Foresight Solar Fund Limited : Interim Results ...
Highlights
- Net Asset Value ("NAV") increased from £279.1 million as at 31 December 2015 to £279.8 million as at 30 June 2016, taking the NAV per Ordinary Share to 99.3 pence (31 December 2015: 99.0 pence).
- Equity discount rate remains unchanged at 7.5%.
- The Company reached Financial Close on a £160 million long-term debt facility at attractive terms compared to other similar facilities closed within the renewable sector during the period. The facility wholly refinanced the Company's £150 million short-term acquisition facility previously in place.
- In addition, the Company has entered into a new, short-term revolving acquisition facility of £40 million with Santander. The short-term facility will provide the Company with the flexibility to take advantage of future pipeline opportunities.
- Having delivered the target dividend of 6.10 pence for the year to 31 December 2015, the first interim dividend of 1.54 pence per share was paid on 24 June 2016. The Company has paid all seven target dividends to date and remains on target to deliver a dividend of 6.17 pence for the financial year ended 31 December 2016.
- The 16 asset, 338MW portfolio is fully operational and accredited following the 30MW Copley asset successfully qualifying for 1.3 Renewable Obligation Certificate ("ROC") banding.
- Performance of the assets for the period was below the expectations of the Investment Manager due to a grid outage at the Bournemouth site and other isolated, non-recurring incidents. Energy generated from the portfolio amounted to 163.9 Gigawatt Hours ("GWh"), resulting in revenue of £8.6 million across the Company's portfolio, excluding compensation expected from insurable events and contracted liquidated damages.
- Reported profit after tax for the period was £9.3 million and earnings per share of 3.30 pence.
- The Company continued the asset optimisation process having entered a five-year Power Purchase Agreement for 15 of the 16 assets in the portfolio following a wide tender process. The agreement represented a significant improvement in passthrough rates and embedded benefit prices.
- The Company has identified an attractive pipeline of 200MW which will support the growth of the Fund over the next 12 months, including several secondary opportunities which it expects to complete before year end.
Dividend Timetable
| Ex-dividend Date | 15 September 2016 |
| Record Date | 16 September 2016 |
| Payment Date | 30 September 2016 |
Key Metrics
| Net Asset Value | £279.8 million |
| Dividends per Share declared for the period | 3.08 pence |
| NAV per Share | 99.3 pence |
| Gross Asset Value | £445.4 million |
| Share Price | 96.0 pence |
| Total NAV Return* | 5.78% |
| Market Capitalisation | £270.5 million |
| Number of Shares with Voting Rights | 281,803,232 |
| Total Shareholder Return* | 3.54% |
* Annualised from IPO and calculated in line with AIC methodology, which does not include dividends approved but not paid.
Commenting on today's results, Alexander Ohlsson, Chairman of Foresight Solar Fund Limited said:
"The Board is pleased with the progress made by the Company over the period. In a challenging regulatory and trading environment, the Company has taken a prudent approach to acquisitions and focused on the consolidation and optimisation of the portfolio. This has resulted in significant improvements to the commercial terms of many of the Company's contracts and subsequent cost reductions across the portfolio. The Board is particularly pleased with the attractive terms that were achieved on the long-term financing strategy implemented in March, especially when compared to similar facilities closed in the renewable sector during the period. This highlights the value that can be created from the experience of the Investment Manager, and further underpin returns to investors.
The Company has achieved all seven target dividends to date and is on track to deliver a 6.17 pence dividend for the year ended 31 December 2016. The 16 asset portfolio is now fully operational and accredited and generating revenue for the benefit of the Company's Shareholders.
We believe the UK solar sector remains attractive, particularly given the emergence of an active UK secondary market and the recent recovery in UK wholesale power prices. The Investment Manager has identified an attractive 200MW pipeline of assets that will support the growth of the Company over the next 12 months, and is actively pursuing several opportunities which it expects to complete before the end of the year."
A conference call for analysts will be held at 9:00am on Monday 15 August 2016. A presentation will be provided separately on before the call.
A copy of the Report can be found on the Fund's website.
To register for the call, please contact Eleni Menikou at Citigate Dewe Rogerson at Eleni.Menikou@citigatedr.co.uk, or by phone: +44 (0)20 7282 1086.
| For further information, please contact: | |
Foresight Group | |
| Elena Palasmith epalasmith@foresightgroup.eu | +44 (0)203 667 8100 |
| Stifel Nicolaus Europe Limited | +44 (0)20 7710 7600 |
| Mark Bloomfield Neil Winward Tunga Chigovanyika | |
J.P. Morgan Cazenove William Simmonds | +44 (0)20 7742 4000 |
Notes to Editors
About Foresight Solar Fund Limited ("The Company" or "FSFL")
FSFL is a Jersey-registered closed-end investment company. The Company invests in ground based UK solar power assets to achieve its objective of providing Shareholders with a sustainable and increasing dividend with the potential for capital growth over the long-term.
The Company raised proceeds of £150m through an initial public offering ("IPO") of shares on the main market of the London Stock Exchange in October 2013, and a further £60.1m through an Initial Placing and Offer for Subscription in October 2014.
About Foresight Group
Foresight Group was established in 1984 and today is a leading independent infrastructure and private equity investment manager with c. £1.8 billion of assets under management. As one of the UK's leading solar infrastructure investment teams Foresight funds currently manage c. £1.1 billion in over 70 separate operating Photovoltaic ("PV") plants in the UK, the USA and southern Europe.
Foresight Group has offices in London, Guernsey, Nottingham, Manchester, Rome, Sydney and San Francisco.
Chairman's Statement
Results
I am pleased to report, on behalf of the Board, the Unaudited Interim Financial Statements for Foresight Solar Fund Limited for the six months ending 30 June 2016.
The NAV per Ordinary Share increased to 99.3 pence from 99.0 pence at 31 December 2015. The increase during the period is more fully described in the Investment Manager's Report and incorporates a 3.7 per cent. fall due to the continued reduction in the Company's power price forecasts. The Company has incorporated two further falls in the power price since 31 December 2015 following updated reports from independent providers of power price forecasts.
The Profit after Tax for the period was ££9.3 million resulting in Earnings per Share of 3.30 pence.
Valuation Policy
Investments held by the Company have been valued in accordance with IAS 39, IFRS 13 and International Private Equity and Venture Capital Valuation (IPEV) methodology, using Discounted Cash Flow ("DCF") Principles. The portfolio valuations are prepared by Foresight Group CI Limited, reviewed and approved by the Board quarterly and subject to an annual audit.
The equity discount rate applicable to the DCF valuation methodology remained unchanged during the period at 7.5%.
Dividend and Dividend Growth
As noted in the Company's two Prospectuses but subject to market conditions, Company performance, financial position and financial outlook, it is the Directors' intention to pay a sustainable and inflation-linked level of dividend income to Shareholders.
The Company continues to achieve its dividend objectives, and has paid all seven target dividends to date. For the year ending 31 December 2015, the Company paid a total dividend of 6.10 pence per share (2014: 6.00 pence) and is on track to deliver the targeted RPI-linked dividend of 6.17 pence for the year ending 31 December 2016.
Portfolio
Despite reviewing several primary and secondary opportunities, no new assets were acquired during the period. This reflects the Company's prudent approach to acquisitions and its strategy to avoid levels of pricing that could have been dilutive to shareholders in a period of falling UK wholesale power prices.
In this challenging environment, focus was instead placed on the consolidation and optimisation of the existing portfolio. This has resulted in significant improvements to the commercial terms of many of the Company's contracts and subsequent cost reductions across the portfolio. Most notably, the Company finalised an agreement with a single provider to enter into a 5-year Power Purchase Agreement ("PPA") for 15 of the 16 assets in the portfolio, and completed a portfolio wide insurance tender, both to the benefit of the Company.
In March 2016, the Company reached Financial Close on a £160 million long-term debt facility, wholly refinancing the £150 million short-term acquisition facility previously in place. The Board was especially pleased with the attractive terms that were achieved, particularly when compared to similar facilities that closed within the renewable sector at the time. This was the result of over nine month's work by the Investment Manager and demonstrates the value that can be created for investors as a result of the experience of the team.
Operational Performance
As described more fully in the Investment Manager's report this has been a challenging operating period for the Company's investments. Lower than expected levels of irradiation, one-off external grid disconnections and isolated non-recurrent incidents has meant overall portfolio production is below expectations for the period. When production levels are adjusted for contractual protections and expected compensation, the portfolio performed in line with expectations when compared to the lower than expected levels of irradiation.
During the period Bournemouth was disconnected from the grid by the Distribution Network Operator, as allowed by the Connection Agreement. The length of the disconnection was extremely unusual and would have continued into the summer were it not for the proactive negotiations of the Asset Manager. If the site had not been disconnected, production across the portfolio would have been in line with the expectations of the Investment Manager for the period, when adjusted for contractual protections and expected compensation.
Market Environment and Pipeline
The installed capacity of the UK Solar PV market continued to grow over the period with the Department of Energy and Climate Change ("DECC") estimating the total UK installed capacity to have exceeded 10GW by the end of March 2016. We expect this trend to continue over the next nine months with forecasts estimating an increase to 12GW by the time the ROC regime ends on 1 April 2017. The scale of UK installed capacity has created an active market in large scale secondary assets, and we are currently reviewing a number of attractive secondary opportunities that we expect to complete before year end. The Company is also able to invest up to 25% in other jurisdictions which we expect could provide further attractive pipeline opportunities, supported by the transactional experience of the Investment Manager's global Infrastructure teams.
Although UK wholesale power prices continued their downward trend in Q1 2016, an upward shift was experienced in prices verified at the end of Q2 2016. Given c. 35% of the Company revenues are derived from floating Power Purchase Agreements ("PPAs"), we believe the Company is well placed to benefit from any further uplift in power prices if this trend continues as forecast.
On 23 June 2016, the UK Government held a referendum in which the majority of the electorate voted for the UK to leave the European Union ("Brexit"). Whilst this result was unexpected, we believe the result will have a limited impact on the Fund. The fundamentals of the UK solar sector are not underpinned by any EU regulation or legislation. The Renewable Obligation and the Levy Control Framework are enshrined in the Law of England and Wales and do not require transposition from EU Directives or other legislation.
In July 2016, it was announced that DECC would be dissolved and the departments functions would be transferred to the new Department of Business, Energy and Industrial Strategy ("BEIS") a combination of DECC and the Department of Business, Innovation and Skills ("BIS"). While the impact this will have on the renewable energy sector is at this point unclear, there are several positives that may result from the decision such as the ability for more co-ordinated policy decisions.
The Company will continue to monitor any future impact that Brexit and the newly created BEIS may have on the Fund and report to Shareholders in due course.
Treasury Shares
The Company's Placing Programme of up to 200 million Shares closed on 24 September 2015. On 22 September 2015, the Company announced it had purchased 28,152,143 new Ordinary Shares which are held in Treasury, and are available to be sold to meet future investor demand and provide the Company with additional capital to take advantage of its attractive pipeline.
Outlook
The Board is encouraged by the progress made in the optimisation of the portfolio during the period, and the continued focus by the Investment Manager on additional value-enhancing opportunities now available as a result of the size of the Company's portfolio.
If UK wholesale power prices continue to recover as forecast, the Company is well placed to continue to provide attractive returns to Shareholders. Performance will be supported by a combination of the quality of existing assets and the strong pipeline of potential opportunities being considered, which will continue to bring associated benefits of scale over the longer term.
Alexander Ohlsson
Chairman
12 August 2016
Corporate Summary, Investment Objective and Dividends
Corporate Summary
Foresight Solar Fund Limited ("the Company") is a closed-ended company with an indefinite life and was incorporated in Jersey under the Companies (Jersey) Law 1991, as amended, on 13 August 2013, with registered number 113721.
The Company has in issue 309,955,375 Ordinary Shares, of which 28,152,143 are held in Treasury. The total number of voting rights of the Company is 281,803,232 Ordinary Shares in issue of no par value which are listed on the premium segment of the Official List and traded on the London Stock Exchange's Main Market.
The Company's shareholders include a substantial number of blue-chip institutional investors.
Significant Shareholders
Shareholders in the Company with more than a 5% holding as at 30 June 2016 are as follows:
| Investor | % Shareholding in Fund |
| Blackrock Investment Management Limited | 11.8% |
| Newton Investment Management Limited | 9.9% |
| Schroders Plc | 8.3% |
| Rathbone Investment Management Limited | 6.2% |
| Baillie Gifford & Co Limited | 5.4% |
| Henderson Global Investors | 5.0% |
| Total | 46.6% |
Investment Objective
The Company seeks to provide investors with a sustainable and inflation-linked dividend together with the potential for capital growth over the long-term through investment in a diversified portfolio of predominantly UK ground-based solar assets.
Investment Policy
The Company will pursue its investment objective by acquiring a portfolio of ground based, operational solar power plants predominantly in the UK. Investments outside the UK and assets which are still, when acquired, under construction will be limited to 25 per cent. of the Gross Asset Value of the Company, calculated at the time of investment.
Although all assets acquired by the Company to date have been located in the UK, the Company is currently reviewing a number of attractive overseas pipeline opportunities. Acquisitions overseas will be supported by Foresight's established and experienced teams in international offices.
The Company will seek to acquire majority or minority stakes in individual ground-based solar assets. When investing in a stake of less than 100 per cent. in a solar power plant SPV, the Company will secure its shareholder rights through shareholders' agreements and other legal transaction documents.
Power purchase agreements will be entered into between each of the individual solar power plant SPVs in its portfolio and creditworthy offtakers in the UK. Under the PPAs, the SPVs will sell solar generated electricity and green benefits to the designated offtaker. The Company may retain exposure to UK power prices through PPAs that avoid mechanisms such as fixed prices or price floors.
Investments may be in equity or debt or intermediate instruments but not in any instruments traded on any investment exchange.
The Company is permitted to invest cash held for working capital purposes and awaiting investment in cash deposits, gilts and money market funds.
In order to spread risk and diversify its portfolio, at the time of investment no single asset shall exceed in value (or, if it is an additional stake in an existing investment, the combined value of both the existing stake and the additional stake acquired) 30 per cent. of the Company's Gross Asset Value post acquisition. The Gross Asset Value of the Company will be calculated based on the last published gross investment valuation of the Company's portfolio, including cash, plus acquisitions made since the date of such valuation at their cost of acquisition. The Company's portfolio will provide diversified exposure through the inclusion of not less than five individual solar power plants and the Company will also seek to diversify risk by ensuring that a significant proportion of its expected income stream is derived from green benefits (which will consist of, for example, ROCs and FITs). Diversification will also be achieved by the Company using a number of different third party providers such as developers, Engineering, Procurement and Construction ("EPC") contractors, Operation and Maintenance ("O&M") contractors, panel manufacturers, landlords and Distribution Network Operators.
The Articles provide that Gearing, calculated as borrowings as a percentage of the Company's Gross Asset Value will not exceed 50 per cent. at the time of drawdown. There will be no asset level borrowings at Admission. It is the Board's current intention that long-term gearing, calculated as borrowings as a percentage of the Company's Gross Asset Value will not exceed 40 per cent. at the time of drawdown.
Any material change to the investment policy will require the prior approval of Shareholders by way of an ordinary resolution (for so long as the Ordinary Shares are listed on the Official List) in accordance with the Listing Rules.
Dividends
At IPO the Company targeted a 6.0 pence annual dividend per Ordinary Share, increasing in line with inflation, net of all fees and expenses. The Company has paid all seven target dividends to date.
The fourth and final interim dividend of 1.53 pence for the period ending 31 December 2015 was paid on the 30 March 2016 bringing the full year dividend for the period to 6.10 pence.
On 24 June 2016, the first quarterly dividend of 1.54 pence per share was paid. The Company remains on target to deliver a dividend of 6.17 pence for the financial year ending 31 December 2016.
The Investment Manager
Foresight Group CI - The Investment Manager
The Company's Investment Manager is Foresight Group CI Limited ("Foresight Group CI"). The Investment Manager has appointed Foresight Group LLP ("Foresight Group" or "The Asset Manager"), a subsidiary of Foresight Group CI, to act as Investment Advisor in relation to the Company, overseen by a strong, experienced and majority independent Board.
Foresight Group, founded in 1984, is a privately-owned infrastructure and private equity Investment Manager. Foresight Group manages assets of c. £1.8 billion, raised from pension funds and other institutional investors, UK and international private and high net-worth individuals and family offices across private equity, environmental waste to energy, and infrastructure sectors. Foresight's head office is located in The Shard, London, with further offices in Guernsey, Nottingham, Manchester, Rome, San Francisco and Sydney.
The Group's dedicated multinational infrastructure team of 38 professionals comprises individuals with operational, financing, legal, tax and structuring expertise in the renewable energy and PFI sectors and has been active since 2007. Foresight Group has particular expertise in the solar PV sector having invested c. £1.1 billion in over 70 operating solar plants totalling c. 720MW of existing operational capacity across Italy, Spain, USA and the UK. Foresight Group is the second largest solar asset owner in the UK with over 610MW of installed capacity.
Foresight Asset Management Services
Foresight has developed a best-in-class, in-house asset management team through the active management of a large portfolio of operational and construction stage assets. The team incorporates portfolio managers, electrical engineers, legal assistants and accountants and is further enhanced by an outsourced back office support function.
Foresight's excellence in asset optimisation has been attained through continual emphasis on operational efficiencies achieved through the consolidation of costs across O&M activities and insurances, consolidation of energy produced to facilitate attractive offtake pricing and ongoing equipment improvements.
Being an early entrant into the solar market, Foresight has a wealth of experience in the sector and has been able to develop its own centralised monitoring system so that all sites can be remotely monitored in real time. This sophisticated asset management database forms the basis of all performance analysis and reporting as well as enabling the enforcement of contractual compliance. This a powerful tool for being able to assess the performance of the portfolio of sites on a continuous basis and ensures that all information is consistent, accurate and relevant. It also allows Foresight's engineers to identify and notify onsite contractors to incidents quickly and work with them in order to minimise the impact of portfolio production.
Portfolio Summary
| Asset | Location | Status | ROCs | MWs | Acquisition Date | Ownership | Net MWs |
| Wymeswold* | Leicestershire | Operational and accredited | 2.0 1.4 | 32 2 | November 2013 March 2015 | 100% | 32 2 |
| Castle Eaton | Wiltshire | Operational and accredited | 1.6 | 18 | June 2014 | 100% | 18 |
| Highfields | Essex | Operational and accredited | 1.6 | 12 | June 2014 | 100% | 12 |
| High Penn | Wiltshire | Operational and accredited | 1.6 | 10 | June 2014 | 100% | 10 |
| Pitworthy | North Devon | Operational and accredited | 1.4 | 16 | June 2014 | 100% | 16 |
| Hunters Race | West Sussex | Operational and accredited | 1.4 | 11 | September 2014 | 100% | 11 |
| Spriggs Farm | Essex | Operational and accredited | 1.6 | 12 | November 2014 | 100% | 12 |
| Bournemouth | Dorset | Operational and accredited | 1.4 | 37 | December 2014 | 100% | 37 |
| Landmead | Oxfordshire | Operational and accredited | 1.4 | 46 | December 2014 | 100% | 46 |
| Kencot | Oxfordshire | Operational and accredited | 1.4 | 37 | March 2015 | 100% | 37 |
| Copley | Lincolnshire | Operational and accredited | 1.3 | 30 | June 2015 | 100% | 30 |
| Atherstone** | Warwickshire | Operational and accredited | 1.4 | 15 | July 2015 | 78% | 12 |
| Paddock Wood** | Kent | Operational and accredited | 1.4 | 9 | July 2015 | 59% | 5 |
| Southam** | Warwickshire | Operational and accredited | 1.4 | 10 | July 2015 | 70% | 7 |
| Port Farm | Wiltshire | Operational and accredited | 1.4 | 35 | August 2015 | 100% | 35 |
| Membury | Berkshire | Operational and accredited | 1.4 | 16 | September 2015 | 100% | 16 |
| Total Portfolio | 348 | 338 |
* The 1.4 ROC banding and March 2015 acquisition date refer to the 2.3MW Wymeswold extension finalised in March 2015.
** The Atherstone, Paddock Wood and Southam assets were acquired through a Joint Venture with Big60Limited through which FSFL owns a majority interest in the assets.
Company Assets
| Wymeswold, Leicestershire | |
| Ownership | 100% |
| MWs | 34 |
| ROCs | 2.0/1.4 |
| Acquisition Date | November 2013/March 2015 |
| Solar Panels | 142,000 |
| Technology | Polycrystaline |
| Panel Supplier | Trina Solar; Suntech Power |
| EPC Party | Lark Energy |
| O&M Counterparty | Brighter Green Engineering |
| Inverter Supplier | LTi REEnery |
| Grid Operator | Western Power Distribution |
| Castle Eaton, Wiltshire | |
| Ownership | 100% |
| MWs | 18 |
| ROCs | 1.6 |
| Acquisition Date | June 14 |
| Solar Panels | 60,000 |
| Technology | Polycrystaline |
| Panel Supplier | Canadian Solar |
| EPC Party | SunEdison |
| O&M Counterparty | SunEdison |
| Inverter Supplier | Bonfiglioli |
| Grid Operator | Southern Electric Power |
| Highfields, Essex | |
| Ownership | 100% |
| MWs | 12 |
| ROCs | 1.6 |
| Acquisition Date | June 14 |
| Solar Panels | 38,000 |
| Technology | Monocrystaline |
| Panel Supplier | SunEdison |
| EPC Party | SunEdison |
| O&M Counterparty | SunEdison |
| Inverter Supplier | Ingeteam |
| Grid Operator | UK Power Networks |
| High Penn, Wiltshire | |
| Ownership | 100% |
| MWs | 10 |
| ROCs | 1.6 |
| Acquisition Date | June 14 |
| Solar Panels | 30,000 |
| Technology | Monocrystaline |
| Panel Supplier | SunEdison |
| EPC Party | SunEdison |
| O&M Counterparty | SunEdison |
| Inverter Supplier | Bonfiglioli |
| Grid Operator | SSE Power Distribution |
| UK Power Networks | |
| Pitworthy, North Devon | |
| Ownership | 100% |
| MWs | 16 |
| ROCs | 1.4 |
| Acquisition Date | June 14 |
| Solar Panels | 48,000 |
| Technology | Monocrystaline |
| Panel Supplier | SunEdison |
| EPC Party | SunEdison |
| O&M Counterparty | SunEdison |
| Inverter Supplier | Bonfiglioli |
| Grid Operator | Western Power Distribution |
| Hunters Race, West Sussex | |
| Ownership | 100% |
| MWs | 11 |
| ROCs | 1.4 |
| Acquisition Date | September 14 |
| Solar Panels | 41,000 |
| Technology | Polycrystaline |
| Panel Supplier | Hareon Solar |
| EPC Party | Hareon Solar |
| O&M Counterparty | Hareon Solar |
| Inverter Supplier | Power One |
| Grid Operator | SSE Power Distribution |
| Spriggs Farm, Essex | |
| Ownership | 100% |
| MWs | 12 |
| ROCs | 1.6 |
| Acquisition Date | November 14 |
| Solar Panels | 50,000 |
| Technology | Polycrystaline |
| Panel Supplier | Talesun |
| EPC Party | Bester Generation |
| O&M Counterparty | Bester Generation |
| Inverter Supplier | Green Power Tech |
| Grid Operator | UK Power Networks |
| Bournemouth, Dorset | |
| Ownership | 100% |
| MWs | 37 |
| ROCs | 1.4 |
| Acquisition Date | December 14 |
| Solar Panels | 146,000 |
| Technology | Polycrystaline |
| Panel Supplier | REC |
| EPC Party | Goldbeck |
| O&M Counterparty | Goldbeck |
| Inverter Supplier | SMA |
| Grid Operator | SSE Power Distribution |
| Landmead, Oxfordshire | |
| Ownership | 100% |
| MWs | 46 |
| ROCs | 1.4 |
| Acquisition Date | December 14 |
| Solar Panels | 483,000 |
| Technology | Thin film |
| Panel Supplier | First Solar |
| EPC Party | Belectric |
| O&M Counterparty | Belectric |
| Inverter Supplier | GE Power Conversion |
| Grid Operator | SSE Power Distribution |
| Kencot, Oxfordshire | |
| Ownership | 100% |
| MWs | 37 |
| ROCs | 1.4 |
| Acquisition Date | March 15 |
| Solar Panels | 144,000 |
| Technology | Polycrystaline |
| Panel Supplier | Astronergy |
| EPC Party | Conergy |
| O&M Counterparty | Conergy |
| Inverter Supplier | SMA |
| Grid Operator | Southern Electric Power |
| Copley, Lincolnshire | |
| Ownership | 100% |
| MWs | 30 |
| ROCs | 1.3 |
| Acquisition Date | June 15 |
| Solar Panels | 115,200 |
| Technology | Polycrystaline |
| Panel Supplier | Renesola |
| EPC Party | Cofely Fabricom N.V./S.A |
| O&M Counterparty | Cofely Fabricom N.V./S.A |
| Inverter Supplier | SMA |
| Grid Operator | Western Power Distribution |
| Atherstone, Warwickshire | |
| Ownership | 78% |
| MWs | 15 |
| ROCs | 1.4 |
| Acquisition Date | July 15 |
| Solar Panels | 154,200 |
| Technology | Thin film |
| Panel Supplier | First Solar |
| EPC Party | Belectric |
| O&M Counterparty | Belectric |
| Inverter Supplier | SMA |
| Grid Operator | Western Power Distribution |
| Paddock Wood, Kent | |
| Ownership | 59% |
| MWs | 9 |
| ROCs | 1.4 |
| Acquisition Date | July 15 |
| Solar Panels | 97,200 |
| Technology | Thin film |
| Panel Supplier | First Solar |
| EPC Party | Belectric |
| O&M Counterparty | Belectric |
| Inverter Supplier | SMA |
| Grid Operator | UK Power Networks |
| Southam, Warwickshire | |
| Ownership | 70% |
| MWs | 10 |
| ROCs | 1.4 |
| Acquisition Date | July 15 |
| Solar Panels | 103,350 |
| Technology | Thin film |
| Panel Supplier | First Solar |
| EPC Party | Belectric |
| O&M Counterparty | Belectric |
| Inverter Supplier | SMA |
| Grid Operator | Western Power Distribution |
| Port Farm, Wiltshire | |
| Ownership | 100% |
| MWs | 35 |
| ROCs | 1.4 |
| Acquisition Date | August 15 |
| Solar Panels | 135,768 |
| Technology | Polycrystalline Silicon |
| Panel Supplier | ReneSola |
| EPC Party | Renesola UK Limited |
| O&M Counterparty | Renesola UK Limited |
| Inverter Supplier | Schneider Electric |
| Grid Operator | SSE |
| Membury, Berkshire | |
| Ownership | 100% |
| MWs | 16 |
| ROCs | 1.4 |
| Acquisition Date | September 15 |
| Solar Panels | 63,288 |
| Technology | Polycrystalline Silicon |
| Panel Supplier | ReneSola |
| EPC Party | Renesola UK Limited |
| O&M Counterparty | Renesola UK Limited |
| Inverter Supplier | ABB |
| Grid Operator | SSE |
Investment Manager's Report
For the period 1 January 2016 to 30 June 2016
The Company
The Company's IPO on 24 October 2013 raised £150 million, creating the largest dedicated solar investment company listed in the UK at the time. In September 2014, the Company announced a Placing Programme of up to 200 million New Ordinary Shares, which closed in September 2015, having raised £134.9 million.
In September 2015, the Company announced an issue of Equity and Repurchase into Treasury of 28,152,143 new Ordinary Shares under its Placing Programme.
The Company has a £160 million long-term debt facility in place provided by Macquarie Infrastructure Debt Investment Solutions ("MIDIS") and Abbey National Treasury Services ("Santander"). This facility wholly refinanced the Company's £150 million short-term acquisition facility previously in place. In addition, the Company entered into a new £40 million short-term revolving acquisition facility at favourable terms with Santander. The short-term facility will provide the Company with the flexibility to take advantage of future pipeline opportunities.
Investment Portfolio
The Investment Manager believes that the portfolio of assets has been acquired at attractive pricing levels and offers both panel manufacturer and geographical diversification across the UK. The Company's 16 asset, 338MW portfolio is fully operational and accredited. In keeping with the Company's low risk strategy, 15 of the 16 assets within the portfolio were operational when acquired and subject to certain conditions having been achieved by the developer of the plant, including the assets being built to specified performance standards and successful connection to the grid.
On 25 June 2015, the Company announced it had signed a binding contract to fund its first construction asset, the 30MW Copley asset in Nottinghamshire. The Company believed that the enhanced returns from providing construction funding for the Copley asset were justified given that the construction and connection timetable allowed sufficient lead time to meet the grace period deadline of 31 March 2016. The asset connected to the grid ahead of schedule in December 2015 and qualified for the 1.3 ROC banding under the Renewable Obligation ("RO") 12-month grace period for projects greater than 5MW.
During the period, although a number of potential asset acquisitions were evaluated, none were completed, reflecting the Investment Manager's prudent approach to only acquire assets when confident that they will be accretive in value to Shareholders. The Investment Manager was particularly cautious to acquire new assets in an environment of decreasing UK wholesale power prices, due to the disparity it believed it created in pricing expectations between asset vendors and buyers.
Regulatory and Market Changes
Following the consultations in July 2015, the Department of Energy and Climate Change announced in December 2015 it would close the Renewable Obligation Scheme ("RO Scheme") to new solar PV of 5MW and below from 1 April 2016 onwards, subject to certain Grace Periods. This was driven by the significant increase in the installed capacity of UK solar in recent years, with the Solar Trade Association estimating that UK solar capacity surpassed 10GW at the end of March 2016. DECC had previously flagged that it would continue to monitor the deployment of new installations and the subsequent impact this would have on the Levy Control Framework ("LCF"). It should be noted that the changes to the RO described above had no impact on the existing installed capacity of the Company portfolio or any of the projects in its immediate pipeline.
In July 2015, DECC also announced the postponement of the 2015 auction under the Contracts for Difference ("CfD") scheme for large renewables projects. In November 2015, the mechanism was suspended indefinitely amidst a purported overspend within the LCF and in February 2016, the then Energy Secretary Amber Rudd confirmed that there are currently no plans for large-scale solar to be handed future contracts under the CfD mechanism.
The rapid growth and scale of UK installed solar capacity over the past 5 years has created an active market in large-scale secondary assets. The Investment Manager's market position and credibility gives it priority access to many transactions and it seeks to lever its relationship with prospective vendors of assets in order to obtain the highest possible quality of assets whilst avoiding competitive auction processes for assets. This allows acquisitions to be expedited in a timely manner, while securing attractive investment returns. The Investment Manager currently expects 2 to 3GW to become available in the secondary market over the next 24 months, supporting the expected Company growth in the short to medium term.
On 23 June 2016, the UK Government held a referendum in which the majority of the electorate voted for the UK to leave the European Union ("Brexit"). Whilst unexpected, we expect the result to have limited, if any, impact on the Company. The fundamentals of the UK solar sector are not underpinned by any EU regulation or legislation. The Renewable Obligation and the Levy Control Framework are enshrined in the Law of England and Wales and do not require transposition from EU Directives or other legislation. Asset revenue streams are driven by UK Government subsidies and UK wholesale power prices and all of the Company's operational costs are denominated in Pound Sterling. The main costs to the portfolio are land leases and O&M contracts which have been secured under long term contracts. Financing costs also have a limited exposure to interest rate movements with only c. 4% of the Company's long term debt facilities directly linked to LIBOR.
In July 2016, it was announced that DECC would be dissolved and the department's functions would be transferred to the new Department of Business, Energy and Industrial Strategy a combination of DECC and the Department of Business, Innovation and Skills. The new department will be led by the Rt. Hon. Greg Clark, the former Communities Secretary who has also held the position of shadow Energy Secretary in the past. The appointment has been broadly well-received by those in the renewable industry, as the Minister has previously been vocal of his support for renewable energy and the green economy. While the impact this will have on the renewable energy sector is at this point unclear, there are several positives that may result from the decision such as the ability for more co-ordinated policy decisions.
Following these announcements, the Investment Manager does not anticipate any further regulatory changes that may impact the UK's renewable initiatives or the Government's commitment to the 2008 Climate Change Act targets. Indeed, on 30 June 2016 the Government approved the Fifth Carbon Budget demonstrating its continued commitment to the development of renewable and low carbon energy supply.
Power Prices
UK power prices continued a downward trend throughout Q1 2016, driven in part by lower gas prices due to stockpiles of liquefied gas and above average winter temperatures during the fourth quarter of 2015. The market experienced a recovery in spot prices in Q2 2016 supported by an increase in gas prices with average power prices increasing to levels above £40/MWh by the end of the quarter. Despite this recovery, the Company has revised downwards its forecast power prices by an average of c. 5.5% over the period for valuation purposes, in line with the most recently published advisor reports.
Since the IPO in October 2013, the Company has revised downwards its forecast power curve nine times, by a cumulative average of c. 29%. The Company's power curve assumptions are solely based on a blended average of the forecasts provided by a number of third party consultants and the Investment Manager believes that the recent power price declines have been appropriately reflected. It should be noted that the Company's forecasts continue to assume an increase in power prices in real terms over the medium to long-term of 2.0% per annum. As at 31 December 2015, the comparative increase was disclosed as 1.8% per annum in real terms. The increase in the average increase is due to the relative fall in near time power prices.
It should also be noted that although the Investment Manager incorporates the latest curves published by its third party consultants in the Company's NAV calculations, the reports are published relatively infrequently and tend to display a lag to actual market developments. As such, the recent recovery in spot prices has not yet been reflected in the Company's NAV.
The impact of falling power prices can be mitigated, to a certain extent, by the fact that c. 65% of portfolio revenues received are from fixed electricity price contracts, subsidies and associated green benefits which are grandfathered and index-linked. As such, there remains a buffer for power prices to experience further reductions whilst still supporting the Company's long-term dividend targets.
Even in a scenario where a flat nominal power curve at current levels were to be assumed for the remaining life of the assets, the Company would be able to deliver an average annual target dividend of 6 pence per share. However, a flat power curve for the term of investment would be considered an extreme sensitivity considering current power price expectations in the medium to long-term.
Subsidy and Revenue Breakdown
The operational assets within the portfolio benefit from a combination of 2.0, 1.6, 1.4 and 1.3 ROC subsidy accreditation. The Company's income is derived from a mix of subsidy revenues and those received from the sale of electricity via Power Purchase Agreements as shown below.
Operational Portfolio RO Accreditation Split 30 June 2016
| ROC | MW | % |
| 1.3 ROC | 30 | 9% |
| 1.4 ROC | 225 | 66% |
| 1.6 ROC | 52 | 15% |
| 2.0 ROC | 32 | 10% |
| Total | 338 | 100% |
Operational Portfolio Revenue Split 30 June 2016
| Subsidy Income | 60% |
| PPA Income | 40% |
| Total | 100% |
As of 30 June 2016, c. 10% of the portfolio has fixed price PPA arrangements in place.
During the period, 60% of the Company's operational portfolio revenue came from the sale of ROCs and other green benefits. These revenues are directly and explicitly linked to inflation for 20 years from the accreditation date under the ROC regime and subject to Retail Price Index ("RPI") inflationary increases applied by Ofgem in April of each year.
The majority of the remaining 40% of revenues derive from electricity sales which are subject to wholesale electricity price inflation. These are correlated in the long term with RPI as a component of the RPI index basket of goods and services. This implicit indexation of revenues derived from ROC benefits and the degree of inflation linkage of the wholesale electricity price provides cash flows that are highly correlated with long-term inflation.
PPAs are entered into between each individual solar power asset and off-takers in the UK electricity supply market. Under the PPAs, each asset owning SPV will sell generated electricity and ROCs to the designated off-taker.
Portfolio Optimisation
The Asset Manager has run a number of concurrent processes to maximise the free cash being generated by the portfolio. As well as increasing the technical efficiency of the sites, the asset management team has been able to significantly improve the commercial terms across a number of contracts.
Power Purchase Agreements
To date, the Company has adopted a PPA strategy that seeks to optimise revenues from power generated, whilst maintaining the flexibility to manage a rapidly growing portfolio appropriately. Having reached an installed capacity of 338MW, the Asset Manager believed the portfolio was of a significant scale in order to optimise the PPA and commercial terms of the portfolio.
At the end of Q1 2016, the Company entered into new five year PPA contracts for 15 of the 16 assets in the portfolio following a portfolio wide tender earlier in the year. The remaining asset, the Wymeswold solar asset, had already secured a long-term contract in 2013 with fixed price arrangements until Q4 2017. The Wymeswold solar asset represents 10% of the total portfolio installed capacity.
By entering the new PPA contracts the Company secured an increase in passthrough rates for the sale of both ROCs and electricity against the original contracts, resulting in an increase of 3% for ROC passthrough rates and 4.6% for electricity sales passthrough rates.
At the end of the period, 35% of the Company's operational portfolio revenues were linked to spot power prices. This will allow the Company to benefit from further upward movements if power prices continue to increase as forecast. At the same time, the existing PPA contracts allow the Investment Manager to fix the price at any time by giving notice to the offtaker, thereby mitigating the risk of dividend reductions from significant downward movements in prices. It should be noted that the PPAs also provide the flexibility to incorporate new technologies such as batteries and storage, which may provide potential upside in the future.
Project Insurance
Over the past two years the like for-like cost of insurance across the portfolio has fallen by over 50%. This reduction in cost has been achieved at the same time as improving the terms of cover such as lowering the level of claim deductibles. The Asset Manager has fixed the current price for a three-year period, subject to certain loss limits not being breached.
O&M Service
O&M costs are expected to decrease in the short and medium term as the increase in total UK solar installed capacity allows for market consolidation and economies of scale. The Asset Manager aims to improve cost efficiency by renegotiating the majority of the existing O&M agreements as the assets in the portfolio reach the end of the two-year guaranteed performance period. This will allow the Company to secure competitive renewal terms while ensuring the standard of work expected by the Investment Manager is met, either by entering new contracts with the existing O&M contractor or by appointing a new contractor.
As part of this process, Brighter Green Engineering ("BGE") was appointed as O&M contractor to the Wymeswold site in December 2015. This has resulted in a decrease in annual fees and a significant uplift in asset performance since the company took over the site, driven by the company's technical expertise and market leading incident response times.
Further to the reduction in cost, the new contract provides for a comprehensive scope of work in excess of that typically offered by competitors, including:
- Full turnkey scope including, but not limited to, unlimited corrective maintenance (with key components replaced), response times, high-voltage works, plant security and monitoring;
- Frequent module and panel cleaning;
- Annual thermographic study of all modules, with further investigation and/or laboratory testing in case of malfunctions as required in preparation of claims;
- Annual testing of IV curve tracing for strings with exact methodology defined;
- Assistance with laboratory testing of up to 50 modules annually (including demounting, mounting, transport);
- Annual testing of transformer oil and two-yearly testing of partial discharge activity on all switchgear. These activities are typically only recommended by the equipment manufacturers but the Asset Manager has included it in the scope as mandatory, recognising the importance of high-voltage equipment on site, regarding their replacement cost in case of catastrophic faults, and particularly the associated plant downtime and costs; and
- Full management of Landscape and Environmental Management Plans, ensuring compliance with planning conditions and collaborations with ecologists to enhance biodiversity.
We expect similar efficiencies to be secured for the remaining assets in the portfolio once the existing O&M contractual terms reach either the end of their two-year guaranteed performance period, when applicable, or final contract term, further reducing costs to the Company.
Impact on Operating profit
In addition to the improved terms and scope of the contractual terms, it is anticipated that they will provide an 8% increase in operating profits across the portfolio from 2017 onwards. This increase is measured against the terms of contracts inherited at acquisition of assets assuming power prices and production are held constant.
Financing
Long-Term Refinancing
On 01 April 2016, the Company announced that it had reached Financial Close on a £160 million long-term debt facility. This facility wholly refinanced the Company's £150 million short-term acquisition facility that was previously in place.
The long-term facility was provided by Macquarie Infrastructure Debt Investment Solutions ("MIDIS") and Abbey National Treasury Services ("Santander") as shown below:
| Lender | Tranche | Size (GBP Million) | Tenor | Applicable Rate |
| MIDIS | Fixed-rate, fully amortising | 63 | 18 years | 3.78% |
| MIDIS | Inflation linked, fully amortising | 63 | 18 years | RPI index + 1.08% |
| Santander | Term Loan, fully amortising | 34 | 8 years | LIBOR + 1.70% |
The Term Loan tranche is priced over the London Interbank Offered Rate ("LIBOR") and benefits from an interest rate swap hedging 80% of the outstanding debt during the term of the loan. At Financial Close of the long-term facility, the average interest cost of debt was 2.6%.
As at 30 June 2016, the Company's total outstanding long-term debt was £160 million, representing approximately 36% of GAV.
The long-term refinancing was the result of more than nine months of complex structuring, detailed negotiation and execution of the debt facilities. The detailed knowledge and experience of the Investment Manager enabled a competitive process to be run which resulted in attractive debt terms when compared to similar facilities closed within the renewable sector during the period. The competitive tender process was run exclusively by the Investment Manager.
In addition, the debt facilities secured allow the Company to maintain its strategy of retaining exposure to UK power prices through PPAs that don't require mechanisms such as fixed prices or price floors.
Acquisition Facility
In conjunction with the Financial Close of the long-term facility, the Company entered into a new, short-term revolving acquisition facility with Santander at a favourable rate as follows:
| Lender | Size (GBP Million) | Tenor | Applicable rate |
| Santander | 40 | 3 years | LIBOR + 2.05% |
The applicable rate of 2.05% represents a decrease of 12 basis points against the average applicable rate of the revolving facilities refinanced in March 2016.
This short-term facility will provide the Company with the flexibility to take advantage of future pipeline opportunities and to reduce the interest expense.
Dividends
At the time of the IPO, the Company targeted a 6.0 pence annual dividend per Ordinary Share increasing in line with inflation from 1 January 2014, net of all fees and expenses. The Company achieved this objective for the past two full financial periods ending 31 December 2014 and 31 December 2015.
As noted in the Company's 2014 Annual Accounts, the Directors approved an increase in the frequency of dividend payments from semi-annually to quarterly. Since the IPO, the Company has met all target dividends to date.
For the period 1 January 2015 to 31 December 2015
| Dividend | Amount | Status | Payment Date |
| Interim 1 | 1.52 pence | Paid | 30 June 2015 |
| Interim 2 | 1.52 pence | Paid | 30 September 2015 |
| Interim 3 | 1.53 pence | Paid | 31 December 2015 |
| Interim 4 | 1.53 pence | Paid | 30 March 2016 |
| TOTAL | 6.10 pence |
For the period 1 January 2016 to 31 December 2016
| Dividend | Amount | Status | Payment Date |
| Interim 1 | 1.54 pence | Paid | 24 June 2016 |
| Interim 2 | 1.54 pence | Approved | 30 September 2016 |
| Interim 3 | 1.54 pence | Expected | 31 December 2016 |
| Interim 4 | 1.55 pence | Expected | 30 March 2017 |
| TOTAL | 6.17 pence |
Dividend Timetable
The second quarterly dividend of 1.54 pence was approved by the Board on 12 August 2016 and will paid on 30 September 2016.
The Company is targeting a full year dividend for the period ending 31 December 2016 of 6.17 pence.
| Date | |
| Ex-dividend Date | 15 September 2016 |
| Record Date | 16 September 2016 |
| Payment Date | 30 September 2016 |
Dividend Cover
Dividends of £17.25 million were paid during the year to 30 June 2016. Against the relevant net cash flows of the fund, these dividends were covered 1.01x when excluding dividends paid to newly issued equity. The dividend is presented on a 12-month basis to remove intra-period differences caused by the seasonality of the production profile.
The Bournemouth planned outage represented an impact on dividend cover of 0.04 times. If the impact of this non-recurrent incident is excluded the resulting dividend cover would be 1.05x.
Portfolio Performance
Operational performance of the assets for the first 6 months of 2016 was below the expectation of the Investment Manager, with total portfolio electricity production of 163.9 GWh for the period. The expectations of the Investment Manager are based on those used at the time of acquisition and are not adjusted.
The irradiation levels recorded for the period were on average 2.0% below the irradiation forecasts produced at the time of acquisition and validated by independent technical advisers. The irradiation variance for the period is not representative of the expected long term irradiation levels considering the irradiation forecasts produced at the time of acquisition are prepared based on a normal probability distribution of long term historical annual irradiation data and don't incorporate intra-period volatility. For reference, the irradiance variance verified during the initial six months of 2015 was 7.7% above forecast versus an irradiance variance of 0.6% for the full year of 2015.
The total portfolio production for the period was 9.8% below the expectations of the Investment Manager. This was mainly driven by a grid outage at the Bournemouth site which resulted in 12.8 GWh of lost production. This is described in more detail below. If the impact of the Bournemouth outage were to be excluded, total portfolio production for the period would be 3.1% below the expectations of the Investment Manager.
Main factors affecting Production Variance
Bournemouth
Production at the Bournemouth site was affected by a planned grid outage announced by Distribution Network Operator ("DNO") required in order to increase the line capacity. The original timetable for the program of works anticipated a maximum planned outage of eight weeks starting from February 2016. As the work progressed, additional faults with the line were identified which took a further month to rectify. During this time, the Asset Manager worked closely with the DNO to limit the amount of additional down time to the Bournemouth plant. This resulted in the site being re-energised before the work had been fully completed to minimise the impact on production during the summer months when irradiation levels are at their highest. Since re-energisation, the Asset Manager has remained in continued dialogue with the DNO to agree a timetable to revisit the site later in the year when irradiance is lower and repair any minor faults. The oversight and influence applied by the Asset Manager during the incident were significant and helped limit the losses to the Company in relation to the disconnection. External grid disconnections are not currently insurable events.
Pitworthy
An inverter station at Pitworthy caught fire in December which temporarily halted production at the plant. As the fire was caused by factors outside of the O&M contractor's control, an insurance claim has been made. The claim is currently being processed and the underwriters have confirmed that the incident will be covered by the policy. Once received, compensation for this incident will account for 5.6% of the asset's expected production for the period.
Wymeswold
During the period, the Wymeswold asset was the first in the portfolio to begin its Final Acceptance Certificate ("FAC") testing. As an asset approaches its FAC, members of the technical team make numerous visits to the site and a Technical Advisor ("TA") is appointed to ensure that all elements provided under the asset's EPC contract have been met.
During the Wymeswold FAC process, the Asset Manager filed a compensation claim against the EPC contractor in relation to defects that had not been rectified to its satisfaction. The project has received a cash settlement amount enabling the SPV to repay a larger proportion of its shareholder loan during the period than anticipated.
Because of a large amount of preventative maintenance at the site there was a negative impact on performance. However, we believe this will lead to improved performance of the asset over the medium to long-term.
Technical Performance
The performance ratio assumptions in our valuation models have historically been linked to contractually guaranteed performance and the initial technical due diligence findings at the time of acquisition. The long term assumptions are adjusted on an ongoing basis as more data becomes available, recognising the actual performance ratios experienced across the portfolio on an asset by asset basis. This approach is applied on a regular basis to ensure our valuation assumptions better reflect the actual performance of our sites. The conservative movements in assumed performance ratios are implemented at a rate that ensures short term fluctuations do not over inflate performance potential.
Investment Performance
The NAV at 31 December 2015 was 99.0 pence per share. The NAV per share as at 30 June 2016 rose to 99.3 pence, after dividends of 1.53 and 1.54 pence per share were paid in March and June respectively.
A breakdown in the movement of the NAV is shown in the table below.
| £ Million | NAV per share | |
| NAV as at 31 December 2015 | 279.11 | 99.0 |
| Dividend paid | - 8.65 | -3.1 |
| Interest earned | 13.21 | 4.7 |
| Loan repayment | 1.00 | 0.4 |
| Management fee | -1.40 | -0.5 |
| Finance costs | - 2.90 | -1.0 |
| Corporation tax | - 0.67 | -0.2 |
| Other costs | - 0.40 | -0.1 |
| Unwinding of discount rate (see explanation below) | 5.34 | 1.9 |
| Portfolio optimisation | 5.27 | 1.9 |
| Power price | - 10.46 | -3.7 |
| Inflation Assumption | 1.22 | 0.3 |
| Other movements | -0.92 | -0.3 |
| NAV as at 30 June 2016 | 279.75 | 99.3 |
Discount Rate
The Company continues to adopt an equity discount rate of 7.5% which the Investment Manager believes appropriately reflects the risk profile of the operational assets that have been acquired, the total installed capacity at portfolio level and asset diversification.
The Company does not adopt the Weighted Average Costs of Capital ("WACC") as a discount rate for investments as the Investment Manager believes this does not appropriately reflect the greater level of risk to equity associated with levered portfolios.
Following the closing of the long-term refinancing, and assuming an illustrative long-term gearing level of 25%, the Company's Weighted Average Cost of Capital ("WACC") is 6.19%. For illustrative purposes, if the Company were to adopt the WACC valuation methodology, the NAV per share would increase to 117.3 pence per share (i.e. 18% higher than current NAV per share).
Unwinding of the Discount Rate
This represents moving the valuation date forward by six months. The discount rate remains unchanged.
Inflation Assumptions
The Investment Manager has increased its medium/long-term inflation assumption from 2.50% to 2.75%. This reflects increases in market inflation expectations due to a number of factors including the result of the EU referendum, weaker Sterling and announced further loosening of monetary policy. The Investment Manager expects there will be an element of 'lag' before higher inflation filters through, and has therefore assumed a 2.25% annual rate of inflation for 2017 before assuming annual inflation of 2.75% thereafter. The Investment Manager will continue to monitor actual outturn inflation rates and inflation expectations going forward.
Other Movements
Operational efficiencies achieved outside of those mentioned above are included within this movement as well as any additional cost increases observed. Changes to long term UK corporation tax changes are also included.
Valuation of the Portfolio
The Investment Manager is responsible for providing fair market valuations of the Group's assets to the Directors. The Directors review and approve these valuations following appropriate challenge and examination. Valuations are undertaken quarterly. A broad range of assumptions are used in our valuation models. These assumptions are based on long-term forecasts and are not affected by short-term fluctuations, be it economic or technical.
The current portfolio consists of non-market traded investments and valuations are based on a Discounted Cash Flow ("DCF") methodology. This methodology adheres to both IAS 39 and IFRS 13 accounting standards as well as International Private Equity and Venture Capital Valuation (IPEV) methodology.
It is the policy of the Investment Manager to value with reference to DCF at the later of commissioning or completion. This is partly due to the long periods between agreeing an acquisition price and financial completion of the acquisition. Quite often this delay incorporates construction as well as time spent applying for, and achieving, ROC accreditation upon which the Company's acquisition of assets is usually contingent. Revenues generally accrue for the benefit of the purchaser. Revenues accrued do not form part of the DCF calculation when making a fair and proper valuation.
The Company's independent Board reviews the operating and financial assumptions, including the discount rates, used in the valuation of the Company's portfolio and approves them based on the recommendation of the Investment Manager. These assumptions are reviewed as part of the annual audit by KPMG.
Useful Economic Life of Asset
The DCF methodology used to value the assets within the portfolio assumes a 25-year asset life with no residual value at the end of this period. This assumption is based upon the market standard lease terms that have been achieved for the properties on which the Company's solar assets are located and planning consent periods granted by local planning offices.
The Investment Manager believes that this is a prudent approach, however there are several factors that justify the incorporation of residual value within the portfolio valuation including:
- The useful operating life of the equipment in the portfolio is anticipated to be, according to independent technical advisers, at least 40 years if the equipment is properly maintained;
- All of the assets' connection agreements provide the right to generate electricity into the Grid with no specified expiry date; and
- Five of the lease agreements in place have the option to extend beyond the initial consented period to an average of 32 years.
As such, the Asset Manager has begun to explore the option of extending leases and planning authority across the portfolio. Three sites, Wymeswold, Bournemouth and Hunters Race, which together represent 30% of installed portfolio capacity, already have in place extended lease periods and planning authority for a period of 30, 40 and 35.5 years respectively from the start of operations. Applying current assumptions and incorporating enhanced capital expenditure to the contractually assured extended asset life would have an immediate uplift on NAV of 2.4 pence.
For illustration purposes, in addition to incorporating the extensions mentioned above, if the remaining 13 assets were to be valued on a 35-year basis from connection, the Company's NAV would increase by a further 9.4 pence. The table below illustrates the impact on NAV of extended asset lives.
| Discount Rate | NAV Using Current lease assumptions | Recognise extended life where lease and planning already available (3 assets) | Recognise extended life of all other assets |
| 7.5% | 99.3 | 101.7 | 111.1 |
| 6.19% (Company WACC) | 117.3 | 120.8 | 134.0 |
Valuation Sensitivities
Where possible, assumptions are based on observable market and technical data. In many cases, such as the forward power prices, professional advisors are used to provide reliable and evidenced information while often applying a more prudent approach than our information providers. We set out the inputs we have ascertained would have a material effect upon the NAV in note 16 of the financial statements. All sensitivities are calculated independently of each other.
Ongoing Charges
The ongoing charges ratio for the period under review is 1.21% (2015: 1.24%). This has been calculated using methodology as typically recommended by the Association of Investment Companies ("AIC") code of corporate governance.
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD, which was implemented across the EU on 22 July 2013 with the transition period ending 22 July 2014, aims to harmonise the regulation of Alternative Investment Fund Managers ("AIFMs") and imposes obligations on managers who manage or distribute Alternative Investment Funds ("AIFs") in the EU or who market shares in such funds to EU investors. Under the AIFMD, the Company is self-managed and acts as its own Capitalised Alternative Investment Fund Manager.
Both the Company and the Investment Manager are located outside the European Economic Area ("EEA") but the Company's marketing activities in the UK are subject to regulation under the AIFMD.
Risk Management
Reliance is placed on the internal systems and controls of the Investment Manager and external service providers such as the Administrator to effectively manage risk across the portfolio. Foresight has a comprehensive Risk Management framework in place which is reviewed on a regular basis by the Directors.
A full list of relevant risks can be found in the Prospectus dated 20 September 2013 and in the Annual Report for the year to 31 December 2015.
Taxation Environment
The Manager reviews the taxation structure and status of the Company on a regular basis. The Company and Group is subject to a wide range of taxation legislation including VAT, capital allowances and transfer pricing. In the current political environment, there is a risk that changes in tax legislation could negatively impact the long term performance of the Company.
As announced in the March 2016 budget, new rules in relation to the tax deductibility of corporate interest expense are to be included in the Finance Bill 2017. These rules represent the UK's response to the proposals as outlined by the OECD in October 2015 in relation to Base Erosion and Profit Shifting ("BEPS") Action 4. At present the new legislation has not been formally drafted with the latest consultation published by HMRC in May 2016.
The new interest deductibility rules will be effective from April 2017 and the current proposals are, broadly, to cap the amount of tax relief for interest payments to 30% of EBITDA under the 'fixed ratio rule'. The fixed ratio rule can be replaced by the 'group ratio' test, at the Company's election, which is designed to allow increased levels of deductibility for groups that have higher leverage for genuine commercial purposes.
We do not expect grandfathering of debt instruments that are currently in place. The cap is applicable after all other rules that currently impact on the tax paid are applied, such as the transfer pricing legislation that the Company is currently subject to. Other proposals include de minimis thresholds.
The Investment Manager will not be in a position to comment on the level of any impact that BEPS will have on the Company until the Finance Bill is finalised.
Outlook
The Investment Manager is encouraged that the entire 16 asset, 338MW portfolio is now fully operational and accredited. Having focused on the consolidation and optimisation of the portfolio the Investment Manager has leveraged its experience in the sector to implement several value-enhancing strategies to the benefit of Shareholders.
The UK solar market remains attractive. The announcement of the closure of the ROC regime in its entirety from 01 April 2017 has driven large amounts of activity in terms of new capacity being installed, with reports estimating that total UK capacity could surpass 12GW by Q1 2017. This scale of installed capacity has created an active secondary market in large-scale secondary assets, with the Investment Manager estimating between 2 to 3GW will become available for sale over the next 24 months.
As the UK wholesale power market continues to stabilise, the Investment Manager will explore a number of attractive pipeline opportunities which it expects to complete in the short term. The opportunities are a combination of primary asset acquisitions eligible under the 1.2 ROC Grace Period and larger portfolios of secondary assets. We have identified an attractive pipeline of over 200MW and are actively pursuing several opportunities which we expect to complete before year end.
As one of the largest solar asset managers in the UK, with over 620MW of UK solar assets under management, the Investment Manager is uniquely positioned to identify, price, acquire and optimise these assets driving value for investors. We seek to lever our relationship with prospective vendors of assets in order to obtain the highest possible quality of assets. This approach often allows us to avoid competitive auction processes for assets and consequently expedites asset acquisitions in a timely manner, whilst minimising the acquisition consideration paid. The Company is also able to invest up to 25% in other jurisdictions which we expect could provide further attractive pipeline opportunities, supported by the transactional experience of our international infrastructure teams.
The market dynamics will improve further if the recent recovery in UK wholesale power market continues as forecast. We believe the Company is well positioned through its floating PPA exposure to benefit from any additional upward movements resulting in increased revenue generation, further underpinning returns to Shareholders.
Whilst we do not expect Brexit and the resulting dissolution of DECC to have an immediate impact on the Fund, we will continue to monitor developments carefully, and report to investors in due course.
Over the next six months, the Investment Manager will continue to focus on maximising the operational performance of the existing portfolio, whilst looking to make further acquisitions that are accretive to the Company. We expect to take advantage of our near-term pipeline through the short-term acquisition facility, or through the issuance of Treasury Shares, subject to investor demand.
Foresight Group CI Limited
Investment Manager
12 August 2016
Environmental Social and Governance Considerations
The Company believes Environmental, Social and Governance ("ESG") considerations play an important part in delivering responsible and sustainable growth for the long term. These factors have been integrated into all stages of the investment process, and are actively supported by all involved, regardless of seniority. With that in mind, the Company has developed its Responsible Investment Framework to provide a suitable operational framework in matters related to the investment process, such that ESG has become part of the normal day-to-day operation.
Health and Safety
There were no health and safety incidents reported during the period. The Asset Manager has appointed a health and safety consultant to review all portfolio assets to ensure they not only meet, but exceed, industry and legal standards.
Environmental
The 338MW portfolio produced 163.94 GWh of clean energy during the period. This is the equivalent of:
- 50,000 UK homes powered for one year; or
- 97,315 tonnes of CO2 emissions prevented. This means 33,213 tonnes of coal have not been burned; or
- 872,718km flown on a long haul international flight.
Further to the environmental advantages of large scale renewable energy, each investment is closely scrutinised for localised environmental impact. Where improvements can be made, the Company will work with planning and local authorities to minimise visual and auditory impact of sites.
Biodiversity Assessments
The Investment Manager is actively exploring ways of maximising the biodiversity and wildlife potential for all of its UK solar assets. As such, the Investment Manager has prepared a series of site specific biodiversity enhancement and management plans to secure long-term gains for wildlife such as:
- Management of grassland areas within the security fencing;
- Management of hedgerows and associated hedge banks;
- Management of field boundaries between security fencing and hedgerows;
- Management of woodland blocks;
- Installation of Herptile/Reptile hibernacula;
- Installation of boxes for bats, owls and kestrels; and
- Installation of bee hives.
As part of our EPC contracts, contractors are obliged to design plants in such a way that they allow for sheep grazing. Currently our Kencot, Copley and Wymeswold assets have active sheep grazing.
Social
The Investment Manager has actively sought to engage with the local communities of the solar assets. Open days have been arranged for local residents, businesses and schools to visit the sites where they can learn more about the benefits of solar and the need for more stable renewable policy support.
Numerous educational visits have also taken place across the portfolio, from small school and college tours to Loughborough University students conducting research assignments at the Wymeswold plant.
Foresight Receives Five Star Rating from 3D Investing
The Company has been awarded a five-star rating by 3D Investing.
Five star funds are the real pioneers in the industry. They are required to demonstrate at least a fair financial performance, excellent transparency, a high social impact and a lack of exposure to ethically controversial companies.
3D Investing provides research and communication services to help investment managers and advisers to deliver a high quality and distinctive service for the socially motivated investor.
For further details please refer to the website www.3dinvesting.com
Signatory of UNPRI
Foresight Group is a signatory to the United Nations Principles for Responsible Investment ("UNPRI"). The UNPRI, established in 2006, is a global collaborative network of investors working together to put the six Principles for Responsible Investment into practice. As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following:
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.
Directors
The Directors, who are Non-Executive and, other than Mr Dicks, independent of the Investment Manager, are responsible for the determination of the investment policy of the Company, have overall responsibility for the Company's activities including its investment activities and for reviewing the performance of the Company's portfolio. The Directors are as follows:
Alexander Ohlsson (Chairman)
Mr Ohlsson is Managing Partner for the law firm Carey Olsen in Jersey. He is recognised as a leading expert in corporate and finance law in Jersey and is regularly instructed by leading global law firms and financial institutions. He is the independent chairman of the States of Jersey's Audit Committee and an Advisory Board member of Jersey Finance, Jersey's promotional body. He is also a member of the Financial and Commercial Law Sub-Committee of the Jersey Law Society which reviews as well as initiates proposals for legislative changes. He was educated at Victoria College Jersey and at Queens' College, Cambridge, where he obtained an MA (Hons) in Law. He has also been an Advocate of the Royal Court of Jersey since 1995.
Mr Ohlsson was appointed as a Non-Executive Director and Chairman on 16 August 2013.
Chris Ambler
Mr Ambler has been the Chief Executive of Jersey Electricity plc since 1 October 2008. He previously held various senior positions in the global industrial, energy and materials sectors working for major corporations, such as ICI/ Zeneca, the BOC Group and Centrica/British Gas as well as in strategic consulting roles. Mr Ambler is a Chartered Engineer and a Member of the Institution of Mechanical Engineers. He holds a first class Honours Degree from Queens' College Cambridge and an MBA from INSEAD.
Mr Ambler is a Director on other boards including a Non-Executive Director of Apax Global Alpha Limited, another listed fund which launched on the London Stock Exchange on 15 June 2015.
Mr Ambler was appointed as a Non-Executive Director on 16 August 2013.
Peter Dicks
Mr Dicks is currently a Director of a number of quoted and unquoted companies. In addition, he was the Chairman of Foresight VCT plc and Foresight 2 VCT plc from their launch in 1997 and 2004 respectively until 2010 and since then he has continued to serve on the Board of the now merged Foresight VCT plc. He is also on the Board of Foresight 3 VCT plc, Foresight 4 VCT plc, Graphite Enterprise Trust plc and Mears Group plc. and Chairman of Unicorn AIM VCT plc, Private Equity Investor plc and SVM Emerging Fund.
Mr Dicks was appointed as a Non-Executive Director on 16 August 2013.
Statement of Directors' Responsibilities
For the period 1 January 2016 to 30 June 2016
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Unaudited Half-Yearly Financial Report for the six months ended 30 June 2016.
The Directors confirm to the best of their knowledge that:
(a) the summarised set of financial statements has been prepared in accordance with the pronouncement on interim reporting issued by the Accounting Standards Board;
(b) the Unaudited Half-Yearly Financial Report for the six months ended 30 June 2016 includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months of the year and a description of principal risks and uncertainties that the Company faces for the remaining six months of the year);
(c) the summarised set of financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as required by DTR 4.2.4R; and
(d) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
For and behalf of the Board
Alexander Ohlsson
Chairman
12 August 2016
Condensed Consolidated Statement of Comprehensive Income
For the period 1 January 2016 to 30 June 2016
| Notes | Unaudited Period 1 January 2016 to 30 June 2016 | Unaudited Period 1 January 2015 to 30 June 2015 | Audited Period 1 January 2015 to 31 December 2015 | ||||
| £'000 | £'000 | £'000 | |||||
| Revenue | |||||||
| Interest revenue | 4 | 13,221 | 10,383 | 22,782 | |||
| Gains on investments at fair value through profit or loss | 15 | 1,443 | - | 290 | |||
| 14,664 | 10,383 | 23,072 | |||||
| Expenses | |||||||
| Losses on investments at fair value through profit or loss | 15 | - | (1,559) | - | |||
| Finance costs | 5 | (2,902) | (1,652) | (3,696) | |||
| Management fees | 6 | (1,396) | (1,158) | (2,551) | |||
| Administration and accountancy expenses | 7 | (118) | (90) | (152) | |||
| Directors' fees | 8 | (76) | (100) | (170) | |||
| Other expenses | 9 | (210) | (264) | (620) | |||
| Total expenses | (4,702) | (4,823) | (7,189) | ||||
| Profit before tax for the period | 9,962 | 5,560 | 15,883 | ||||
| Taxation | 10 | (671) | (178) | (669) | |||
| Profit and total comprehensive income for the period | 9,291 | 5,382 | 15,214 | ||||
| Earnings per Ordinary Share (pence per Share) | 11 | 3.30 | 2.32 | 5.91 | |||
All items above arise from continuing operations, there have been no discontinued operations during the period.
The accompanying notes below form an integral part of these Condensed Consolidated Interim Financial Statements.
| Notes | Unaudited 30 June 2016 | Unaudited 30 June 2015 | Audited 31 December 2015 | ||||
| £'000 | £'000 | £'000 | |||||
| Assets | |||||||
| Non-current assets | |||||||
| Investments held fair value through profit or loss | 15 | 422,065 | 320,590 | 421,627 | |||
| Total non-current assets | 422,065 | 320,590 | 421,627 | ||||
| Current assets | |||||||
| Trade and other receivables | 12 | 13,599 | 8,222 | 2,100 | |||
| Cash and cash equivalents | 13 | 9,713 | 44,477 | 15,531 | |||
| Total current assets | 23,312 | 52,699 | 17,631 | ||||
| Total assets | 445,377 | 373,289 | 439,258 | ||||
| Equity | |||||||
| Retained earnings | 343 | (1,534) | (297) | ||||
| Stated capital | 17 | 279,403 | 279,448 | 279,403 | |||
| Total equity | 279,746 | 277,914 | 279,106 | ||||
| Liabilities | |||||||
| Non-current liabilities | |||||||
| Long-term borrowings | 19 | 161,994 | 90,000 | 96,003 | |||
| Total non-current liabilities | 161,994 | 90,000 | 96,003 | ||||
| Current liabilities | |||||||
| Trade and other payables Short-term borrowings | 14 19 | 3,506 131 | 5,375 - | 14,149 50,000 | |||
| Total current liabilities | 3,637 | 5,375 | 64,149 | ||||
| Total liabilities | 165,631 | 95,375 | 160,152 | ||||
| Total equity and liabilities | 455,377 | 373,289 | 439,258 | ||||
| Net Asset Value per Ordinary Share | 18 | £0.99 | £0.99 | £0.99 |
The Condensed Consolidated Interim Financial Statements on below approved by the Board of Directors and signed on its behalf on 12 August 2016 by:
Alexander Ohlsson
Chairman
The accompanying notes below an integral part of these Condensed Consolidated Interim Financial Statements.
| | Stated Capital | Retained Earnings | Total | ||||
| Notes | £'000 | £'000 | £'000 | ||||
| Balance as at 1 January 2016 | 279,403 | (297) | 279,106 | ||||
| Total comprehensive income for the period: | |||||||
| Profit for the period | - | 9,291 | 9,291 | ||||
| Transactions with owners, recognised directly in equity: | |||||||
| Dividends paid in the period | - | (8,651) | (8,651) | ||||
| Issue of Ordinary Shares | 17 | - | - | - | |||
| Capitalised issue costs | 17 | - | - | - | |||
| Balance as at 30 June 2016 | 279,403 | 343 | 279,746 | ||||
For the period 1 January 2015 to 30 June 2015 (unaudited):
| | Stated Capital | Retained Earnings | Total | ||||
| Notes | £'000 | £'000 | £'000 | ||||
| Balance as at 1 January 2015 | 206,226 | 3,607 | 209,833 | ||||
| Total comprehensive income for the period: | |||||||
| Profit for the period | - | 5,382 | 5,382 | ||||
| Transactions with owners, recognised directly in equity: | |||||||
| Dividends paid in the period Issue of Ordinary Shares | 17 | - 74,784 | (10,523) - | (10,523) 74,784 | |||
| Capitalised issue costs | 17 | (1,562) | - | (1,562) | |||
| Balance as at 30 June 2015 | 279,448 | (1,534) | 277,914 | ||||
For the period 1 January 2015 to 31 December 2015 (audited):
| | Stated Capital | Retained Earnings | Total | ||||
| Notes | £'000 | £'000 | £'000 | ||||
| Balance as at 1 January 2015 | 206,226 | 3,607 | 209,833 | ||||
| Total comprehensive income for the period: | |||||||
| Profit for the period | - | 15,214 | 15,214 | ||||
| Transactions with owners, recognised directly in equity: | |||||||
| Dividends paid in the period | - | (19,118) | (19,118) | ||||
| Issue of Ordinary Shares | 17 | 74,784 | - | 74,784 | |||
| Capitalised issue costs | 17 | (1,607) | - | (1,607) | |||
| Balance as at 31 December 2015 | 279,403 | (297) | 279,106 | ||||
Condensed Consolidated Statement of Cash Flows
For the period 1 January 2016 to 30 June 2016
| Unaudited Period 1 January 2016 to 30 June 2016 | Unaudited Period 1 January 2015 to 30 June 2015 | Audited Period 1 January 2015 to 31 December 2015 | |||||
| £'000 | £'000 | £'000 | |||||
| Profit for the period before tax from continuing operations | 9,962 | 5,560 | 15,883 | ||||
| Adjustments for: | |||||||
| Unrealised loss/(gain) on investments | (1,443) | 1,559 | (290) | ||||
| Financing income | - | - | - | ||||
| Investment income | (13,221) | (10,375) | (22,769) | ||||
| Finance costs | 2,902 | 1,652 | 3,696 | ||||
| Operating cash flows before movements in working capital | (1,800) | (1,604) | (3,480) | ||||
| (Increase)/decrease in trade and other receivables | 47 | (32) | (28) | ||||
| Increase/(decrease) in trade and other payables | 1,456 | 244 | (283) | ||||
| Net (payments to)/receipts from investments | (4,519) | (854) | 2,509 | ||||
| Investment income | 3,531 | 9,053 | - | ||||
| Net cash outflow from operating activities | (1,285) | 6,807 | (1,282) | ||||
| Investing activities | |||||||
| Advances for future investments Proceeds from loan repayment by SPV Investment income | - 1,005 - | - - - | - 3,303 25,213 | ||||
| Acquisition of investments | (11,148) | (72,253) | (166,458) | ||||
| Net cash outflow from investing activities | (10,143) | (72,253) | (137,942) | ||||
| Financing activities | |||||||
| Dividends paid | (8,651) | (10,523) | (19,118) | ||||
| Finance costs paid | (5,735) | (1,779) | (3,970) | ||||
| Bank facility drawn down | 169,500 | 41,895 | 108,898 | ||||
| Repayment of bank facility drawn down | (149,504) | - | (11,000) | ||||
| Capitalised issue costs paid | - | (1,222) | (1,607) | ||||
| Proceeds from issue of shares | - | 74,784 | 74,784 | ||||
| Net cash inflow from financing activities | 5,610 | 103,155 | 147,987 | ||||
| Net increase in cash and cash equivalents | (5,818) | 37,709 | 8,763 | ||||
| Cash and cash equivalents at the beginning of the period | 15,531 | 6,768 | 6,768 | ||||
| Cash and cash equivalents at the end of the period | 9,713 | 44,477 | 15,531 | ||||
The accompanying notes form an integral part of these Condensed Consolidated Interim Financial Statements.
Notes to the Condensed Consolidated Interim Financial Statements
For the period 1 January 2016 to 30 June 2016
1. Company information
Foresight Solar Fund Limited (the "Company") is a closed-ended company with an indefinite life and was incorporated in Jersey under the Companies Law (Jersey) 1991, as amended, on 13 August 2013, with registered number 113721. The address of the registered office is: Elizabeth House, 9 Castle Street, St Helier, Jersey, JE2 3RT.
The Company has one investment, Foresight Solar (UK Hold Co) Limited ("UK Hold Co"). On 11 January 2016, UK Hold Co incorporated a subsidiary, FS Holdco Limited ("FS Holdco"). On 31 March 2016, UK Hold Co transferred all equity investments and related shareholder loans in directly held subsidiaries to FS Holdco in return for 16 ordinary shares issued by FS Holdco Limited and a loan receivable on a pari passu basis.
FS HoldCo invests in further holding companies (the "SPVs") which then invest in the underlying investments. The principal activity of the Company, UK Hold Co and FS Holdco (together "the Group") is investing in operational UK ground based solar power plants.
2. Summary of significant accounting policies
2.1 Basis of presentation
The Unaudited Condensed Consolidated Interim Financial Statements (the "Interim Financial Statements") for the period 1 January 2016 to 30 June 2016 have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' ("IAS 34").
The Interim Financial Statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the annual financial statements as at 31 December 2015.
These are not statutory accounts in accordance with S436 of the Companies Act 2006 and the financial information for the six months ended 30 June 2016 and 30 June 2015 has been neither audited nor reviewed. Statutory accounts in respect of the year to 31 December 2015 have been audited and reported on by the Company's auditor and delivered to the Registrar of Companies and included the report of the auditor which was unqualified and did not contain a statement under S498(2) or S498(3) of the Companies Act 2006. No statutory accounts in respect of any period after 31 December 2015 have been reported on by the Company's auditor or delivered to the Registrar of Companies.
2.2 Going concern
The Directors have considered the Group's cash flow projections for a period of no less than twelve months from the date of approval of these Interim Financial Statements together with the Group's borrowing facilities. These projections show that the Group will be able to meet its liabilities as they fall due. The Directors have therefore prepared the Interim Financial Statements on a going concern basis.
2.3 Changes in accounting policies and disclosures
Application of new and revised International Financial Reporting Standards ("IFRSs")
All standards, amendments and interpretations which are effective for the financial year beginning 1 January 2015 are not material to the Group.
New and revised IFRSs in issue but not yet effective
At the date of authorisation of these Financial Statements, the following standards and interpretations, which have not been applied in these Financial Statements, were in issue but not yet effective:
- IFRS 9, 'Financial Instruments - Classification and Measurement'. There is currently no mandatory effective date, however the IASB has tentatively proposed that this will be effective for accounting periods commencing on or after 1 January 2018 (EU endorsement is outstanding).
2.3 Changes in accounting policies and disclosures
These standards and interpretations will be adopted when they become effective. The Directors are currently assessing the impact of these standards and interpretations on the Financial Statements and anticipate that the adoption of the majority of these standards and interpretations in future periods will not have a material impact on the Interim Financial Statements or results of the Group.
2.4 Consolidation
Details of the Undertakings which the Company held as at 30 June 2016 are listed below:
| Name | Direct or indirect holding | Country of incorporation | Principal activity | Proportion of shares and voting rights held | |
| Foresight Solar (UK Hold Co) Limited | Direct | UK | Holding Company | 100% | |
| FS Holdco Limited | Indirect | UK | Holding Company | 100% | |
| FS Wymeswold Limited | Indirect | UK | SPV | 100% | |
| FS Castle Eaton Limited | Indirect | UK | SPV | 100% | |
| FS Pitworthy Limited | Indirect | UK | SPV | 100% | |
| FS Highfields Limited | Indirect | UK | SPV | 100% | |
| FS High Penn Limited | Indirect | UK | SPV | 100% | |
| FS Hunter's Race Limited | Indirect | UK | SPV | 100% | |
| FS Spriggs Limited | Indirect | UK | SPV | 100% | |
| FS Bournemouth Limited | Indirect | UK | SPV | 100% | |
| FS Landmead Limited | Indirect | UK | SPV | 100% | |
| FS Kencot Limited | Indirect | UK | SPV | 100% | |
| FS Copley Limited | Indirect | UK | SPV | 100% | |
| FS Port Farms Solar Limited | Indirect | UK | SPV | 100% | |
| FS Membury Limited | Indirect | UK | SPV | 100% | |
| FS Southam Solar Limited | Indirect | UK | SPV | 100% | |
| FS Atherstone Solar Limited | Indirect | UK | SPV | 100% | |
| FS Paddock Wood Solar Farm Limited | Indirect | UK | SPV | 100% | |
| Atherstone Hold Co Limited | Indirect | UK | SPV | 78% | |
| Southam Hold Co Limited | Indirect | UK | SPV | 70% | |
| Paddock Wood Hold Co Limited | Indirect | UK | SPV | 59% | |
| Wymeswold Solar Farm Limited ("Wymeswold") | Indirect | UK | Investment | 100% | |
| Castle Eaton Solar Farm Limited ("Castle Eaton") | Indirect | UK | Investment | 100% | |
| Pitworthy Solar Farm Limited ("Pitworthy") | Indirect | UK | Investment | 100% | |
| Highfields Solar Farm Limited ("Highfields") | Indirect | UK | Investment | 100% | |
| High Penn Solar Farm Limited ("High Penn") | Indirect | UK | Investment | 100% | |
| Hunter's Race Solar Farm Limited ("Hunter's Race") | Indirect | UK | Investment | 100% | |
| Spriggs Solar Farm Limited ("Spriggs") | Indirect | UK | Investment | 100% | |
| Bournemouth Solar Farm Limited ("Bournemouth") | Indirect | UK | Investment | 100% | |
| Landmead Solar Farm Limited ("Landmead") | Indirect | UK | Investment | 100% | |
| Kencot Hill Solar Farm Limited ("Kencot") | Indirect | UK | Investment | 100% | |
| Copley Solar Limited ("Copley") | Indirect | UK | Investment | 100% |
2.5 Consolidation (consolidation)
| Port Farms Solar Limited ("Port Farm") | Indirect | UK | Investment | 100% |
| Membury Solar Limited ("Membury") | Indirect | UK | Investment | 100% |
| Atherstone Solar Farm Ltd ("Atherstone") | Indirect | UK | Investment | 78% |
| Southam Solar Farm Ltd ("Southam") | Indirect | UK | Investment | 70% |
| Paddock Wood Solar Farm Ltd ("Paddock Wood") | Indirect | UK | Investment | 59% |
The direct subsidiary (UK Hold Co) and indirect subsidiary (FS Holdco) are included in these Interim Financial Statements; all other indirect subsidiaries are held at fair value through profit or loss as the Group meets the definition of an 'investment entity' under IFRS 10.
3. Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision only affects that year or in the year of the revision and future years if the revision affects both current and future years. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
3.1 Fair value of investments
The fair value of the investments is determined by using valuation techniques. The Directors base the fair value of the investments based on information received from the Investment Manager. The Investment Manager's assessment of fair value of investments is determined in accordance with the International Private Equity and Venture Capital ("IPEVC") Valuation Guidelines, using unlevered Discounted Cash Flow principles (unless a more appropriate methodology is applied).
As described more fully in the Investment Manager Report above, such as these entail assumptions about solar irradiance, power prices, technological performance, discount rate, operating costs and inflation over a 25-year period. It is in the opinion of the Investment Manager that the IPEVC valuation methodology used in deriving a fair value is not materially different from the fair value requirements of IAS 39.
4. Interest revenue
| Period 1 January 2016 to 30 June 2016 | Period 1 January 2015 to 30 June 2015 | Period 1 January 2015 to 31 December 2015 | |||
| £'000 | £'000 | £'000 | |||
| Loan interest receivable | 13,208 | 10,357 | 22,697 | ||
| Other interest receivable | - | - | 50 | ||
| Bank interest receivable | 13 | 26 | 35 | ||
| 13,221 | 10,383 | 22,782 |
5. Finance costs
| Period 1 January 2016 to 30 June 2016 | Period 1 January 2015 to 30 June 2015 | Period 1 January 2015 to 31 December 2015 | |||
| £'000 | £'000 | £'000 | |||
| Credit facility agreement arrangement fees (see note 19) | 824 | 472 | 695 | ||
| Credit facility agreement commitment fees (see note 19) | 129 | 141 | 226 | ||
| Interest on credit facility drawn down (see note 19) | 1,949 | 998 | 2,716 | ||
| Other finance costs | - | 41 | 59 | ||
| 2,902 | 1,652 | 3,696 |
6. Management fees
The Investment Manager of the Group, Foresight Group CI Limited, receives an annual fee of 1% of the Net Asset Value ("NAV") of the Group. This is payable quarterly in arrears and is calculated based on the published quarterly NAV. For the period 1 January 2016 to 30 June 2016, the Investment Manager was entitled to a management fee of £1,395,586 (1 January 2015 to 30 June 2015: £1,157,593; 1 January 2015 to 31 December 2015: £2,551,085 of which £699,064 was outstanding as at 30 June 2016 (30 June 2015: £617,428; 31 December 2015: £5,535).
7. Administration and Accountancy fees
Under an Administration Agreement, the Administrator of the Company, JTC (Jersey) Limited, is entitled to receive minimum annual administration and accountancy fees of £80,000 payable quarterly in arrears. From December 2014 this increased to a minimum of £100,000 per annum resulting from an increase in stated capital. For the period 1 January 2016 to 30 June 2016, total administration and accountancy fees were £118,032 (1 January 2015 to 30 June 2015: £89,652; 1 January 2015 to 31 December 2015: £151,533) of which £58,985 was outstanding as at 30 June 2016 (30 June 2015 £54,462; 31 December 2015: £4,200).
8. Directors' fees
Remuneration of the Directors of the Group is currently paid at a total rate of £140,000 per annum (1 January 2015 to 30 June 2015: £140,000 per annum; 1 January 2015 to 31 December 2015: £140,000 per annum). In addition, pursuant to the prospectus, the Director may also be paid reasonable travelling, hotel and other expenses properly incurred in connection with the exercise of their powers and discharge of their duties as well as other one off fees. For the year ended 31 December this amounted to £30,349 (13 August 2013 to 31 December 2014; £nil).
All of the Directors are Non-Executive Directors. The Directors of UK Hold Co and FS Holdco, Jamie Richards, and Ricardo Pineiro, do not receive any remuneration. Remuneration due for the period 1 January 2016 to 30 June 2016 is detailed below:
| Period 1 January 2016 to 30 June 2016 | Period 1 January 2015 to 30 June 2015 | Period 1 January 2015 to 31 December 2015 | |||||
| £'000 | £'000 | £'000 | |||||
| Peter Dicks | 19 | 27 | 45 | ||||
| Alexander Ohlsson | 32 | 40 | 70 | ||||
| Christopher Ambler | 25 | 33 | 55 | ||||
| 76 | 100 | 170 | |||||
9. Other Expenses
| Period 1 January 2016 to 30 June 2016 | Period 1 January 2015 to 30 June 2015 | Period 1 January 2015 to 31 December 2015 | |||
| £'000 | £'000 | £'000 | |||
| Bank charges | - | 2 | - | ||
| Annual fees | 19 | 53 | 92 | ||
| Listing fees | - | - | 1 | ||
| Legal and professional fees | 191 | 209 | 527 | ||
| 210 | 264 | 620 |
Included in legal and professional fees, are audit fees of £25,150 payable to KPMG LLP for the period (1 January 2015 to 30 June 2015: £9,422; 1 January 2015 to 31 December 2015: £46,000) of which £18,000 was outstanding as at 30 June 2016 (30 June 2015: £9,422; 31 December 2015: £46,000).
10. Taxation
The Company is currently registered in Jersey and is subject to the Jersey standard tax rate of 0%.
Tax arises in the United Kingdom in respect of UK Hold Co and FS Holdco. The standard rate of Corporation Tax in the UK is 20% and as the tax rate has not changed this year, the effective tax rate is also 20%.
Finance (No. 2) Act 2015 was enacted on 18 November 2015 and introduced a reduction in the rate of corporation tax to 19% from 1 April 2017 and to 18% from 1 April 2020. As a result, the measurement of deferred tax reflects the enactment of this Act.
At Budget 2016, the government announced a further reduction to the Corporation Tax main rate for the year starting 1 April 2020, setting the rate at 17%. This reduction was not substantially enacted at the balance sheet date and the reduction announced is not expected to have a material impact on these financial statements. The tax arising on Group's profit before tax for the period 1 January 2016 to 30 June 2016 is as follows:
| Period 1 January 2016 to 30 June 2016 | Period 1 January 2015 to 30 June 2015 | Period 1 January 2015 to 31 December 2015 | ||||
| £'000 | £'000 | £'000 | ||||
| Profit on ordinary activites | 9,962 | 5,560 | 15,883 | |||
| Expected tax charge | 1,993 | 1,140 | 3,216 | |||
| Effects of: | ||||||
| Lower tax rate in Jersey | (2,509) | (1,678) | (4,418) | |||
| Expenses not deductible for tax purposes | 1,462 | 396 | 2,400 | |||
| Unrealised gains not taxable | (289) | 320 | (59) | |||
| Rate change | 14 | - | - | |||
| Utilisation of previously unrecognised tax losses | - | - | | (470) | ||
| 671 | 178 | 669 | ||||
11. Earnings per Ordinary share - basic and diluted
The basic and diluted profits per Ordinary Share for the Company of 3.30 pence are based on the profit for the period of £9,291,221 (1 January 2015 to 30 June 2015: £5,382,818; 1 January 2015 to 31 December 2015: £15,214,912) and on 281,803,232 (1 January 2015 to 30 June 2015: 232,282,312; 1 January 2015 to 31 December 2015: 257,246,283) Ordinary Shares, being the weighted average number of shares in issue during the period.
12. Trade and other receivables
| 30 June 2016 | 30 June 2015 | 31 December 2015 | |||
| £'000 | £'000 | £'000 | |||
| Accrued interest receivable | 11,708 | 5,783 | 2,018 | ||
| Prepaid expenses | - | 56 | 28 | ||
| Other receivables | 35 | 30 | 54 | ||
| Amounts receivable from Wymeswold | - | 1 | - | ||
| Amounts receivable from Bournemouth | 193 | 439 | - | ||
| Amounts receivable from Copley | 1,644 | - | - | ||
| Amounts receivable from Membury | 19 | ||||
| Amounts receivable from Landmead | - | 1,913 | - | ||
| 13,599 | 8,222 | 2,100 |
13. Cash and cash equivalents
| 30 June 2016 | 30 June 2015 | 31 December 2015 | |||
| £'000 | £'000 | £'000 | |||
| Cash at bank | 9,713 | 37,877 | 15,531 | ||
| Cash in transit | - | 6,600 | - | ||
| 9,713 | 44,477 | 15,531 |
14. Trade and other payables
| 30 June 2016 | 30 June 2015 | 31 December 2015 | |||
| £'000 | £'000 | £'000 | |||
| Accrued issue costs | - | 340 | - | ||
| Accrued investment costs | - | - | 10,397 | ||
| Taxation payable | 1,340 | 178 | 669 | ||
| Accrued expenses | 2,166 | 1,093 | 420 | ||
| Amounts payable to Castle Eaton | - | 626 | - | ||
| Amounts payable to Highfields | - | 586 | - | ||
| Amounts payable to High Penn | - | 89 | - | ||
| Amounts payable to Pitworthy | - | 700 | - | ||
| Amounts payable to Spriggs | - | 204 | - | ||
| Amounts payable to Hunters Race | - | 1,169 | - | ||
| Amounts payable to Kencot Amounts payable to Copley Amounts payable to Paddock Wood Amounts payable to Atherstone Amounts payable to Southam | - - - - - | 390 - - - - | - 2,000 212 329 122 | ||
| 3,506 | 5,375 | 14,149 |
15. Investments held at fair value through profit or loss
Period 1 January 2016 to 30 June 2016
| Cost as at 1 January 2016 | Move- ment - equity | Movement - share- holder loans | Cost as at 30 June 2016 | Unrealised gain/(loss) as at 1 January 2016 | Movement on unrealised gain/(loss) | Unrealised gain/(loss) as at 30 June 2016 | Fair value as at 30 June 2016 | ||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||||
| Wymeswold | 44,247 | - | (500) | 43,747 | 4,817 | 466 | 5,283 | 49,030 | |||||||
| Castle Eaton | 22,508 | - | - | 22,508 | (756) | (64) | (820) | 21,688 | |||||||
| Pitworthy | 19,272 | - | - | 19,272 | (734) | (760) | (1,494) | 17,778 | |||||||
| Highfields | 15,403 | - | - | 15,403 | (785) | (26) | (811) | 14,592 | |||||||
| High Penn | 12,623 | - | - | 12,623 | (1,105) | (59) | (1,164) | 11,459 | |||||||
| Hunter's Race | 12,239 | - | - | 12,239 | 900 | 27 | 927 | 13,166 | |||||||
| Spriggs | 14,437 | - | - | 14,437 | 271 | (216) | 55 | 14,492 | |||||||
| Bournemouth | 47,911 | - | - | 47,911 | 1,682 | 535 | 2,217 | 50,128 | |||||||
| Landmead | 52,416 | - | - | 52,416 | (65) | 521 | 456 | 52,872 | |||||||
| Kencot | 48,442 | - | - | 48,442 | (563) | (256) | (819) | 47,623 | |||||||
| Copley | 32,680 | - | - | 32,680 | 2,956 | 129 | 3,085 | 35,765 | |||||||
| Paddock Wood | 6,335 | - | - | 6,335 | (154) | 345 | 191 | 6,526 |
15. Investments held at fair value through profit or loss (continued)
Period 1 January 2016 to 30 June 2016 (continued)
| Cost as at 1 January 2016 | Move- ment - equity | Movement - share- holder loans | Cost as at 30 June 2016 | Unrealised gain/(loss) as at 1 January 2016 | Movement on unrealised gain/(loss) | Unrealised gain/(loss) as at 30 June 2016 | Fair value as at 30 June 2016 | ||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||||
| Atherstone | 12,595 | - | - | 12,595 | 156 | 45 | 201 | 12,796 | |||||||
| Southam | 7,702 | - | - | 7,702 | 108 | 179 | 287 | 7,989 | |||||||
| Port Farms | 44,502 | - | (505) | 43,997 | 267 | 823 | 1,090 | 45,087 | |||||||
| Membury | 21,671 | - | - | 21,671 | (351) | (246) | (597) | 21,074 | |||||||
| 414,983 | - | (1,005) | 413,978 | 6,644 | 1,443 | 8,087 | 422,065 |
Period 1 January 2015 to 30 June 2015
| Cost as at 1 January 2015 | Movement - equity | Movement - shareholder loans | Cost as at 30 June 2015 | Unrealised gain/(loss) as at 1 January 2015 | Movement on unrealised gain/(loss) | Unrealised gain/(loss) as at 30 June 2015 | Fair value as at 30 June 2015 | ||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||||
| Wymeswold | 45,046 | - | - | 45,046 | 3,684 | 40 | 3,724 | 48,770 | |||||||
| Castle Eaton | 22,508 | - | - | 22,508 | 192 | (260) | (68) | 22,440 | |||||||
| Pitworthy | 19,272 | - | - | 19,272 | 243 | 75 | 318 | 19,590 | |||||||
| Highfields | 15,403 | - | - | 15,403 | 247 | (280) | (33) | 15,370 | |||||||
| High Penn Hunter's Race Spriggs Bournemouth Landmead Kencot Copley | 12,623 13,036 14,621 47,911 52,416 - - | - - - - - 19,121 - | - - - - - 30,338 23,500 | 12,623 13,036 14,621 47,911 52,416 49,459 23,500 | (123) (26) 699 249 1,189 - - | (210) 120 (590) 1,230 425 (2,109) - | (333) 94 109 1,479 1,614 (2,109) - | 12,290 13,130 14,730 49,390 54,030 47,350 23,500 | |||||||
| 242,836 | 19,121 | 53,838 | 315,795 | 6,354 | (1,559) | 4,795 | 320,590 |
Period 1 January 2015 to 31 December 2015
Period 1 January 2015 to 31 December 2015 (continued)
| Cost as at 1 January 2015 | Move- ment - equity | Movement -share- holder loans | Repayments-shareholder loans £'000 | Cost as at 31 December 2015 | Unrealised gain/(loss) as at 1 January 2015 | Movement on unrealised gain/(loss) | Unrealised gain/(loss) as at 31 December 2015 | Fair value as at 31 December 2015 | |||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||||||
| Paddock Wood | - | 459 | 5,876 | - | 6,335 | - | (154) | (154) | 6,181 | ||||||||
| Atherstone | - | 8 | 12,587 | - | 12,595 | - | 156 | 156 | 12,751 | ||||||||
| Southam | - | 7 | 7,695 | - | 7,702 | - | 108 | 108 | 7,810 | ||||||||
| Port Farms | - | 7,259 | 37,243 | - | 44,502 | - | 267 | 267 | 44,769 | ||||||||
| Membury | - | 4,444 | 17,733 | (506) | 21,671 | - | (351) | (351) | 21,320 | ||||||||
| 242,836 | 41,673 | 133,777 | (3,303) | 414,983 | 6,354 | 290 | 6,644 | 421,627 |
16. Fair value of assets and liabilities
Fair value hierarchy
IFRS 13 "Fair Value Measurement" requires disclosures relating to fair value measurements using a three-level fair value hierarchy. The level within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability. The following table shows investments recognised at fair value, categorised between those whose fair value is based on:
- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and
- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
All investments held at fair value through profit or loss are classified as level 3 within the fair value hierarchy.
Valuation process for Level 3 valuations
Valuations are the responsibility of the Board of Directors.
The Investment Manager is responsible for submitting fair market valuations of Group assets to the Directors. The Directors review and approve these valuations following appropriate challenge and examination. Valuations are carried out quarterly.
The current portfolio consists of non-market traded investments and valuations are based on a discounted cash flow methodology.
The Investment manager's assessment of fair value of investments is determined in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEVCV"), using unlevered Discounted Cash Flow principles. It is in the opinion of the Investment Manager and Directors that the IPEVCV methodology used in deriving a fair value is not materially different from the fair value requirements of IFRS 13.
Sensitivity analysis to significant changes in unobservable inputs within Level hierarchy
The Groups' investments are valued with reference to the discounted value of future cash flows. The Directors consider the valuation methodology used, including the key assumptions and discount rate applied, to be appropriate. The Board review, at least annually, the valuation inputs and where possible, make use of observable market data to ensure valuations reflect the fair value of the investments.
A broad range of assumptions are used in the valuation models. These assumptions are based on long-term forecasts and are not affected by short term fluctuations in inputs, be it economic or technical.
The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity analysis as at 30 June 2015 are as shown below:
The Discounted Cash Flow ("DCF") valuations of the solar assets form the majority of the NAV calculation. The Directors consider the following assumptions to be significant inputs to the DCF calculation.
Discount rate
The weighted average discount rate used is 7.5%. The Directors do not expect to see a significant change in the discount rates applied within the Solar Infrastructure sector. Therefore a variance of +/- 0.5% is considered reasonable.
| -0.50% | -0.25% | Base | +0.25% | +0.50% | |
| Directors' valuation (£m) | 440.0 | 430.9 | 422.1 | 413.5 | 405.3 |
| NAV per share (pence) | 105.6 | 102.4 | 99.3 | 96.2 | 93.3 |
| Change vs Base Case (%) | 4.3 | 2.1 | 0.0 | (2.0) | (4.0) |
Energy yield
Base case assumptions are based on P50 forecasts (50 per cent probability of exceedance) produced by market experts. P10 (10 per cent probability of exceedance) and P90 (90 per cent probability of exceedance) variances are given to offer comparison across the industry. Energy yield is a function of solar irradiance and technical performance.
| P10 | Base | P90 | |
| Directors' valuation (£m) | 458.4 | 422.1 | 383.2 |
| NAV per share (pence) | 112.1 | 99.3 | 85.5 |
| Change vs Base Case (%) | 8.6 | 0.0 | (9.2) |
Power Price
DCF models assume power prices that are consistent with the Power Purchase Agreements ("PPA") currently in place. The average PPA period remaining as at 30 June 2016 is 4.5 years. At the PPA end date, the model reverts to the power price forecast.
The power price forecasts are updated quarterly and based on power price forecasts from leading independent sources. The Investment Manager adjusts where more conservative assumptions are considered appropriate and applies expected PPA sales discounts. The forecast assumes an average annual increase in power prices in real terms of approximately 1.8%.
| -20.0% | -10.0% | Base | +10.0% | +20.0% | |
| Directors' valuation (£m) | 375.6 | 399.4 | 422.1 | 443.7 | 464.9 |
| NAV per share (pence) | 82.8 | 91.2 | 99.3 | 107.0 | 114.5 |
| Change vs Base Case (%) | (11.0) | (5.4) | 0.0 | 5.1 | 10.1 |
Inflation
A variable of 1.0% is considered reasonable given historic fluctuations. We assume inflation will remain constant at 2.5%.
| -1.0% | -0.5% | Base | +0.5% | +1% | |
| Directors' valuation (£m) | 390.7 | 406.2 | 422.1 | 438.3 | 455.2 |
| NAV per share (pence) | 88.1 | 93.6 | 99.3 | 105.0 | 111.0 |
| Change vs Base Case (%) | (7.4) | (3.8) | 0.0 | 3.8 | 7.9 |
Operating costs (investment level)
Operating costs include operating and maintenance ("O&M"), insurance and lease costs. Base case costs are based on current commercial agreements. We would not expect these costs to fluctuate widely over the life of the assets and are comfortable that the base case is prudent. A variance of +/- 5.0% is considered reasonable, a variable of 10.0% is shown for information purposes.
| -10.0% | -5.0% | Base | +5.0% | +10.0% | |
| Directors' valuation (£m) | 427.8 | 424.9 | 422.1 | 419.2 | 416.2 |
| NAV per share (pence) | 101.3 | 100.3 | 99.3 | 98.2 | 97.2 |
| Change vs Base Case (%) | 1.4 | 0.7 | 0.0 | (0.7) | (1.4) |
Level 3 reconciliation
The following table shows a reconciliation of all movements in the fair value of investments categorised within Level 3 between the beginning and the end of the reporting period:
Period 1 January 2016 to 30 June 2016
| Total | |
| £'000 | |
| Balance at 1 January 2016 | 421,627 |
| Total gains and (losses) in Condensed Consolidated Statement of Comprehensive Income: | |
| 1,443 |
| Loan repayment | (1,005) |
| Balance at 30 June 2016 | 422,065 |
Period 1 January 2015 to 30 June 2015
| Total | |
| £'000 | |
| Balance at 1 January 2015 | 249,190 |
| Total gains and (losses) in Consolidated Statement of Comprehensive Income: | |
| (1,559) |
| Purchases at cost | 72,959 |
| Balance at 30 June 2015 | 320,590 |
Period 1 January 2015 to 31 December 2015
| Total | |
| £'000 | |
| Balance at 1 January 2015 | 249,190 |
| Total gains and (losses) in Consolidated Statement of Comprehensive Income: | |
| 290 |
| Purchases at cost Loan repayment from SPVs | 175,450 (3,303) |
| Balance at 31 December 2015 | 421,627 |
17. Stated Capital
The stated capital of the Company consists solely of Ordinary Shares of nil par value. At any General Meeting of the Company each Shareholder will have, on a show of hands, one vote and on a poll one vote in respect of each Ordinary Share held. Stated capital is the net proceeds received from the issue of Ordinary Shares (net of issue costs capitalised).
Ordinary Shares
| 30 June | 30 June | 31 December | |||
| 2016 | 2015 | 2015 | |||
| Shares | Shares | Shares | |||
| Opening balance | 281,803,232 | 208,000,000 | 208,000,000 | ||
| Issued during the period Repurchased and held in Treasury | - - | 73,803,232 - | 101,955,375 (28,152,143) | ||
| Closing balance | 281,803,232 | 281,803,232 | 281,803,232 |
28,152,143 Ordinary Shares are held in Treasury as at 30 June 2016 (30 June 2015: nil; 31 December 2015: 28,152,143).
Stated Capital
| 30 June | 30 June | 31 December | |||
| 2016 | 2015 | 2015 | |||
| £'000 | £'000 | £'000 | |||
| Opening balance | 279,403 | 206,226 | 206,226 | ||
| Proceeds from share issue | - | 74,784 | 74,784 | ||
| Less: issue costs capitalised | - | (1,562) | (1,607) | ||
| Closing balance | 279,403 | 279,448 | 279,403 |
18. NAV per Ordinary Share
The Net Asset Value ("NAV") per redeemable Ordinary Share for the Company is based on the Net Asset Value at the reporting date of £279,745,961 (30 June 2015: £277,914,346; 31 December 2015: £279,106,101) and on 281,803,232 (30 June 2015: 281,803,232; 31 December 2015: 281,803,232) redeemable Ordinary Shares, being the number of Ordinary Shares in issue at the end of the period. Treasury shares issued on 22 September 2015 totalling 28,152,143 are excluded from the calculation.
19. Borrowings
| 30 June | 30 June | 31 December | |||
| 2016 | 2015 | 2015 | |||
| £'000 | £'000 | £'000 | |||
| Opening balance | 146,003 | 48,105 | 48,105 | ||
| Drawn down during the period | 169,500 | 41,895 | 108,898 | ||
| Repaid during the period | (149,503) | - | (11,000) | ||
| Deferred debt cost | (4,587) | - | - | ||
| Swap revaluation loss | 712 | - | - | ||
| Closing balance | 162,125 | 90,000 | 146,003 | ||
| Borrowings due in less than 12 months (short-term) | 131 | 0 | 50,000 | ||
| Borrowings due in more than 12 months (long-term) | 161,994 | 90,000 | 96,003 |
On 21 July 2015, UK Holdco entered into a £150,000,000 Revolving Credit Facility Agreement (the "Facility Agreement") with The Royal Bank of Scotland Plc as agent and Santander Global Banking and Markets and The Royal Bank of Scotland Plc as arrangers who have agreed a Facility Commitment of £75,000,000 and £75,000,000 respectively. The £150,000,000 is split into two tranches of £50,000,000 ("Facility A1") and £100,000,000 ("Facility A2").
On 31 March 2016, FS Holdco entered into a new £160,000,000 Long-term Debt Facility agreement with Macquarie Infrastructure Debt Investment Solutions ("MIDIS") and Abbey National Treasury Services ("Santander"). On 14 April 2016, these funds were used to refinance the UK Hold Co's acquisition facility, i.e. £149,503,500 drawn at aforementioned date.
In addition, FS Holdco also entered into a £40,000,000 Short-term revolving acquisition facility ("RCF facility") with Santander.
The interest payable for the period 1 January 2016 to 30 June 2016 amounted to £1,948,951 (1 January 2015 to 30 June 2015: £997,953; 1 January 2015 to 31 December 2015: £2,715,542) of which £842,668 was outstanding as at 30 June 2016 (30 June 2015: £131,544; 31 December 2015: £31,448).
For the period, arrangement fees totalled £824,326 whilst commitment fees totalled £128,566 (1 January 2015 to 30 June 2015: £471,653 and £140,769 respectively; 1 January 2015 to 31 December 2015: £695,325 and £226,017 respectively) of which £121,401 of commitment fees were outstanding as at 30 June 2016 (30 June 2015: £20,167 and £53,723 respectively; 31 December 2015: £20,167 and £7,243 respectively).
20. Capital Management
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares (up to its authorised number of shares) or sell assets to reduce debt.
Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as 'equity' as shown in the Consolidated Statement of Financial Position plus net debt. The gearing ratio as at 30 June 2016 was as follows:
| 30 June 2016 | 30 June 2015 | 31 December 2015 | |||
| £'000 | £'000 | £'000 | |||
| Total borrowings | 161,994 | 90,000 | 146,003 | ||
| Less: cash and cash equivalents | (9,713) | (44,477) | (15,531) | ||
| Net debt | 152,281 | 45,523 | 130,472 | ||
| Total equity | 279,746 | 277,914 | 279,106 | ||
| Total capital | 436,034 | 323,437 | 409,578 | ||
| Gearing ratio | 35.84% | 14.07% | 31.85% |
21. Dividends
Dividends paid during the period comprise a final dividend in respect of the period from 1 October 2015 to 31 December 2015 of 1.53 pence per Ordinary Share and an interim dividend in respect of the period from 1 January 2016 to 31 March 2016 of 1.54 pence per Ordinary Share.
22. Transactions with the manager and Related parties
For the purposes of these Interim Financial Statements, a related party is an entity or entities who are able to exercise significant influence directly or indirectly on the Group's operations or the operations of its investments. Transactions between the Company and its subsidiary, which is a related party, have been eliminated on consolidation and are not disclosed in this note.
All the SPVs of the Group are cash generating solar farms with all revenues and expenses being related party transactions. During the period, the Group was entitled to loan interest on the shareholder loans, from the SPVs, totalling £13,208,420 (1 January 2015 to 30 June 2015: £10,356,789; 1 January 2015 to 31 December 2015: £22,696,708) of which £11,707,505 was outstanding as at 30 June 2016 (30 June 2015: £5,697,051; 31 December 2015: £2,018,173). During the period, UK Hold Co paid certain expenses on behalf of the SPVs. The net intercompany receivables and payables positions are stated in notes 12 and 14.
Foresight Group CI Limited, acting as investment manager to the Group in respect of its investments, earned fees of £1,395,586 during the period (1 January 2015 to 30 June 2015: £1,157,593; 1 January 2015 to 31 December 2015: £2,551,085), of which £699,064 was outstanding as at 30 June 2016 (30 June 2015: £617,428; 31 December 2015: £5,535).
Foresight Group CI Limited charged fees to FS Hold Co of £680,000 during the period in relation to the arrangement and transaction advice of the long term refinancing (1 January 2015 to 30 June 2015: £nil; 1 January 2015 to 31 December 2015: £nil), of which £nil was outstanding as at 30 June 2016 (30 June 2015: £nil; 31 December 2015: £nil).
Foresight Group LLP, a related party of Foresight Group CI, charged asset management fees to the underlying projects of £256,000 during the period (1 January 2015 to 30 June 2015: £146,290; 1 January 2015 to 31 December 2015: £368,350.
Pursuant to the terms of the Prospectus, the total launch costs to be borne by the Shareholders of the Company were capped at 2% of the launch proceeds of £150,000,000 (i.e. £3,000,000) with any excess launch costs being reimbursed to the Company from Foresight Group CI Limited. Launch costs to be reimbursed from Foresight Group CI Limited amounted to £213,644 of which £nil was receivable as at 30 June 2016 (30 June 2015: £29,671; 31 December 2015: £nil).
24. Commitments and contingent liabilities
There are no commitments nor contingent liabilities.
25. Controlling party
In the opinion of the Directors, there is no controlling party as no one party has the ability to direct the financial and operating policies of the Group with a view to gaining economic benefits from its direction.
26. Post balance sheet events
There were no post balance sheet events requiring disclosure.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Foresight Solar Fund Limited via Globenewswire
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