320 | 1,325 | 1 | 1,314 | 1,315 |
6. TAXATION
(a) ANALYSIS OF CHARGE IN THE YEAR:
| Year ended 31 December 2020 | Year ended 31 December 2020 | Year ended 31 December 2020 | Year ended 31 December 2019 | Year ended 31 December 2019 | Year ended 31 December 2019 | |
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Overseas tax | 88 | – | 88 | 171 | – | 171 |
| Total tax charge for the year (see note 6 (b)) | 88 | – | 88 | 171 | – | 171 |
(b) FACTORS AFFECTING THE TOTAL TAX CHARGE FOR THE YEAR:
The tax assessed for the year is lower than the standard rate of corporation tax in the UK for a large company of 19.00% (31 December 2019: 19.00%). The differences are explained below:
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| £000 | £000 | |
| Total profit before taxation | 7,094 | 7,873 |
| UK corporation tax at 19.00% (31 December 2019: 19.00%) | 1,348 | 1,496 |
| Effects of: | ||
| Capital gains not subject to corporation tax | (955) | (1,104) |
| Losses/(gains) on forward currency contracts not subject to corporation tax | 103 | (348) |
| Gains on derivatives not subject to corporation tax | (550) | – |
| Losses on foreign exchange not subject to corporation tax | 18 | 64 |
| Finance costs of ZDP Shares not deductible | 252 | 250 |
| Restructuring costs of ZDP Shares not deductible | 76 | – |
| UK dividends which are not taxable | (143) | (106) |
| Overseas tax suffered | 88 | 171 |
| Overseas dividends not taxable in the UK | (242) | (263) |
| Movement in unutilised management expenses | 93 | 11 |
| Total tax charge | 88 | 171 |
The Company is not liable to tax on capital gains due to its status as an investment trust.
Due to the Company’s status as an investment trust, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
As at 31 December 2020 the Company had a potential deferred tax asset of £1,550,000 (2019: £1,303,000) in respect of tax losses which are available to be carried forward and offset against future taxable profits. A deferred tax asset has not been recognised on these amounts as it is considered unlikely that the Company will make suitable taxable profits in excess of deductible expenses in future periods. The unrecognised deferred tax asset has been calculated using a corporation tax rate of 19% (2019: 17%).
7. DIVIDENDS
Dividends relating to the year ended 31 December 2020 which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered are detailed below:
| Year ended | ||
| 31 December | ||
| 2020 | ||
| Per Ordinary Share | £000 | |
| First interim dividend – paid on 30 June 2020 | 2.50p | 452 |
| Second interim dividend – paid on 30 September 2020 | 2.50p | 452 |
| Third interim dividend – paid on 30 December 2020 | 2.50p | 452 |
| Fourth interim dividend – payable on 31 March 2021* | 2.70p | 488 |
| 10.20p | 1,844 |
*Not included as a liability in the year ended 31 December 2020 accounts.
The fourth interim dividend will be paid on 31 March 2021 to members on the register at the close of business on 5 March 2021. The shares will be marked ex-dividend on 4 March 2021.
| Year ended | ||
| 31 December | ||
| 2019 | ||
| Per Ordinary Share | £000 | |
| First interim dividend – paid on 28 June 2019 | 2.50p | 452 |
| Second interim dividend – paid on 27 September 2019 | 2.50p | 452 |
| Third interim dividend – paid on 27 December 2019 | 2.50p | 452 |
| Fourth interim dividend – paid on 31 March 2020* | 2.70p | 488 |
| 10.20p | 1,844 |
*Not included as a liability in the year ended 31 December 2019 accounts.
Amounts recognised as distributions to equity holders in the year:
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| £000 | £000 | |
| Fourth interim dividend for the year ended 31 December 2019 of 2.70p (2018: 2.70p) per Ordinary Share | 488 | 488 |
| First interim dividend for the year ended 31 December 2020 of 2.50p (2019: 2.50p) per Ordinary Share | 452 | 452 |
| Second interim dividend for the year ended 31 December 2020 of 2.50p (2019: 2.50p) per Ordinary Share | 452 | 452 |
| Third interim dividend for the year ended 31 December 2020 of 2.50p (2019: 2.50p) per Ordinary Share | 452 | 452 |
| 1,844 | 1,844 |
8. INVESTMENTS
| Group | Company | Group | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| Investments listed on a recognised investment exchange | 45,152 | 45,152 | 53,629 | 53,629 |
| Investments in subsidiaries | – | 100 | – | 50 |
| Valuation at year end | 45,152 | 45,252 | 53,629 | 53,679 |
| Opening book cost | 55,258 | 55,308 | 52,639 | 52,689 |
| Opening investment holding losses | (1,629) | (1,629) | (6,276) | (6,276) |
| Opening valuation | 53,629 | 53,679 | 46,363 | 46,413 |
| Movements in the year: | ||||
| Purchases at cost | 39,358 | 39,408 | 16,587 | 16,587 |
| Sales – proceeds | (52,863) | (52,863) | (15,131) | (15,131) |
| Gains in investment holdings for the year | 5,028 | 5,028 | 5,810 | 5,810 |
| Closing valuation | 45,152 | 45,252 | 53,629 | 53,679 |
| Closing book cost | 40,686 | 40,786 | 55,258 | 55,308 |
| Closing investment holding gains/(losses) | 4,466 | 4,466 | (1,629) | (1,629) |
| Closing valuation | 45,152 | 45,252 | 53,629 | 53,679 |
The Company received £52,863,000 from investments sold in the year (2019: £15,131,000). The book cost of the investments when they were purchased was £53,930,000 (2019: £13,968,000). These investments have been revalued over time until they were sold and unrealised gains/losses were included in the fair value of the investments.
Classification of assets
| Group | Company | Group | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| Quoted securities | 45,152 | 45,152 | 53,629 | 53,629 |
| Subsidiaries | – | 100 | – | 50 |
| Total investments | 45,152 | 45,252 | 53,629 | 53,679 |
Transaction costs on purchases for the year ended 31 December 2020 amounted to £50,000 (2019: £24,000) and transaction costs on sales amounted to £39,000 (2019: £11,000). The increased level of transaction costs reflects the increased level of portfolio activity arising from both the change of investment policy and the liquidation of portfolio assets to meet the 2020 ZDP Shares redemption.
9. INVESTMENTS IN SUBSIDIARIES
| Country of | |||||
| % | incorporation | Capital and | |||
| Ordinary Share | and | reserves | Profit & loss | ||
| Entity | Principal activity | capital held | registration | £000 | £000 |
| As at 31 December 2020 | |||||
| Investment in subsidiaries: | |||||
| PMGR Securities 2025 PLC | Financing | 100% | England | 50 | (58) |
| PGIT Securities 2020 PLC (in liquidation) | Financing | 100% | England | 50 | (1,262) |
| Country of | |||||
| % | incorporation | Capital and | |||
| Ordinary Share | and | reserves | Profit & loss | ||
| Entity | Principal activity | capital held | registration | £000 | £000 |
| As at 31 December 2019 | |||||
| Investment in subsidiaries: | |||||
| PGIT Securities 2020 PLC | Financing | 100% | England | 50 | (1,314) |
The Company owns the whole of the ordinary share capital (£50,000) of PGIT Securities 2020 PLC a company which issued the Group’s 2020 ZDP Shares. The ZDPs were repaid on maturity on 30 November 2020 and the subsidiary has since been placed in liquidation. The subsidiary is held at fair value of £50,000 (2019: £50,000).
The Company owns the whole of the ordinary share capital (£50,000) of PMGR Securities 2025 PLC, a company which was incorporated on 21 October 2020 which has issued the Group’s New Zero Dividend Preference Shares. The subsidiary is held at fair value of £50,000 (2019: nil).
10. RECEIVABLES AND OTHER FINANCIAL ASSETS
| Group | Company | Group | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| Accrued income and prepayments | 108 | 108 | 202 | 202 |
| Overseas withholding tax recoverable | 33 | 33 | 14 | 14 |
| 141 | 141 | 216 | 216 |
Receivables do not carry any interest and are short term in nature and are accordingly stated at their amortised cost, which is the same as fair value.
11. OTHER FINANCIAL LIABILITIES
| Group | Company | Group | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| Other creditors | 193 | 193 | 209 | 209 |
| 24,073,337 ZDP Shares of £0.01 (2019: 24,073,337)* | – | – | 28,987 | – |
| Intercompany payable | – | 50 | – | 29,037 |
| 193 | 243 | 29,196 | 29,246 |
*The 2020 ZDP Shares were repaid on 30 November 2020.
12. NON-CURRENT LIABILITIES
| Group | Company | Group | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| 14,217,339 ZDP Shares of £0.01 (2019: nil) | 14,276 | – | – | – |
| Intercompany payable | – | 14,326 | – | – |
| 14,276 | 14,326 | – | – |
On 3 November 2020, PGIT Securities 2020 PLC (“PGIT Securities 2020”), a wholly owned subsidiary of the Company, published a circular containing details of a scheme of reconstruction of PGIT Securities 2020 (in liquidation) and proposals to offer the holders of Existing ZDP Shares in PGIT Securities 2020 (in liquidation) the opportunity to elect to roll their investment into New ZDP Shares in PMGR Securities 2025 PLC.
The new ZDP Shares, were issued by the Company’s wholly-owned subsidiary, PMGR Securities 2025 PLC. The Company entered into an Undertaking Agreement with PMGR Securities 2025 PLC to meet the repayment entitlement of the ZDP Shares on 28 November 2025. The amounts shown above are due to PMGR Securities 2025 PLC.
The final capital entitlement of the ZDP Shares in issue is 127.6111p per share (total of £18,143,000) which is payable on 28 November 2025.
13. DERIVATIVES
| 2020 | 2019 | |||||
| Net current | Net current | |||||
| Current | Current | assets/ | Current | Current | assets/ | |
| assets | liabilities | (liabilities) | assets | liabilities | (liabilities) | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Forward foreign exchange contracts – GBP/HKD | 58 | – | 58 | 180 | – | 180 |
| Forward foreign exchange contracts – GBP/CAD | 56 | – | 56 | 55 | – | 55 |
| Forward foreign exchange contracts – GBP/USD | 44 | – | 44 | 225 | – | 225 |
| Forward foreign exchange contracts – GBP/EUR | 36 | – | 36 | 59 | – | 59 |
| Total forward foreign exchange contracts | 194 | – | 194 | 519 | – | 519 |
The above derivatives are classified as Level 2 as defined in note 21(g).
Gains on derivative financial futures instruments amounted to £2,894,000 (2019: nil) and is composed of gains on short positions taken on equity index futures of £2,976,000 (2019: nil). Short positions were held to mitigate against market falls during the year, and were held against the major indices on markets in which the Company invests. No index futures were held during 2019. Losses on index option contracts, also held to mitigate against market falls, amounted to £82,000 (2019: nil). Foreign exchange forwards contracts were held to hedge currency movements, and resulted in losses of £541,000 (2019: gains of £1,831,000).
14. SHARE CAPITAL
| Group and | Group and | Group and | Group and | |
| Company | Company | Company | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| Number of shares | £000 | Number of shares | £000 | |
| Allotted, issued and fully paid: | ||||
| Ordinary Shares of £0.01 | 18,088,480 | 181 | 18,088,480 | 181 |
| 18,088,480 | 181 | 18,088,480 | 181 |
The allotted issued and fully paid ZDP Shares of the Group at 31 December 2020 are disclosed in note 12.
15. SHARE PREMIUM
| Group | Company | Group | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| Opening balance | 8,701 | 8,701 | 8,701 | 8,701 |
| Movement in year | – | – | – | – |
| Closing balance | 8,701 | 8,701 | 8,701 | 8,701 |
16. CAPITAL RESERVE
| Group | Company | Group | Company | |
| Year ended | Year ended | Year ended | Year ended | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| Opening balance | 8,343 | 8,343 | 2,596 | 2,596 |
| Gains on investments – held at fair value through profit or loss | 5,028 | 5,028 | 5,810 | 5,810 |
| Gains on derivative financial instruments | 2,894 | 2,894 | – | – |
| (Losses)/gains on investments on forward foreign exchange contracts | (541) | (541) | 1,831 | 1,831 |
| Losses on foreign exchange | (94) | (94) | (335) | (335) |
| Provision for compound growth redemption yield on ZDP Shares | (1,320) | (1,320) | (1,314) | (1,314) |
| Investment management fee charged to capital | (240) | (240) | (245) | (245) |
| Reconstruction costs* | (406) | (406) | – | – |
| Closing balance | 13,664 | 13,664 | 8,343 | 8,343 |
*These costs were incurred in connection with the repayment of the 2020 ZDP shares and the issue of the 2025 ZDP shares.
17. FINANCIAL COMMITMENTS
At 31 December 2020 there were no commitments in respect of unpaid calls and underwritings (31 December 2019: nil).
18. RETURN PER SHARE – BASIC
Total return per Ordinary Share is based on the total comprehensive gain for the year after taxation of £7,006,000 (31 December 2019: £7,702,000).
These calculations are based on the number of 18,088,480 Ordinary Shares in issue during the year to 31 December 2020 (2019: 18,088,480 Ordinary Shares).
The return per Ordinary Share can be further analysed between revenue and capital as below:
| Year ended | Year ended | |||
| 31 December | Year ended | 31 December | Year ended | |
| 2020 | 31 December | 2019 | 31 December | |
| Pence per | 2020 | Pence per | 2019 | |
| Ordinary Share | £000 | Ordinary Share | £000 | |
| Net revenue return | 9.32p | 1,685 | 10.81p | 1,955 |
| Net capital return | 29.41p | 5,321 | 31.77p | 5,747 |
| Net total return | 38.73p | 7,006 | 42.58p | 7,702 |
The Company does not have any dilutive securities.
19. NET ASSET VALUE PER SHARE
The net asset value per share and the net assets available to each class of share calculated in accordance with International Financial Reporting Standards, are as follows:
| Net asset value | Net assets | Net asset value | Net assets | |
| per share | available | per share | available | |
| 31 December | 31 December | 31 December | 31 December | |
| 2020 | 2020 | 2019 | 2019 | |
| Pence | £000 | Pence | £000 | |
| 18,088,480 Ordinary Shares in issue (2019: 18,088,480) | 173.48p | 31,379 | 144.94p | 26,217 |
20. RELATED PARTY TRANSACTIONS AND TRANSACTIONS WITH THE INVESTMENT MANAGER
Details of the investment management fee charged by Premier Portfolio Managers Limited is set out in note 3. In addition, Link Company Matters Limited acts as Company Secretary and the fee for secretarial services is set out in note 4. At 31 December 2020, £nil (31 December 2019: £91,000) of these fees remained outstanding.
Fees paid to the Directors are disclosed in the Directors’ Remuneration Report on page 40.
Full details of Directors’ interests are set out in the Directors’ Remuneration Report on page 39.
21. FINANCIAL INSTRUMENTS AND CAPITAL DISCLOSURES
Risk management policies and procedures
As an investment trust the Company invests in equities and other investments for the long-term so as to secure its investment objectives stated on page 1. In pursuing its investment objectives, the Company is exposed to a variety of risks that could result in either a reduction in the Company’s net assets or a reduction of the profits available for dividends.
These risks, include market risk (comprising currency risk, interest rate risk, and other price risk), liquidity risk, and credit risk, and the Directors’ approach to the management of them are set out below.
The objectives, policies and processes for managing the risks, and the methods used to measure the risks, that are set out below, have not changed from the previous accounting period.
(a) MARKET RISK
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements – currency risk (see (b) below), interest rate risk (see (c) below) and other price risk (see (d) below). The Board of Directors reviews and agrees policies for managing these risks, which have remained substantially unchanged from those applying in the year ended 31 December 2020. The Company’s Investment Manager assesses the exposure to market risk when making each investment decision, and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.
(b) CURRENCY RISK
Certain of the Company’s assets, liabilities, and income, are denominated in currencies other than sterling (the Company’s functional currency, in which it reports its results). As a result, movements in exchange rates may affect the sterling value of those items.
Management of the risk
The Investment Manager monitors the Company’s exposure and reports to the Board on a regular basis.
When appropriate the Investment Manager deploys active hedging against exchange rate fluctuations where adverse movements are anticipated.
Income denominated in foreign currencies is converted to sterling on receipt. The Company does not use financial instruments to mitigate the currency exposure in the period between the time that income is included in the financial statements and its receipt.
Foreign currency exposures
An analysis of the Company’s equity investments and liabilities at 31 December 2020 (shown at fair value, except derivatives at gross exposure value) that are priced in a foreign currency based on the country of primary exposure are shown below:
| As at 31 December 2020 | As at 31 December 2020 | As at 31 December 2020 | As at 31 December 2020 | As at 31 December 2020 | As at 31 December 2019 | |
| Derivative financial instruments assets/(liabilities) | Investments | Cash | Receivables | Net financial assets | Net financial assets | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Sterling | 7,632 | 12,685 | 352 | 88 | 20,757 | 35,228 |
| Australian Dollar | – | 2,055 | – | – | 2,055 | |
| Brazilian Real | – | 625 | – | 5 | 630 | 4,104 |
| Canadian Dollar | (2,297) | 8,271 | 2 | 19 | 5,995 | 2,228 |
| Danish Krone | – | 195 | – | – | 195 | |
| Euro | (1,791) | 6,725 | 3 | 29 | 4,966 | 1,229 |
| Hong Kong Dollar | (1,887) | 6,375 | – | – | 4,488 | 3,799 |
| Norwegian Krone | – | 1,561 | – | – | 1,561 | 9 |
| US Dollar | (1,463) | 6,660 | 4 | – | 5,201 | 5,265 |
| Total | 194 | 45,152 | 361 | 141 | 45,848 | 51,862 |
Foreign currency sensitivity
The following tables illustrate the sensitivity of the return on ordinary activities after taxation for the year and the equity in regard to the Company’s non-monetary financial assets to changes in the exchange rates for the portfolio’s significant currency exposures, these being Sterling/Canadian Dollar, Sterling/US Dollar and Sterling/Euro.
They assume the following changes in exchange rates:
Sterling/Canadian Dollar +/- 0.5% (2019: 0.4%)
Sterling/US Dollar +/- 0.6% (2019: 0.4%)
Sterling/Euro +/- 0.5% (2019: 0.4%)
These percentages have been determined based on the average market volatility in exchange rates, in the previous 12 months.
If sterling had strengthened against the currencies shown assuming there was no currency hedge in place, this would have had the following effect:
| 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |
| Canadian Dollar | US Dollar | Euro | Canadian Dollar | US Dollar | Euro | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Projected change | 0.5% | 0.6% | 0.5% | 0.4% | 0.4% | 0.4% |
| Impact on revenue return | (2) | (4) | (1) | (2) | (4) | (1) |
| Impact on capital return | (42) | (39) | (32) | (34) | (54) | (21) |
| Total return after taxation for the year | (44) | (43) | (33) | (36) | (58) | (22) |
| Equity | (44) | (43) | (33) | (36) | (58) | (22) |
If sterling had weakened against the currencies shown assuming there was no currency hedge in place, this would have had the following effect:
| 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | |
| Canadian Dollar | US Dollar | Euro | Canadian Dollar | US Dollar | Euro | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Projected change | 0.5% | 0.6% | 0.5% | 0.4% | 0.4% | 0.4% |
| Impact on revenue return | 2 | 4 | 1 | 2 | 4 | 1 |
| Impact on capital return | 42 | 39 | 32 | 34 | 54 | 21 |
| Total return after taxation for the year | 44 | 43 | 33 | 36 | 58 | 22 |
| Equity | 44 | 43 | 33 | 36 | 58 | 22 |
In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the currency risk management process used to meet the Company’s objectives.
(c) INTEREST RATE RISK
Interest rate movements may affect the level of income receivable on cash deposits. Interest rate movements may affect the fair value of investments in fixed-interest rate securities.
Cash at bank at 31 December 2020 (and 31 December 2019) was held at floating interest rates, linked to current short term market rates.
Due to the insignificant impact of fluctuations in interest rates no sensitivity analysis is shown.
(d) OTHER PRICE RISK
Other price risks (i.e. changes in market prices other than those arising from interest rate risk or currency risk) may affect the value of the quoted and unquoted equity investments.
Management of the risk
The Board of Directors manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance. The Board monitors the Investment Manager’s compliance with the Company’s objectives.
When appropriate, the Company manages its exposure to risk by using futures contracts or by buying put options on indices and on quoted equity investments in its portfolio.
Concentration of exposure to other price risks
A sector breakdown and geographical allocation of the portfolio is contained in the Investment Manager’s Report on page 11.
Other price risk sensitivity
The following table illustrates the sensitivity of the return after taxation for the year and the equity to an increase or decrease of 10% in the fair values of the Company’s equities. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Company’s equities at each balance sheet date, with all other variables held constant.
| Increase in | Decrease in | Increase in | Decrease in | |
| fair value | fair value | fair value | fair value | |
| 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | |
| Consolidated Income Statement – return after taxation: | ||||
| Capital return – increase/(decrease) | 4,515 | (4,515) | 5,363 | (5,363) |
| Total return after taxation – increase/(decrease) | 4,515 | (4,515) | 5,363 | (5,363) |
| Equity | 4,515 | (4,515) | 5,363 | (5,363) |
(e) LIQUIDITY RISK
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not significant as the majority of the Company’s assets are investments in quoted securities that are readily realisable. The Company does not have any borrowing facilities.
The investments in unquoted securities may have limited liquidity and be difficult to realise. At 31 December 2020, the unquoted securities are valued at £100,000 which relates to the two wholly-owned subsidiaries, PMGR Securities 2025 PLC and PGIT Securities 2020 PLC (in liquidation). (31 December 2019 the unquoted security was valued at £50,000 consisting of PGIT Securities 2020 PLC and one unquoted security which was in liquidation, ITI Energy Ltd). The Company may invest up to 15% of its gross assets in unquoted securities.
The Board gives guidance to the Investment Manager as to the maximum amount of the Company’s resources that should be invested in any one holding. The policy is that the Company should remain fully invested in normal market conditions and that short term borrowing may be used to manage short term cash requirements. The Board will monitor the level of liquidity required to fund the repayment of the ZDP Shares and the impact of the issue of any new ZDP Shares.
The contractual maturities of the Group’s financial liabilities at 31 December 2020, based on the earliest date on which payment can be required, were as follows:
| Between | ||||
| 3 months | Not more | one and five | ||
| or less | than one year | years | Total | |
| At 31 December 2020 | £000 | £000 | £000 | £000 |
| Payables and other financial liabilities | (193) | – | – | (193) |
| ZDP Shares | – | – | (18,143) | (18,143) |
The contractual maturities of the Group’s financial liabilities at 31 December 2019, based on the earliest date on which payment can be required, were as follows:
| Between | ||||
| 3 months | Not more | one and five | ||
| or less | than one year | years | Total | |
| At 31 December 2019 | £000 | £000 | £000 | £000 |
| Payables and other financial liabilities | (209) | – | – | (209) |
| ZDP Shares | – | (30,249) | – | (30,249) |
(f) CREDIT RISK
The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. The maximum exposure to credit risk at 31 December 2020 (comprising of current assets and cash at bank) was £696,000 (31 December 2019: £1,784,000). The calculation is based on the Company’s credit exposure as at 31 December 2020 and may not be representative of the year as a whole.
Management of the risk
This risk is not significant, and is managed as follows:
• investment transactions are carried out with a large number of brokers, whose credit-standing is reviewed periodically by the Investment Manager, and limits are set on the amount that may be due from any one broker; and
• cash at bank is held only with reputable banks with high quality external credit ratings. The Company does not generally hold significant cash balances, but when it does it seeks to limit exposure to any one bank to 10% of net assets.
None of the Company’s financial assets are secured by collateral or other credit enhancements. In addition none of these financial assets are either past due or impaired.
(g) FAIR VALUE MEASUREMENTS OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The financial assets and liabilities are either carried in the balance sheet at their fair value, or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends receivable, accrued income, due to brokers, accruals and cash balances).
The tables below set out fair value measurements using fair value hierarchy, where Level 1, Level 2 and total figures apply to both Group and Company and Level 3 figures apply only to Company.
| Financial assets at fair value through profit or loss at 31 December 2020 | |||||
| Level 1 | Level 2 | Level 3 | Total | ||
| Notes | £000 | £000 | £000 | £000 | |
| Equity investments | 45,152 | – | – | 45,152 | |
| Investments in subsidiaries | – | – | 100 | 100 | |
| Forward foreign exchange contracts | 13 | – | 194 | – | 194 |
| Total | 45,152 | 194 | 100 | 45,446 | |
| Financial assets at fair value through profit or loss at 31 December 2019 | |||||
| Level 1 | Level 2 | Level 3 | Total | ||
| Notes | £000 | £000 | £000 | £000 | |
| Equity investments | 51,843 | 1,786 | – | 53,629 | |
| Investments in subsidiaries | – | – | 50 | 50 | |
| Forward foreign exchange contracts | 13 | – | 519 | – | 519 |
| Total | 51,843 | 2,305 | 50 | 54,198 | |
Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:
Level 1 – valued using quoted prices in active markets for identical assets.
Level 2 – valued by reference to valuation techniques using observable inputs other than quoted prices included within Level 1. Level 2 investments include the Company’s forward currency contracts, these are valued using the Prime Broker contracts which uses spot foreign exchange rates in the respective currencies.
Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data.
Level 3 fair values are determined by the Directors using valuation methodologies in accordance with the IPEV Guidelines and as detailed in note 1.1 (h). Significant inputs include investment cost, the value of the most recent capital raising and the adjusted net asset value of funds. In accordance with IPEV Guidelines, new investments are carried at cost, the price of the most recent investment being a good indication of fair value. Thereafter, fair value is the amount deemed to be the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. At 31 December 2020, the Company’s Level 3 investments related to the two wholly-owned subsidiaries, PMGR Securities 2025 PLC and PGIT Securities 2020 PLC (in liquidation). The net asset value of the subsidiaries are considered to be the fair value.
The valuation techniques used by the Company are explained in the accounting policies note on pages 59 to 60.
A reconciliation of fair value measurements in Level 3 is set out below.
Level 3 financial assets at fair value through profit or loss
| As at | |
| 31 December | |
| 2020 | |
| £000 | |
| Opening fair value – PGIT Securities 2020 PLC (in liquidation) | 50 |
| Investment in subsidiary – PMGR Securities 2025 PLC | 50 |
| Closing fair value – PGIT Securities 2020 PLC and PMGR Securities 2025 PLC | 100 |
Financial liabilities at fair value through profit or loss
The listed bid price was used to determine the fair value of the ZDP Shares as at 31 December 2020:
| As at 31 December 2020 | As at 31 December 2020 | As at 31 December 2019 | As at 31 December 2019 | |
| Fair value | Fair value | |||
| Book value | Level 2 | Book value | Level 2 | |
| £000 | £000 | £000 | £000 | |
| ZDP Shares | 14,276 | 14,644 | 28,987 | 28,647 |
The ZDP Shares are considered to be Level 2 (2019: Level 2), due to low volumes of trade.
(h) CAPITAL MANAGEMENT POLICIES AND PROCEDURES
The Company’s capital management objectives are:
• to ensure that the Company will be able to continue as a going concern; and
• to achieve a high income from its portfolio and to realise long-term growth in the capital value of the portfolio.
The Company’s capital at 31 December comprises:
| 2020 | 2019 | |
| £000 | £000 | |
| Total assets | 45,848 | 55,413 |
| Debt: | ||
| ZDP Shares | (14,276) | (28,987) |
| Equity: | ||
| Equity share capital | 181 | 181 |
| Retained earnings and other reserves | 31,198 | 26,036 |
| 31,379 | 26,217 | |
| Debt as a percentage of total capital | 31.14% | 52.31% |
The Company’s objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
• As a public company, the Company has to have a minimum share capital of £50,000.
• In order to be able to pay dividends out of profits available for distribution by way of dividends, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law.
These requirements are unchanged since last year and the Company has complied with them.
22. SEGMENTAL REPORTING
The chief operating decision maker has been identified as the Board of Premier Miton Global Renewables Trust PLC. The Board reviews the Company’s internal management accounts in order to analyse performance.
The Directors are of the opinion that the Company is engaged in one segment of business, being the investment business.
Geographical segmental analysis pertaining to the Company has not been disclosed because the Directors are of the opinion that as an investment company the geographical sources of revenues received by the Company are incidental to its investment activity.
23. SUBSEQUENT EVENTS
On 2 February 2021, a block listing of the Company’s Ordinary Shares was admitted to the premium segment of the London Stock Exchange. On 16 February 2021, the Company issued 50,000 Ordinary Shares from this block listing. There were no other subsequent events meriting disclosure in the financial statements.
Glossary of Terms and Alternative Performance Measures
ALTERNATIVE PERFORMANCE MEASURES (“APMS”)
We assess our performance using a variety of measures that are not specifically defined under IFRS and therefore termed APMs. The APMs that we use may not be directly comparable with those used by other companies.
DISCOUNT/PREMIUM (APM)
If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, the shares are said to be trading at a premium. The Board monitors the level of discount or premium and consideration is given to ways in which share price performance may be enhanced, including the effectiveness of marketing and share buy-backs, where appropriate. The discount/premium is shown on page 2.
| As at | As at | ||
| 31 December | 31 December | ||
| 2020 | 2019 | ||
| Net Asset Value per Ordinary Share (cum income) | a | 173.48p | 144.94p |
| Mid-market price per Ordinary Share | b | 157.50p | 130.00p |
| Discount | (b-a)/a | 9.2% | 10.3% |
GEARING (APM)
Gearing, or leverage, is introduced when a company borrows money or issues prior ranking share classes such as Zero Dividend Preference (“ZDP”) shares, to buy additional investments. The objective is to enhance returns to shareholders but there is the risk of the opposite effect if the additional investments fall in value.
Gearing has been calculated by dividing the Zero Dividend Preference Shares over the Gross Assets Less Current Liabilities.
| As at | As at | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| Zero Dividend Preference Shares | (£14.3m) | (£29.0m) |
| Gross Assets Less Current Liabilities (excluding Zero Dividend Preference Shares) | £45.7m | £55.2m |
| Gearing | 31.3% | 52.5% |
GROSS REDEMPTION YIELD
The return on a fixed-interest security, or any investment with a known life, expressed as an annual percentage and without any deduction for tax. Redemption yield measures the capital as well as income return on investments with a fixed life.
HURDLE RATES (APM)
The compound rate of growth or decline of the total assets required each year until the redemption date for shareholders to receive the predetermined redemption price on a Zero Dividend Preference Share or the current share price on an Ordinary Share. Hurdle Rate calculations for December 2020 and December 2019 are based on different time periods as a result of the refinancing of the ZDP Shares from a maturity of November 2020 to a maturity of November 2025. As such, care should be taken when making comparisons between the figures calculated for each year end.
| Year ended | Year ended | ||
| 31 December | 31 December | ||
| Hurdle Rate - Ordinary Shares | 2020 | 2019 | |
| Gross assets less current liabilities (excluding Zero Dividend Preference Shares) | a | £45.7m | £55.2m |
| Less management fees to be charged to capital until ZDP redemption date | b | (£1.0m) | (£0.2m) |
| c = a+b | £44.7m | £55.0m | |
| Redemption value of Zero Dividend Preference Shares | d | (£18.1m) | (£30.2m) |
| Expected market capitalisation at ZDP redemption date | e = c+d | £26.6m | £24.8m |
| 31 December 2020/31 December 2019 market capitalisation based on | |||
| mid share price of 157.50p (2019: 130.00p) x number of shares in issue | f | £28.5m | £23.5m |
| Difference between year-end market capitalisation and | |||
| expected market capitalisation at ZDP redemption date | g = f-e | £1.9m | (£1.2m) |
| Annualised change in year-end gross assets required to return current market | |||
| capitalisation at ZDP redemption date | h = g/a | 4.4% | (2.2%) |
| Ordinary Shares Hurdle to Return | |||
| December 2020/December 2019 share price | |||
| at 28 November 2025/30 November 2020 | |||
| share price at 28 November 2025 | = (1+h)^(1/((number of days to redemption)/365))-1 | 0.9% | (2.4%) |
Numbers have been rounded.
| Year ended | Year ended | ||
| 31 December | 31 December | ||
| Hurdle Rate - Zero Dividend Preference Shares | 2020 | 2019 | |
| Gross assets less current liabilities (excluding Zero Dividend Preference Shares) | a | £45.7m | £55.2m |
| Redemption value of Zero Dividend Preference Shares | b | £18.1m | £30.2m |
| Management fees to be charged to capital until ZDP redemption date | c | £1.0m | £0.2m |
| d = b+c | £19.1m | £30.4m | |
| Percentage to fall before Zero Dividend Preference Shares not fully covered | e = (d-a)/a | (58.2%) | (44.8%) |
| Zero Dividend Preference Shares Hurdle to Return | |||
| the redemption price of 127.6111p (2019: 125.6519p) | |||
| at 28 November 2025 (2019: 30 November 2020) | = (1+e)^(1/((number of days to redemption)/365))-1 | (16.2%) | (47.7%) |
Numbers have been rounded.
NET ASSET VALUE (“NAV”) (CUM INCOME)
The NAV is the assets attributable to shareholders expressed as an amount per individual share. PMGR’s Ordinary Share NAV is calculated as the total value of all its assets, at current market value, having deducted all prior charges at their par value (or at their asset value). “Cum income” referred to the inclusion of current year net revenue accrued but not yet paid as a dividend.
NAV TOTAL RETURN (APM)
The combined effect of any dividends paid, together with the rise or fall in the share price or NAV. Total return statistics enable the investor to make performance comparisons between companies with different dividend policies. Any dividends (after tax) received by a shareholder are assumed to have been reinvested in either additional shares of the company at the time the shares go
ex-dividend (the share price total return) or in the assets of the company at its NAV per share (the NAV total return). The total return, the NAV total return and the share price total return figures are shown on page 2.
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| Opening NAV | 144.94p | 112.55p |
| Increase in NAV | 28.54p | 32.39p |
| Closing NAV | 173.48p | 144.94p |
| % increase in NAV | 19.7% | 28.8% |
| Impact of reinvested dividends | 9.8% | 10.1% |
| NAV Total Return | 29.5% | 38.9% |
ONGOING CHARGES (APM)
The ongoing charges represent the Company’s management fee and all other operating expenses, excluding finance costs, expressed as a percentage of the average of the daily net assets during the year (see page 2). The Board continues to be conscious of expenses and works hard to maintain a sensible balance between good quality service and cost.
| Year ended 31 December | 2020 | 2020 | 2019 | 2019 | |
| £000 | £000 | £000 | £000 | ||
| Average NAV | a | 53,056 | 53,173 | ||
| Investment mangement fee | 400 | 409 | |||
| Other operating expenses | 532 | 473 | |||
| Total expenses excluding finance costs | b | 932 | 882 | ||
| Ongoing charges | (b÷a) | 1.76% | 1.66% |
SHARE PRICE TOTAL RETURN (APM)
The return to the investor, on a mid price to mid price basis, assuming that all dividends paid were reinvested, without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend.
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| Opening share price | 130.00p | 102.00p |
| Increase in share price | 27.50p | 28.00p |
| Closing share price | 157.50p | 130.00p |
| % increase in share price | 21.2% | 27.5% |
| Impact of reinvested dividends | 9.8% | 10.8% |
| Share Price Total Return | 31.0% | 38.3% |
TOTAL ASSETS
Total assets less current liabilities, before deduction of all borrowings.
TOTAL ASSETS TOTAL RETURN (APM)
The total assets total return compares the closing assets to the opening assets plus the dividends that have gone ex-dividend during the year.
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2020 | 2019 | |
| £000 | £000 | |
| Opening assets | 55,204 | 48,032 |
| Closing assets | 45,655 | 55,204 |
| (Decrease)/Increase | (9,549) | 7,172 |
| Zero Dividend Preference net refinancing | 16,031 | - |
| Dividends marked “ex-dividend” in the period | 1,844 | 1,844 |
| Total assets total return (£000) | 8,326 | 9,016 |
| Total assets total return (%) | 16.5% | 19.0% |
Total assets total return expressed as a percentage, takes into account timing of dividends and other capital returns during the year, and also assumes dividends are reinvested. The disclosures provided above are illustrative of the major components of the calculation, and cannot of themselves be used to replicate the calculation.
ZERO DIVIDEND PREFERENCE SHARE COVER (NON CUMULATIVE) (APM)
The non cumulative cover measures the amount by which the final redemption value of the Zero Dividend Preference Shares are secured by the total assets of the Group allowing for all prior ranking liabilities and the accrual of expenses to capital over the remaining period to the redemption of the Zero Dividend Preference Shares.
| Year ended | ||
| 31 December | ||
| 2020 | ||
| Gross assets less current liabilities (excluding Zero Dividend Preference Shares) | £45.7m | |
| Less December 2020 revenue reserve | (£1.3m) | |
| Gross assets for Zero Dividend Preference Cover | a | £44.4m |
| Redemption value of Zero Dividend Preference Shares | b | £18.1m |
| Management fees charged to capital | c | £0.2m |
| Years left | d | 4.91 |
| Zero Dividend Preference Share Cover (non cumulative) | a/(b+(c*d)) | 2.32x |
The annual report and accounts for the year ended 31 December 2020, together with the Notice of the 2021 Annual General Meeting, will be lodged with the national storage mechanism (https://data.fca.org.uk/#/nsm/nationalstoragemechanism ) in accordance with Listing Rules 9.6.1 and 9.6.3. They will also be made available on the Company’s section of the Premier Miton website, www.premiermiton.com.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2020 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the registrar of companies, and those for 2020 will be delivered in due course. The auditor has reported on those accounts; their reports were i) unqualified ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
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