Interim Results

RNS Number : 3477T
NextEnergy Solar Fund Limited
14 November 2019
 

14 November 2019

 

NextEnergy Solar Fund Limited

("NESF" or the "Company")

 

Interim Results for the period ended 30 September 2019

NextEnergy Solar Fund announces its interim results for the six-month period ended 30 September 2019.

Financial highlights

·      Net asset value per ordinary share of 111.2p (31 March 2019: 110.9p)

·      Ordinary shareholder total return of 6.7% (30 September 2018: 3.4%)

·      Gearing of 39% (31 March 2019: 36%)

·      Cash dividend cover before scrip of 1.3x (30 September 2018: 1.2x)

·      Ordinary shareholders' NAV of £649m (31 March 2019: £645m)

·      Dividends per ordinary share of 3.44p (30 September 2018: 3.325p)

 Operational highlights

·      Total capacity installed of 705 MW (31 March 2019: 691 MW)

·      Total electricity generation of 515 GWh (30 September 2018: 480 GWh)

·      89 operating solar assets (31 March 2019: 87)

·      Electricity generation +5.0% above budget (30 September 2018: +7.9%)

  ESG highlights

·      134,000 UK homes powered for six months (30 September 2018: 125,000)

·      131,000 tonnes of CO2 emissions avoided (30 September 2018: 123,000)

 

Kevin Lyon, Chairman of NESF, commented:

"NextEnergy Solar Fund's robust first half results were characterised by another period of outperformance, resulting not only from high levels of solar irradiation but also from technical, financial and operational improvements across the portfolio. In particular, we continued to focus on optimising our portfolio of assets, including extending the useful life of more of our assets, reducing operating costs, making technical improvements and executing our electricity sales strategy to reduce power price risk.

 

We are particularly proud of our maiden subsidy-free plant, Hall Farm II of 5.4MW, which was energised during the period and is the UK's first subsidy-free solar plant owned by a listed investment company. Its successful development and commissioning gives us industry leadership in this space, and work is underway on our next subsidy-free plant - a 50 MW plant currently under construction and due for commissioning by the end of the financial year.

 

During the period we also issued £100m of preference shares and partially used this to repay financial debt, which resulted in enhanced returns for ordinary shareholders, whilst providing financial stability for the future."

 

Interim Report

There will be an analyst presentation and conference call at 10.00am this morning for analysts.  To register for the call, please contact MHP Communications on 020 3128 8100 or nextenergy@mhpc.com.

 

For further information:

NextEnergy Capital Limited

020 3746 0700

Michael Bonte-Friedheim


Aldo Beolchini


Cantor Fitzgerald Europe

020 7894 7719

Robert Peel


Shore Capital

020 7408 4090

Anita Ghanekar


MHP Communications

020 3128 8100

Oliver Hughes
 

Apex Fund and Corporate Services (Guernsey) Limited  

01481 735 827

Nicholas Robilliard

Notes to Editors:

NESF is a specialist investment company that invests primarily in operating solar power plants in the UK. It is able to invest up to 15% of its Gross Asset Value in operating solar power plants in OECD countries outside the UK. The Company's objective is to secure attractive shareholder returns through RPI-linked dividends and long-term capital growth. The Company achieves this by acquiring solar power plants on agricultural, industrial and commercial sites.

As at 30 September 2019, NESF raised equity proceeds of £792m (including £200m of preference shares) since its initial public offering on the main market of the London Stock Exchange in April 2014. The Company's subsidiaries had financial debt outstanding of £211m, on a look-through basis including project level debt. Of the financial debt, £197m was long-term fully amortising debt, and £14m was drawn under a short-term credit facility.

NESF is differentiated by its access to NextEnergy Capital Group (NEC Group), its Investment Manager, which has a strong track record in sourcing, acquiring and managing operating solar assets.  WiseEnergy is NEC Group's specialist operating asset management division and over the course of its activities has provided operating asset management, monitoring, technical due diligence and other services to over 1,300 utility-scale solar power plants with an installed capacity in excess of 1.9 GW.

Further information on NESF, NEC Group and WiseEnergy is available at nextenergysolarfund.com, nextenergycapital.com and wise-energy.eu.

NextEnergy Solar Fund Limited

Interim Report and Condensed Interim Financial Statements
for the six months ended 30 September 2019

Contents

Highlights

Chairman's Statement

Company Overview and Principal Risks

Investment Adviser's Report

Statement of Directors' Responsibilities

Condensed Interim Financial Statements

Notes to the Condensed Interim Financial Statements

Independent Review Report

Corporate Information

Alternative Performance Measures

Glossary

 

Performance Highlights

Financial Highlights

111.2p (31 March 2019: 110.9p)

NAV per ordinary share

as at 30 September 2019

6.7% (30 September 2018: 3.4%)

Ordinary shareholder total return

for the six months ended 30 September 2019



39% (31 March 2019: 36%)

Gearing

as at 30 September 2019

1.3x (30 September 2018: 1.2x)

Cash dividend cover before scrip

for the six months ended 30 September 2019



£649m (31 March 2019: £645m)

Ordinary shareholder's NAV

as at 30 September 2019

3.44p (30 September 2018: 3.325p)

Dividends per ordinary share

for the six months ended 30 September 2019



Operational Highlights




705 MW (31 March 2019: 691 MW)

Total capacity installed

as at 30 September 2019

515 GWh (30 September 2018: 480 GWh)

Total electricity generation

during the six months ended 30 September 2019



89 (31 March 2019: 87)

Operating solar assets

as at 30 September 2019

+5.0% (30 September 2018: +7.9%)

Generation above budget

for the six months ended 30 September 2019



ESG Highlights




134,000 (30 September 2018: 125,000)

UK homes (equivalent to Bournemouth and

Bradford combined) powered for six months

131,000 (30 September 2018: 123,000)

Tonnes of CO2 emissions avoided

during the six months ended 30 september 2019

 

Key Performance Indicators ("KPIs")

The Company sets out below its KPIs which it utilises to track its performance over time against its objectives. Alternative Performance Measures used by the Company are defined on page 52.

Financial KPI

Six months ended
30 September 2019

Year ended
31 March
2019

Year ended 31 March 2018

Year ended 31 March 2017

Year ended 31 March 2016

Ordinary shares in issue

Ordinary share price

Market capitalisation of ordinary shares

NAV per ordinary share*

Total ordinary NAV

Premium/(discount) to NAV*

Earnings per ordinary share

Dividends per ordinary share

Dividend yield*

Cash dividend cover - pre-scrip dividends*

Preference shares in issue

Debt outstanding at subsidiaries level

Gearing level (debt + preference shares/GAV)*

GAV

Weighted average cost of capital

Weighted average lease life

Ordinary shareholder total return -
cumulative since IPO

Ordinary shareholder total return -
annualised since IPO

Ordinary shareholder total return

FTSE All-Share total return

Ordinary NAV total return*

Ordinary NAV total return - annualised since IPO*

Invested capital*

Ongoing charges ratio*

Weighted average discount rate

Operational KPI






Number of assets

Total installed capacity

Electricity production (generation)

% increase (period-on-period)

Generation since IPO

Irradiation (delta vs. budget)

Generation (delta vs. budget)

Asset Management Alpha*

* Alternative Performance Measures

Chairman's Statement

"NextEnergy Solar Fund's robust first half results were characterised by another period of outperformance, resulting not only from high levels of solar irradiation but also from technical, financial and operational improvements across the portfolio. In particular, we continued to focus on optimising our portfolio of assets, including extending the useful life of more of our assets, reducing operating costs, making technical improvements and executing our electricity sales strategy to reduce power price risk.

We are particularly proud of our maiden subsidy-free plant, Hall Farm II of 5.4MW, which was energised during the period and is the UK's first subsidy-free solar plant owned by a listed investment company. Its successful development and commissioning gives us industry leadership in this space, and work is underway on our next subsidy-free plant - a 50 MW plant currently under construction and due for commissioning by the end of the financial year.

During the period we also issued £100m of preference shares and partially used this to repay financial debt, which resulted in enhanced returns for ordinary shareholders, whilst providing financial stability for the future."

I am pleased to present, on behalf of the Board, the Interim Report and Condensed Interim Financial Statements for NextEnergy Solar Fund Limited for the period ended 30 September 2019.

We energised our maiden subsidy-free asset in the UK, Hall Farm II, in August 2019, the first listed solar company to do so, marking a defining moment on the solar sector's path to a subsidy-free environment. Construction of this asset began in March 2019 and the plant was fully connected to the grid on 5 August 2019. This 5.4MW plant, adjacent to our existing Hall Farm plant, has benefited from the original site's oversized planning permission and previously built grid access infrastructure.

The construction of our second subsidy-free plant, Staughton, has progressed smoothly and is on track to be connected to the grid by the end of this financial year. This 50MW subsidy-free plant located on the Bedfordshire/Cambridgeshire border will be the largest plant in our portfolio. These achievements are notable as they demonstrate the economic case for subsidy-free solar PV assets in the UK compared to other energy generation technologies, many of which still require extensive and expensive subsidies.

Asset prices on the whole remained at levels we deem unattractive. Nevertheless, during the period, we have acquired one operating solar plant, Ballygarvey in Northern Ireland, which demonstrates our Investment Adviser's expertise in finding value in a somewhat saturated UK market. The 8.2MW plant benefits from subsidies under the Northern Irish ROC ('NIROCS') regulatory framework, and gives the Company a presence in England, Scotland, Wales and now Northern Ireland.

During the period we completed the innovative approach to the financing of our portfolio. In August 2019 we raised a further £100m of preference shares on similar terms to the £100m issuance in November 2018. The combined £200m of preference shares have a fixed 4.75% p.a. coupon, resulting in significantly lower all-in annual cash costs to the Company over the regulatory regime period of our assets, when compared to issuance of ordinary shares or long-term amortising financial debt products. Further details can be found in the Investment Adviser's Report.

Over the past six months our Investment Adviser and Asset Manager have continued to optimise the returns from the portfolio by:

·      extending the useful life of more of our assets;

·      reducing operating costs through re-negotiating contractual terms and entering into new agreements;

·      making technical improvements; and

·      executing our electricity sales strategy to maximise revenue and reduce power price risk.

Our financial performance continues to be robust. Over the five and a half years since IPO, NESF has achieved an annualised ordinary shareholder total return of 10% and an annualised NAV total return of 8.0%, in line with or in excess of the target range of 7% - 9% equity return for investors, based on the IPO price.

Financial Results

Profit before tax was £21.1m (30 September 2018: £18.7m) with earnings per ordinary share of 3.62p (30 September 2018: 3.23p). Cash dividend cover pre-scrip dividends was 1.3x (30 September 2018: 1.2x).

Portfolio Performance

Energy generated was 515 GWh (30 September 2018: 480GWh), 5.0% above budget. During the period, solar irradiation across the portfolio was 4.8% above expectation (30 September 2018: 8.4%). Asset Management Alpha for the period was 0.2% (30 September 2018: -0.5%), which would have been 1.0% (30 September 2018: 0.5%) if we excluded distributor network outages.

Our UK portfolio performed above expectations with generation outperformance of 5.1% (30 September 2018: 8.2%) and an Asset Management Alpha of 0.1% (30 September 2018: -0.8%).

Our Italian portfolio also performed well during the period with 1.8% (30 September 2018: 3.6%) extra generation over budget and an Asset Management Alpha of 1.4% (30 September 2018: 2.4%). The portfolio was acquired with long-term debt of €76.9m (£68.1m) which was fully repaid following the issuance of the preference shares in November 2018. The vast majority of the future expected cash flows from the portfolio have been hedged at an average forward exchange rate of 0.89 EUR/GBP for the period up to 2032 which includes all hedging costs.

The electricity generated by our portfolio during the period based on the current 705MW is equivalent to a saving of 131,000 (30 September 2018: 123,000) tonnes of CO2 emissions and sufficient to power some 134,000 (30 September 2018: 125,000) UK homes for six months. This is roughly equivalent to powering a city with 643,000 inhabitants (e.g. Bournemouth and Bradford combined) for six months.

Net Asset Value

At the period end, the Company's ordinary NAV was £649m, equivalent to 111.2p per ordinary share (31 March 2019: NAV of £645m, 110.9p per ordinary share).

Portfolio Growth

During the period, the portfolio's installed capacity increased by 14MW with the additions of Hall Farm II and Ballygarvey. The construction of Staughton is well-advanced and is expected to add a further 50MW by the end of the financial year. The Investment Adviser is in negotiations on further pipeline assets, the majority of which are subsidy-free. Our strategy envisages adding a total of between 100MW and 150MW in subsidy-free capacity to the portfolio by the end of calendar year 2020. This amounts to an estimated investment of between £55m and £80m (5% - 8% of GAV). Assuming 125MW of subsidy-free capacity and average generation levels, our subsidy-free portfolio would be equivalent to c.15% of 2018/19 generation. We have identified and are progressing on strategies for the sale of electricity from these subsidy-free plants.

Capital Raising and Debt Financing

In August 2019 the Company successfully issued a second tranche of £100m of preference shares. The proceeds were deployed to partially repay a HoldCo level short-term credit facility, finance the acquisition of Ballygarvey and invest in the construction of Staughton.

As at 30 September 2019, the Company's subsidiaries had financial debt outstanding of £211m (31 March 2019: £269m). Of the financial debt, £197m was long-term fully amortising debt, and £14m was drawn under a short-term credit facility. The total financial debt, together with the preference shares, represented a gearing level of 39% (31 March 2019: 36%), which is below the stated maximum debt-to-GAV level of 50%.

Dividends

The Company continues to achieve its dividend objective which is to increase dividends annually in line with RPI over the long term. For the year ending 31 March 2020, we are targeting a total dividend of 6.87p per ordinary share.

The Directors have approved a second interim dividend of 1.7175p per ordinary share, which will be payable on 30 December 2019 to ordinary shareholders on the register as at the close of business on 22 November 2019.

The Company offers scrip dividends, details of which can be found on the Company's website.

The cash dividend cover pre-scrip dividends remained robust at 1.3x (2018:1.2x).

Environmental, Social and Governance

We are committed to ESG principles and responsible investment. We continue to develop our ESG policy and are committed to evolving it and delivering sustainable growth across the Company. As well as reduction of CO2 emissions provided by solar power, one particular area we have focused on is biodiversity. Solar PV assets represent an excellent opportunity to secure long-term biodiversity across the countryside. In the area protected by the fencing around our assets, we are able to create sectors fostering local plant and wildlife. This approach includes initiatives such as: pairing up with a local beekeeper association to locate beehives seasonally on our sites, encouraging local pollinators by planting wild flower mixes/under-panel planting, erecting bird and bat boxes and briefing landowners with our newly devised biodiversity management plan.

Auditors

On 27 September 2019, following a competitive audit tender, the Company announced the appointment of KPMG Channel Islands Limited as its auditor for the financial year ending 31 March 2020 for the Company and its subsidiaries. PWC CI LLP has resigned as the Company's auditor, and the Board would like to take the opportunity to thank PWC for its service as auditor over the last five years since IPO.

Distribution of Reports and Communications

This Interim Report is accessible on the Company's website. As part of our principles of environmental responsibility, the Company no longer issues printed copies of reports or communications, except where a shareholder has expressly requested a hard copy.

Outlook

The Company will continue to focus on generating attractive financial returns for our shareholders, while having positive social and environmental impacts.

The Company continues to extend the useful life of its assets on the remaining portfolio, and is targeting 31 assets.

The completion of Hall Farm II, has provided us with the expertise to construct further subsidy-free assets with attractive risk-adjusted returns using electricity sales agreements, corporate PPAs or direct-wire agreements with off-takers, from the Company's pipeline of development opportunities. We continue to target a total of between 100 MW and 150 MW in subsidy-free solar plants.

We will continue to review deployment of ancillary solar technologies to mitigate the generation risks of individual assets, whilst adapting our portfolio to the changing dynamics of the UK solar market.

Continued focus on developing our electricity sales strategy will enable us to leverage our in-house expertise to maximise value from our assets and deliver further cost efficiencies.

ESG continues to be an important part of our mission. As activities mitigating climate change accelerate globally, execution of our ESG policy will ensure we continue to lead by example. Our Company and stakeholders are aligned to create a better environment for this generation and future generations.

With the underlying quality and performance of our robust portfolio, coupled with the success of our first subsidy-free plant and the construction programme ahead, the outlook for the Company continues to remain strong.

Kevin Lyon

Chairman

13 November 2019

Company Overview and Principal Risks

Structure

The Company is a Guernsey registered closed-ended investment company.

The Company has a premium listing and its ordinary shares are traded on the London Stock Exchange under the ticker "NESF". The Group comprises the Company and HoldCos which invest in SPVs which hold the underlying solar PV assets.

Investment Objective

The Company seeks to provide investors with a sustainable and attractive dividend that increases in line with RPI over the long term. In addition, the Company seeks to provide ordinary shareholders with an element of capital growth through the reinvestment of net cash generated in excess of the target dividend in accordance with the Company's investment policy.

Investment Policy

The Company's investment policy can be viewed on the Company's website.

The Investment Manager, Investment Adviser and Asset Manager

The Company's Investment Manager is NextEnergy Capital IM Limited. The Investment Manager has appointed NextEnergy Capital Limited to act as Investment Adviser in relation to the Company. Michael Bonte-Friedheim, Aldo Beolchini and Abid Kazim comprise the Investment Committee of the Investment Adviser, whose role is to consider and, if thought fit, recommend actions to the Investment Manager in respect of the Company's potential and actual investments.

The Company has entered into an asset management framework agreement with the asset manager, WiseEnergy, a member of the NEC Group. Under the framework agreement, WiseEnergy enters into individual asset management contracts with each solar power plant entity acquired by the Company and performs a broad and defined set of asset management activities for each entity. The collective experience of the NEC Group in managing and monitoring solar PV assets best positions the Company to implement efficiencies at both the investment and operating asset level. The technical and operating outperformance of the portfolio to date underlines the benefits of this comprehensive strategic relationship.

The NEC Group is a privately-owned specialist investment and asset manager focused on the solar sector. It was formed in 2007 and has developed a unique track record in the European solar sector. Prior to the IPO of the Company, it had developed, financed, managed the construction of and owned 14 solar projects in the UK and Italy. Its asset management activities have included the management and monitoring of more than 1,300 utility-scale solar power plants for a total capacity of over 1.9GW on behalf of third-party equity investors and financing banks. Its clients include listed solar funds (in addition to the Company), private equity, family offices, renewable energy specialists and other equity investors as well as some of Europe's leading lenders and financiers in the solar sector. It has developed proprietary hardware and software products and solutions to facilitate delivery of its services to its client base. The NEC Group also manages two private equity funds: NextPower II LP, a €232m fund dedicated to solar PV asset investments in Italy, and NextPower III LP, a USD117m fund dedicated to solar PV asset investments globally.

The NEC Group consists of over 160 dedicated staff focused on the solar sector. The team has significant experience in energy and infrastructure transactions not only in the UK but also in other jurisdictions.

Principal Risks

The Company has in place risk management procedures and internal controls to monitor and mitigate the main risks faced as well as a process to review the effectiveness of those controls over the Company and its subsidiaries as a whole. The Investment Manager and Investment Adviser assists the Company in regularly identifying, assessing and mitigating those risks likely to impact the financial or strategic position of the Company.

Under the FCA's Disclosure Guidance and Transparency Rules, the Board is required to identify those material risks to which the Company is exposed and take appropriate steps to mitigate those risks. The material risks identified by the Board can be categorised as follows:

·      portfolio management and performance risks;

·      operational and strategic risks; and

·      external risks.

The principal risks and uncertainties, which are unchanged from 31 March 2019, remain the risks most likely to affect the Company for the remaining six months of the financial year. Each of these categories of risk, together with the principal risks, can be found on pages 13-15 of the 31 March 2019 Annual Report.

Investment Adviser's Report

Portfolio Highlights

During the period, the portfolio grew from 87 to 89 assets, which represented an increase of 14MW to the total capacity.

On 5 August 2019, our first subsidy-free asset Hall Farm II was connected to the grid after a five-month construction period. The 5.4MW plant is the first subsidy-free plant to be energised by a UK-listed investment company.

During the period, construction also began on Staughton, a 50MW subsidy-free asset located on the Cambridgeshire/Bedfordshire border. Construction progressed as scheduled during the period, and grid connection is currently expected to take place by the end of this financial year.

In early August 2019, the Company announced the acquisition of Ballygarvey, an 8.2MW plant located in Northern Ireland. The plant receives subsidies under the Northern Irish ROCS ("NIROCS") regulatory framework and receives 1.4 NIROCS per MWh generated.

In the UK, the summer of 2019 was one of the hottest on record, with the highest ever UK temperature of 38.7 degrees Celsius recorded in Cambridge on 25 July. Whilst the extra irradiation drove a greater than expected level of generation, the Asset Manager had to cope with the adverse effects of high temperatures on the technical performance of solar PV components, which perform optimally at temperatures below 25 degrees Celsius. In addition, certain plants suffered from grid curtailment, as generation peaks driven by exceptional irradiation levels exceeded, at times, the export capacity allocated by the grid authority to each plant.

In Italy, as the weather pattern was not unusual during the period, the Solis portfolio had an irradiation delta of +0.4% and a generation delta of +1.8% which resulted in an Asset Management Alpha of +1.4%.

Overall, the operational performance of the portfolio during the period was positive and above budget. The resulting Asset Management Alpha of +0.2% was an expected outcome of these exceptional weather conditions and does not represent any change in the ability to achieve a greater level of outperformance in the future.

As at 30 September 2019, the actual performance versus expectations for 85 of the solar PV assets had been monitored by the asset manager for at least two months post completion. The three rooftop portfolios were excluded as irradiation was not monitored.

The Asset Management Alpha measurement allows the Company to identify the "real" outperformance of the portfolio due to active management, as it excludes the effect of variation in solar irradiation.

Portfolio Optimisation

During the period, we secured options or rights to extend the leases on ten individual plants. The positive impact on NAV of these life-extensions amounted to c.+1.3p per ordinary share at the period end. We continue to work on extending the life of the remaining portfolio, with a further five sites expected to secure extensions by the end of the calendar year.

Period

Assets
monitored

Irradiation
(delta vs. budget)

Generation
(delta vs. budget)

First Half 2015/16

First Half 2016/17

First Half 2017/18

First Half 2018/19

First Half 2019/20

Cumulative from IPO to September 2019


+2.5%

+5.0%

+2.5%

We have continued a programme of re-structuring and implementing new contracts across the portfolio. Re-negotiating the contracts means we are able to make savings, refine service levels and maximise revenue. Further Operations and Maintenance ("O&M") contract replacements and renegotiations have taken place during the period, with seven contracts terminated or renegotiated securing a cost saving of £100,000 p.a. across these assets. In addition to the ongoing work to drive down operating costs, a further eight PPAs have been renewed during the period.

Preference Shares

On 8 November 2018, ordinary shareholders agreed to amend the Company's Articles of Incorporation to create a class of preference share and approved the allotment of up to £200m of shares with no pre-emption rights. Subsequently, on 13 November 2018, the Company issued an initial tranche of £100m of preference shares. The Company issued a further £100m of preference shares on 12 August 2019. The rights of the preference shares are the same as those issued in November 2018, save that the second tranche benefit from certain additional undertakings and covenants given by the Company.

The preference shares are only redeemable at the option of the holders in the event of a change in control or delisting of the Company. They are generally non-voting and carry a fixed preferred dividend of 4.75% p.a. as well as a preferred capital entitlement at nominal value (100p). From 1 April 2036, the preference shareholders have the right to convert all or some of their preference shares into either ordinary shares or B shares, at the election of the holder, with B shares being unlisted shares carrying the same rights to dividends and capital in a liquidation as the ordinary shares. The conversion price will be based on the ratio of the nominal value (100p) (plus unpaid dividends, if any) per preference share relative to NAV per ordinary share at the date of conversion. Accordingly, conversion of the preference shares will not result in any dilution of the NAV per ordinary share.

From 1 April 2030, the Company may elect to redeem all or some of the preference shares. Dividends and, save as referred to in the preceding paragraph, redemption will remain at the sole discretion of the Board during the life of the preference shares. Should more competitive sources of capital become available, the Company may choose at its sole discretion to issue new capital (debt or equity) to fund a full or partial redemption after March 2030.

The proceeds of the initial £100m of preference shares were used to repay a portion of the existing long-term project financing facilities associated with portfolio investments. Benefits of the second tranche of preference shares for NESF include:

·      the net subscription proceeds were applied promptly to repay existing short-term debt facilities (£90m due in February 2020 and July 2020), removing any short-term refinancing risk, with the balance of the proceeds being available to invest in pipeline opportunities;

·      the fixed preferred dividend of 4.75p per preference share is a significantly lower all-in annual cash cost to the Company compared to issuing ordinary shares (2019/20 target dividend of 6.87p per ordinary share, expected to increase with RPI annually); and

·      the issue allows the Company to further optimise its capital structure and increase cash flows over the long-term compared to refinancing with conventional long-term amortising financing, thereby increasing the cash dividend cover and increasing the IRR for ordinary shareholders.

For accounting purposes, the preference shares are treated as liabilities. The investment management fee is calculated based on ordinary shareholders' NAV and, accordingly, no management fee is payable in respect of the preference shares.

Italian Portfolio

After repaying the project finance debt during the year ended 31 March 2019, the Company, through a HoldCo, increased the size of the EUR/GBP foreign currency hedging structure to cover 92% of the expected cash flows generated by the portfolio over the next 15 years; this reduces currency fluctuation exposure on returns. The average forward exchange rate is 0.89 EUR/GBP which includes all hedging fees and costs. This FX hedging structure is particularly effective as the Company is not obliged to provide any cash collateral or margin calls.

Dividends declared

Month of payment

Amount per
ordinary share (p)

Total
pre-scrip
dividends
£'000

For the period 2014/15

For the year 2015/16

For the year 2016/17

For the year 2017/18

First quarterly dividend for the year 2018/19

Second quarterly dividend for the year 2018/19

Third quarterly dividend for the year 2018/19

Fourth quarterly dividend for the year 2018/19

First quarterly dividend for the year 2019/20

Total dividends declared to date


32.5985

138,790

Second quarterly dividend for year 2019/20

 

Cash income(1)(2)


£'000

Pre-scrip dividends
£'000

Cash income for period to 30 September 2019

Net operating expenses for period to 30 September 2019

Preference shares dividend

Net cash income available for distribution


26,278


Ordinary shares dividend paid during the period

Cash dividend cover



1.3x

(1)   Cash income differs from the Income in the Statement of Comprehensive Income. This is because the Statement of Comprehensive Income is on an accruals basis.

(2)   Alternative Performance Measure.

The ordinary dividend calendar is set out in the table below:

Ordinary dividend for year 2019/20

Expected
date of
payment

Expected
amount
per ordinary
share (p)

First interim

Second interim

Third interim

Fourth interim

Total


6.8700

Operating Expenses

The net operating expenses of the Company for the period amounted to £6.6m (30 September 2018: £3.3m). The Company's OCR was 1.1% (31 March 2019: 1.1%). The budgeted OCR for the year ending 31 March 2020 is 1.1%. The OCR has been calculated in accordance with AIC recommended methodology. OCR is an Alternative Performance Measure.

NAV Movement

The Company's ordinary NAV is calculated on a quarterly basis based on the valuation of the investment portfolio provided by the Investment Adviser and the other assets and liabilities of the Company provided by the Administrator. The ordinary NAV is reviewed and approved by the Investment Manager and the Board of Directors. All variables relating to the performance of the underlying assets are reviewed and incorporated in the process of identifying relevant drivers of the DCF valuation. The Company reports its financial results on a non-consolidated basis under IFRS 10 (see note 4c) and the change in fair value of its assets during the period is taken through the statement of comprehensive income.

During the period the ordinary NAV per share increased from 110.9p to 111.2p. The movement was driven by the following factors:

·      the downward revisions in the forecasts for long-term power prices adopted by the Company, being 4.6% lower compared to the assumptions employed at 31 March 2019 (taking into account the most recent forecasts released by the Consultants up to the date of preparation of this Interim Report);

·      the value uplift generated by acquisitions of assets whose IRR at acquisition was higher than the Company's discount rate;

·      the operating results achieved by the Company's solar PV assets;

·      the dividends paid by the Company during the period and the Company's operating costs; and

·      the uplift arising from lease extensions.

Sensitivity Analysis

Sensitivities on the Company's ordinary NAV and detailed disclosure on the asset valuation methodologies are provided below and in note 14 of the Interim Financial Statements.

In the event that Ofgem's Targeted Charging Review results in the removal of embedded benefits from April 2021 onwards, the Company's NAV would decline by c.1.4p per ordinary share.

The chart shows the percentage change in the portfolio resulting from a change in the underlying variables and its impact on the NAV per ordinary share.

Current and Long-Term Power Prices

The Investment Adviser continuously reviews multiple inputs for power price forecasts and takes the average of two of the leading independent energy market consultants' long-term projections to derive the power curve adopted in the valuation of the Company's portfolio. This approach allows mitigation of inevitable forecasting errors as well as any delay in response from the Consultants in publishing periodic (quarterly) or ad hoc updates following any significant market development.

During the period, the Consultants revised their forecasts for the UK wholesale power price downwards in the short-term and the long-term. Short-term projections are mainly driven by the decrease in the commodity prices of gas and coal. In the long-term, wholesale prices are expected to move downwards as more low-cost generation is being deployed, notably offshore wind and solar PV.

The power price forecasts used by the Company also reflect an assumed "solar capture" discount which reflects the difference between the prices available on the market in the daylight hours of operation of a solar plant vs. the baseload prices included in the power price estimates. This solar capture discount is estimated by the Consultants on the basis of a typical load profile of a solar plant and is reviewed as frequently as the baseload power price forecasts. The application of such a discount results in a lower long-term price being assumed for the energy generated by NESF's assets compared to the baseload price, driven by the expected further deployment of low-cost renewable capacity. This lower price is included in the financial estimates that drive the Company's NAV.

The Company's current long-term power price forecast implies an average growth rate of approximately +0.9% in real terms over the 20-year period and an average price of c.£53.8/MWh in today's terms. This represents a decrease of 4.6% compared to those used at the end of the previous financial year (and 38% below the assumptions employed at IPO).

Compared to the previous interim period end, electricity day ahead prices in the UK decreased from c.£67/MWh in September 2018 to c.£36/MWh in September 2019. The Company continues to secure attractive prices for the energy generated by its portfolio through its electricity sales strategy with short to medium term prices significantly above the projections provided by its Consultants.

Following a similar trend, the price of electricity in Italy decreased from c.€76/MWh in September 2018 to c.€51/MWh in September 2019.

Power Purchase Agreements

NEC Group's specialist energy trader, along with the external brokers, continues to ensure that the electricity sales strategy maximises revenues whilst mitigating the negative impact of short-term fluctuations in the power markets. The Investment Adviser has executed a range of short-term PPA hedges from three months to one year on multiple assets through a wider competitive tendering process resulting in more counterparts with reduced fees and increased pass-through value of ROCs, FiTs and embedded benefits.

Valuation of the Investment Portfolio

Introduction

The Investment Manager is responsible for carrying out the fair market valuation of the Company's underlying investment portfolio which is presented to the Company's Board for its review and approval. The valuation is carried out quarterly or more often if capital increases or other relevant events arise. The valuation principles used are based on a discounted cash flow methodology and take into account IPEV guidelines.

Assets not yet operational or where the completion of the acquisition is not imminent at the time of valuation use the acquisition cost as a proxy for fair value.

The Board reviews the operating and financial assumptions used in the valuation of the Company's underlying portfolio and approves them based on the recommendation of the Investment Manager.

Discount rate

During the period, the solar PV market continued to experience increased competition for operating and subsidised assets on the secondary market. In the context of high liquidity provided to international investors, a maturing renewable market, a scarcity of subsidised assets and lack of any incentive framework for new installations, demand for operating solar assets remained strong resulting in sustained pressure on prices in the last year. These changing dynamics were evidenced by the experience of the Investment Adviser when bidding for solar PV assets in the UK.

As a result, the Company maintained its discount rate for unlevered operating solar PV assets in the UK at 6.5%.

For those operating solar PV assets with debt, the Company adopts a levered discount rate to capture the greater level of volatility risk associated with the cash flows available to equity investors after debt service. The appropriate level of risk premium due to project level debt was evaluated taking into account various factors for each specific asset, including the level of financial gearing, maturity profile, cost of debt and other factors mentioned above. This range was unchanged from the previous period (0.7% - 1.0%).

For the Solis portfolio a 8.0% discount rate was applied. This reflects the additional country risk premium to the UK considering the differences in risk-free rates in the long-term. It is worth noting that the Solis portfolio debt was fully repaid, and the current currency hedge effectively mitigates the revenue exposure to foreign exchange movements.

The resulting weighted average discount rate for the Company's portfolio was 7.0%.

The Company does not adopt WACC as a discount rate for its investments, as it believes that the reduction in WACC deriving from the introduction of long-term debt financing does not reflect the greater level of risk to equity investors associated with levered assets or levered portfolios. However, for the purposes of transparency, the Company's pre-tax WACC as of 30 September 2019 was 5.5%. Compared to 31 March 2019 WACC of 5.4% this value reflects a increase in the overall gearing from 36% to 39%, as further described below.

Asset life

The DCF methodology implemented in the portfolio valuation assumes a valuation time-horizon capped to the current terms of the lease or, if earlier, planning permission on the properties where each individual solar PV asset is located. These leases have been typically entered into for a 25-year period from commissioning of the relevant PV plants (specific terms may vary).

However, the useful operating life of the Company's portfolio of solar PV assets is expected to be longer than 25 years. This is due to many factors, including: (i) solar PV assets with technology components similar to the ones deployed in the Company's portfolio have been demonstrated to be capable of operating for over 40 years, with levels of technical degradation lower than those assumed or guaranteed by the manufacturers; (ii) local planning authorities have already granted initial planning consents that do not expire and/or have granted permissions to extend initial consented periods; and (iii) the Company owns rights to supply electricity into the grid through connection agreements that do not expire. The Company continues to seek to extend the useful life of its assets, mainly by extending the terms of the land leases for some projects with the intention of extending leases for others in due course.

As at 30 September 2019, the remaining weighted average lease life of the Company's portfolio was 25.5 years. The DCF valuation assumes a zero-terminal value at the end of the lease term for each asset or the end of the planning permission, whichever is the earlier.

Operating performance

The Company values each solar PV asset on the basis of (i) the minimum Performance Ratio ("PR") guaranteed by the vendor or (ii) the PR estimated by the appointed technical adviser during due diligence. These estimates are generally lower than the actual PR that the Company has been experiencing during subsequent operations. The Investment Adviser deems it appropriate to adopt the actual PR after two years of operating history when, typically, the plants have satisfied tests and received final acceptance certification ("FAC").

As at 30 September 2019, 60 UK solar PV assets and all Italian solar PV assets in the investment portfolio had achieved FAC and their actual PR was used in the DCF valuation. This represents 510MW of the portfolio, with the remaining assets expecting to reach FAC according to the timeline below.

Financial quarter ending December 2019:

Financial quarter ending March 2020:

Financial quarter ending June 2020:

Period from July 2020 to June 2021:

As at 30 September 2019, the Company's issued share capital comprised 583,617,503 ordinary shares (including shares issued by way of scrip dividends) and 200,000,000 preference shares. The Company's capital raises are shown below:

Date

Shares
issued

Amount
raised (£m)

Amount
invested

Time to deployment

April 2014

100% by September 2014

5 months

November/December 2014

100% by January 2015

6 weeks

February 2015

100% by April 2015

6 weeks

September 2015

100% by November 2015

6 weeks

July/August/September 2016

Used to repay debt facility

Immediate

November 2016

100% by August 2017

10 months

June 2017

100% by August 2018

1 year 2 months

November 2018

Partially used to repay debt facility

2 months

August 2019

Partially used to repay debt facility

Immediate

(1)     Preference shares

Date

Debt raised
(£m)

Lender

Amount deployed

Status at
30 September 2019

 

July 2015

NIBC

100%

Repaid

 

January 2016

Bayern Landesbank

100%

Repaid

 

March 2016

MIDIS

100%

Drawn

 

February 2017

Macquarie/NAB/CBA

100%

Drawn

November 2017

UniCredit & ING

100%

Repaid

February 2018

NIBC

Not drawn

Not Drawn

July 2018

Santander

Not drawn

Not Drawn

July 2018

Bayern Landesbank

100%

Repaid

January 2019

Santander

100%

Partially repaid

During the period the ordinary share price increased from 117.5p to 122.0p. The table below shows the returns:

Half year
2019/20

Total
since IPO

Annualised
since IPO

Ordinary shareholder total return

NAV total return per ordinary share

The annualised returns since IPO are in line with the target range of 7% - 9% equity return for ordinary shareholders (at IPO both initial issue price and NAV per ordinary share were 100p).

Since April 2019, the ordinary shares have been included in the FTSE 250 Index. NESF's ordinary shares outperformed the FTSE All-Share Index by 18.8% pts over the period from the IPO to 30 September 2019.

Ordinary shareholder total return and ordinary share NAV total return are used to review the Company's performance against its objectives.

Financing and Cash Management

At the period end, the Company's subsidiaries had financial debt outstanding of £211m (31 March 2019: £269m). Of the financial debt, £197m was long-term fully amortising debt, and £14m was drawn under a short-term credit facility. The total financial debt, together with the £200m preference shares, represented a gearing level of 39% (31 March 2019: 36%), which is below the stated maximum debt-to-GAV level of 50%.

During the period, £56m of the Santander RCF facility was re-paid. Consequent to the repayment of debt facilities during the period and prior periods, the HoldCos now have £300m Eurobonds issued on TISE, which the Company has acquired to optimise the group capital structure.

The following table is a summary of the financial debt outstanding:

Provider/
arranger

Type

Borrower

Tranches

Applicable rate

MIDIS/CBA/NAB

Fully-amortising long-term debt

NESH

Medium-term

Floating long-term

Index linked long-term

Fixed long-term

Debt Service Reserve Facility

MIDIS

Fully-amortising

long-term debt

NESH IV

Inflation linked

Fixed long-term

Total long-term debt



197.3

NIBC

RCF

NESH II

n/a

Santander

RCF

NESH VI

n/a

Total short-term debt



14.0

Total debt




211.3

(1)       Applicable rate represents the swap rate.

As at 30 September 2019, the Company held cash of £5.3m at financial institutions in the UK with a credit rating at A-1 or above.

Events After the Reporting Period

On 13 November 2019, the Directors approved a dividend of 1.7175 pence per ordinary share for the period ended 30 September 2019 to be announced on 14 November 2019, and paid on 30 December 2019 to ordinary shareholders on the register as at the close of business on 22 November 2019.

NextEnergy Capital Limited

13 November 2019

Investment Portfolio

Power plant

Location

Announcement
date

Regulatory regime(1)

Installed capacity (MWp)

Investment cost (£M)

Remaining life of the plant (years)

1

Higher Hatherleigh

Somerset

2

Shacks Barn

Northamptonshire

3

Gover Farm

Cornwall

4

Bilsham

West Sussex

5

Brickyard

Warwickshire

6

Ellough

Suffolk

7

Poulshot

Wiltshire

8

Condover

Shropshire

9

Llywndu

Ceredigion

10

Cock Hill Farm

Wiltshire

11

Boxted Airfield

Essex

12

Langenhoe

Essex

13

Park View

Devon

14

Croydon

Cambridgeshire

15

Hawkers Farm

Somerset

16

Glebe Farm

Bedfordshire

17

Bowerhouse

Somerset

18

Wellingborough

Northamptonshire

19

Birch Farm

Essex

20

Thurlestone Leicester

Leicestershire

21

North Farm

Dorset

22

Ellough Phase 2

Suffolk

23

Hall Farm

Leicestershire

24

Decoy Farm

Lincolnshire

25

Green Farm

Essex

26

Fenland

Cambridgeshire

27

Green End

Cambridgeshire

28

Tower Hill

Gloucestershire

29

Branston

Lincolnshire

30

Great Wilbraham

Cambridgeshire

31

Berwick

East Sussex

32

Bottom Plain

Dorset

33

Emberton

Buckinghamshire

34

Kentishes

Essex

35

Mill Farm

Hertfordshire

36

Bowden

Somerset

37

Stalbridge

Dorset

38

Aller Court

Somerset

39

Rampisham

Dorset

40

Wasing

Berkshire

41

Flixborough South

Humberside

42

Hill Farm

Oxfordshire

43

Forest Farm

Hampshire

44

Birch CIC

Essex

45

Barnby

Nottinghamshire

46

Bilsthorpe

Nottinghamshire

47

Wickfield

Wiltshire

48

Bay Farm

Suffolk

49

Honington

Suffolk

50

Macchia Rotonda

Apulia

51

Iacovangelo

Apulia

52

Armiento

Apulia

53

Inicorbaf

Apulia

54

Gioia del Colle

Campania

55

Carinola

Apulia

56

Marcianise

Campania

57

Riardo

Campania

58

Gilley's Dam

Cornwall

59

Pickhill Bridge

Clwyd

60

North Norfolk

Norfolk

61

Axe View

Devon

62

Low Bentham

Lancashire

63

Henley

Shropshire

64

Pierces Farm

Berkshire

65

Salcey Farm

Buckinghamshire

66

Thornborough

Buckinghamshire

67

Temple Normaton

Derbyshire

68

Fiskerton Phase 1

Lincolnshire

69

Huddlesford HF

Staffordshire

70

Little Irchester

Northamptonshire

71

Balhearty

Clackmannanshire

72

Brafield

Northamptonshire

73

Huddlesford PL

Staffordshire

74

Sywell

Northamptonshire

75

Coton Park

Derbyshire

76

Hook

Somerset

77

Blenches

Wiltshire

78

Whitley

Somerset

79

Burrowton

Devon

80

Saundercroft

Devon

81

Raglington

Hampshire

82

Knockworthy

Cornwall

83

Chilton Canetello

Somerset

84

Crossways

Dorset

85

Wyld Meadow

Dorset

86

Ermis - rooftops

Multiple

87

Angelia - rooftops

Multiple

88

Ballygarvey

Northern Ireland

89

Hall Farm II

Leicestershire


Total




705

905


To be built/under construction

A

Francis/Gourton

Clwyd

12/06/2017

None

10.0

-

-

B

Strensham

Worcestershire

C

Radbrook

Warwickshire

D

Moss

Cheshire

E

Staughton

Bedfordshire

F

Llanwern

Gwent

Total




172

27

-

Grand Total





932

-

(1)   An explanation of ROC regime is available at ofgem.gov.uk/environmental-programmes/renewables-obligation-ro.

(2)   Acquired with project level debt.

(3)   Part of the Thirteen Kings portfolio.

(4)   Part of the Radius portfolio.

(5)   Part of the Apollo portfolio.

(6)   Part of the Solis portfolio.

 

Portfolio Assets




Period ended 30 September 2019


Since acquisition


 



Operational

Acquisition


Irradiation

Generation


Irradiation

Generation

 



date

date

Generation

delta

delta

Generation

delta

delta

 


Power plant



(MWh)

(%)

(%)

(MWh)

(%)

(%)

1

Higher Hatherleigh

 

2

Shacks Barn

 

3

Gover Farm

 

4

Bilsham

 

5

Brickyard

 

6

Ellough

 

7

Poulshot

 

8

Condover

 

9

Llywndu

 

10

Cock Hill Farm

 

11

Boxted Airfield

 

12

Langenhoe

 

13

Park View

 

14

Croydon

 

15

Hawkers Farm

 

16

Glebe Farm

 

17

Bowerhouse

 

18

Wellingborough

 

19

Birch Farm

 

20

Thurlestone Leicester

 

21

North Farm

 

22

Ellough Phase 2

 

23

Hall Farm

 

24

Decoy Farm

 

25

Green Farm

 

26

Fenland

 

27

Green End

 

28

Tower Hill

 

29

Branston

 

30

Great Wilbraham

 

31

Berwick

 

32

Bottom Plain

 

33

Emberton

 

34

Kentishes

 

35

Mill Farm

 

36

Bowden

 

37

Stalbridge

 

38

Aller Court

 

39

Rampisham

 

40

Wasing

 

41

Flixborough

 

42

Hill Farm

 

43

Forest Farm

 

44

Birch CIC

 

45

Barnby

 

46

Bilsthorpe

 

47

Wickfield

 

48

Bay Farm

 

49

Honington

 

50

Macchia Rotonda

 

51

Iacovangelo

 

52

Armiento

 

53

Inicorbaf

 

54

Gioia del Colle

 

55

Carinola

 

56

Marcianise

 

57

Riardo

 

58

Gilley's Dam

 

59

Pickhill Bridge

 

60

North Norfolk

 

61

Axe View

 

62

Low Bentham

 

63

Henley

 

64

Pierces Farm

 

65

Salcey Farm

 

66

Thornborough

 

67

Temple Normaton

 

68

Fiskerton Phase 1

 

69

Huddlesford HF

 

70

Little Irchester

 

71

Balhearty

 

72

Brafield

 

73

Huddlesford PL

 

74

Sywell

 

75

Coton Park

 

76

Hook

 

77

Blenches

 

78

Whitley

 

79

Burrowton

 

80

Saundercroft

 

81

Raglington

 

82

Knockworthy

 

83

Chilton Canetello

 

84

Crossways

 

85

Wyld Medow

 

86

Ermis

 

87

Angelia

 

88

Ballygarvey

 

89

Hall Farm II

 

Total



514,771

4.8

5.0

2,285,466

2.5

5.0

 

Rooftop assets are not monitored for irradiation

Statement of Directors' Responsibilities

To the best of their knowledge, the Directors of NextEnergy Solar Fund Limited confirm that:

(a)   the Interim Report and Condensed Interim Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting;

(b)   the Interim Report, comprising the Chairman's Statement and the Investment Adviser's Report, meets the requirements of an interim management report and includes a fair review of information required by:

(i)    DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the period from 1 April 2019 to 30 September 2019 and their impact on the Condensed Interim Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii)   DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the period from 1 April 2019 to 30 September 2019 and that have materially affected the financial position or performance of the Company during that period, and any material changes in the related party transactions disclosed in the last Annual Report; and

(c)   the Condensed Interim Financial Statements give a true and fair view of the assets, liabilities, financial position and profit of the Company as required by DTR 4.2.4R of the Disclosure Guidance and Transparency Rules.

The Directors believe that the Company has adequate resources to continue in operational existence for at least 12 months from the date of approval of the Condensed Interim Financial Statements. The Annual Report and Financial Statements for the year ended 31 March 2019 includes: the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; and details of its financial instruments and its exposure to credit risk and liquidity risk. The Directors believe the principal risks and uncertainties have not changed materially since the date of the Annual Report and Financial Statements and are not expected to change materially for the remainder of the Company's financial year. The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the level of the Company's assets and significant areas of financial risk including the timing of future investment transactions, expenditure commitments and forecast income and cashflows. As a result, the Directors have, at the time of approving these Condensed Interim Financial Statements, a reasonable expectation that the Company has adequate resources to meet its liabilities and continue in operational existence for at least 12 months from the date of approval of the Condensed Interim Financial Statements. The Directors have therefore concluded that it is appropriate to adopt the going concern basis of accounting in preparing these Condensed Interim Financial Statements.

The maintenance and integrity of the Company's website is the responsibility of the Directors. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

For NextEnergy Solar Fund Limited

Patrick Firth

Director

13 November 2019

 

Condensed Interim Financial Statements

Condensed Statement of Comprehensive Income

For the period ended 30 September 2019

Notes

Unaudited
1 April 2019 to 30 September 2019
£'000

1 April 2018 to
31 March 2019
£'000

Unaudited
1 April 2018 to
30 September 2018
£'000

Income

Income

Net changes in fair value of investments

Total net income


27,714

80,151

21,948

Expenditure

Preference share dividends

Management fees

Legal and professional fees

Administration fees

Audit fees

Directors' fees

Sundry expenses

Regulatory and listing fees

Insurance

Total expenses


6,628

8,637

3,349

Operating profit


21,086

71,514

18,599

Finance income

Profit and comprehensive income for the period/year


21,086

71,579

18,654

Earnings per ordinary share - basic

11

3.62p

12.37p

3.23p

Earnings per ordinary share - diluted

11

3.46p

11.93p

3.23p

All activities are derived from ongoing operations.

There is no other comprehensive income or expense apart from those disclosed above and consequently a Condensed Statement of Other Comprehensive Income has not been prepared.

The accompanying notes are an integral part of these condensed interim financial statements.

 

Condensed Interim Statement of Financial Position

As at 30 September 2019


Unaudited
30 September
2019

31 March
2019

Unaudited
30 September
2018


Notes

£'000

£'000

£'000

Non-current assets

Investments

Total non-current assets


818,352

722,763

590,448

Current assets

Cash and cash equivalents

Trade and other receivables

Total current assets


57,498

60,694

58,590

Total assets


875,850

783,457

649,038

Current liabilities

Trade and other payables

Total current liabilities


(29,438)

(39,384)

(39,259)

Non-current liabilities





Preference shares

Total non-current liabilities


(197,708)

(99,022)

-

Net assets


648,704

645,051

609,779

Equity

Share Capital and Premium

Retained earnings

Total equity attributable to shareholders


648,704

645,051

609,779

Net assets per ordinary share

13

111.2p

110.9p

105.1p

The accompanying notes are an integral part of these condensed interim financial statements.

The condensed interim financial statements were approved and authorised for issue by the Board of Directors on 13 November 2019 and signed on its behalf by:

 

Director                                                                         Director

Condensed Statement of Changes in Equity

For the period ended 30 September 2019

 


Share capital and premium
£'000

Retained
earnings
£'000

Total equity
£'000

For the period 1 April 2019 to 30 September 2019 (unaudited)

Shareholders' equity at 1 April 2019

Profit and comprehensive income for the period

Ordinary shares issued

Ordinary dividends declared

Shareholders' equity at 30 September 2019

602,269

46,435

648,704

For the year 1 April 2018 to 31 March 2019

Shareholders' equity at 1 April 2018

Profit and comprehensive income for the year

Ordinary shares issued

Ordinary dividends declared

Shareholders' equity at 31 March 2019

600,029

45,022

645,051

For the period 1 April 2018 to 30 September 2018 (unaudited)

Shareholders' equity at 1 April 2018

Profit and comprehensive income for the period

Ordinary shares issued

Ordinary dividends declared

Shareholders' equity at 30 September 2018

598,370

11,409

609,779

The accompanying notes are an integral part of these condensed interim financial statements.

 

Condensed Statement of Cash Flows

For the period ended 30 September 2019

Notes

Unaudited
1 April 2019 to 30 September 2019
£'000

1 April 2018
to 31 March 2019
£'000

Unaudited
1 April 2018 to 30 September 2018
£'000

Cash flows from operating activities

Profit and comprehensive income for the period/year

Adjustments for:

Investment proceeds from HoldCos

Investment payments to HoldCos

Change in fair value on investments

Finance income

Amortisation

Operating cash flows before movements in working capital


(72,216)

(125,006)

(42,919)

Changes in working capital

Movement in trade receivables

Movement in trade payables

Net cash used in operating activities


(95,231)

(124,155)

(58,247)

Cash flows from investing activities

Finance income

Net cash generated from investing activities


-

65

55

Cash flows from financing activities

Net proceeds from issuance of preference shares

Dividends paid

Net cash generated from financing activities


81,216

67,482

(13,865)

Net movement in cash and cash equivalents during period/year

Cash and cash equivalents at the beginning of the period/year

Cash and cash equivalents at the end of the period/year


5,270

19,285

3,836

The accompanying notes are an integral part of these condensed financial statements.

Notes to the Condensed Interim Financial Statements

For the period ended 30 September 2019

1. General Information

The Company was incorporated with limited liability in Guernsey under the Companies (Guernsey) Law, 2008, as amended, on 20 December 2013 with registered number 57739, and is regulated by the GFSC as a registered closed-ended investment company. The registered office and principal place of business of the Company is 1, Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel Islands, GY1 2HL.

On 16 April 2014, the Company announced the results of its initial public offering, which raised net proceeds of £85.6 million. The Company's ordinary shares were admitted to the premium segment of the UK Listing Authority's Official List and to trading on the Main Market of the London Stock Exchange as part of its initial public offering which completed on 25 April 2014. Subsequent fundraisings and the take-up of the scrip dividend option also took place, increasing total equity to £602.3m as at 30 September 2019 (31 March 2019: £600.0m). On 12 November 2018 the Company issued preference shares, raising £100m before transaction costs. On 12 August 2019 the Company issued further preference shares, raising £100m before transaction costs. Details can be found in note 10.

The Company seeks to provide investors with a sustainable and attractive dividend that increases in line with the Retail Price Index over the long-term by investing in a diversified portfolio of solar PV assets that are located in the UK and other OECD countries. In addition, the Company seeks to provide investors with an element of capital growth through the reinvestment of net cash generated in excess of the target dividend in accordance with the Company's investment policy.

The Company currently makes its investments through HoldCos and SPVs, which are directly or indirectly wholly-owned by the Company. The Company controls the investment policy of each of the HoldCos and its wholly-owned SPV's in order to ensure that each will act in a manner consistent with the investment policy of the Company.

The Company has appointed NextEnergy Capital IM Limited as its Investment Manager (the "Investment Manager") pursuant to the Management Agreement dated 18 March 2014. The Investment Manager is a Guernsey registered company, incorporated under the Companies (Guernsey) Law, 2008, with registered number 57740 and is licensed and regulated by the GFSC and is a member of the NEC Group. The Investment Manager acts as the Alternative Investment Fund Manager of the Company.

The Investment Manager has appointed NextEnergy Capital Limited as its Investment Adviser (the "Investment Adviser") pursuant to the Investment Advisory Agreement dated 18 March 2014. The Investment Adviser is a company incorporated in England with registered number 05975223 and is authorised and regulated by the FCA.

The financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Company operates.

2. Significant Accounting Policies

a) Basis of preparation

The condensed interim financial statements have been prepared on a going concern basis in accordance with IAS 34 Interim Financial Reporting. The interim financial information should be read in conjunction with the annual report and audited financial statements for the year ended 31 March 2019, which have been prepared in accordance with IFRS.

b) Seasonal and cyclical variations

The Company's results may vary during reporting periods as a result of the spread of irradiation during the period and, together with other factors, will impact the NAV. Other factors include changes in inflation and power prices.

c) Segmental reporting

The Chief Operating Decision Maker, which is the Board, is of the opinion that the Company is engaged in a single segment of business, being investment in solar power to generate investment returns in accordance with the investment objective. The financial information used by the Chief Operating Decision Maker to manage the Company presents the business as a single segment.

d) Going concern

The Directors have reviewed the current and projected financial position of the Company making reasonable assumptions about future performance. The key areas reviewed were:

·      timing of future investment transactions;

·      expenditure commitments; and

·      forecast income and cashflows.

The Company has cash and short-term deposits as well as projected positive income streams and an available credit facility (see note 20) and as a consequence the Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the next 12 months. Accordingly they have adopted the going concern basis of preparation in preparing the financial statements.

3. New and Revised Standards

The Directors have considered new accounting standards, amendments and interpretations in issue but not yet effective and do not expect that their adoption will result in a material impact on the financial statements of the Company in future periods.

4. Critical Accounting Estimates and Judgements

The Company makes estimates and judgements that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and based on historic experience and other factors believed to be reasonable under the circumstances.

a) Critical accounting estimate: Investments at fair value through profit or loss

The Company's investments are measured at fair value for financial reporting purposes. The Board of Directors has appointed the Investment Manager to produce investment valuations based upon projected future cashflows. These valuations are reviewed and approved by the Board. The investments are held through SPVs.

IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Board bases the fair value of the investments on the information received from the Investment Manager.

The Company classified its investments at fair value through profit or loss as Level 3 within the fair value hierarchy. Level 3 investments amount to £818.4m (31 March 2019: £722.8m) and consist of 89 investments in solar PV assets (held indirectly through the HoldCos) (31 March 2019: 87 (held indirectly through the HoldCos)), all of which have been valued on a look-through basis, based on the discounted cash flows of the solar PV assets (except for those solar plants not yet operational) and the residual value of net assets at the HoldCo level. The unlevered discount rate applied in the 30 September 2019 valuation was 6.50% (31 March 2019: 6.50%). The discount rate is a significant Level 3 input and a change in the discount rate applied could have a material effect on the value of the investments. Investments in solar PV assets that are not yet operational are held at fair value, where the cost of the investment is used as an appropriate approximation of fair value. Level 3 valuations are reviewed regularly by the Investment Manager who reports to the Board of Directors on a periodic basis. The Board considers the appropriateness of the valuation model and inputs, as well as the valuation result.

Information about the unobservable inputs used at 30 September 2019 in measuring financial instruments categorised as Level 3 in the fair value hierarchy and their sensitivities are disclosed in note 14. Unlisted investments reconcile to the closing investment portfolio value as per the investment table in note 6.

b) Significant judgement: consolidation of entities

The Company, under the Investment Entity Exemption rule, holds its investments at fair value. The Company meets the definition of an investment entity per IFRS 10 as detailed in note 4c).

The Company does not have any other subsidiaries other than those determined to be controlled subsidiary investments. Controlled subsidiary investments are measured at fair value through profit or loss and are not consolidated in accordance with IFRS 10. The fair value of controlled subsidiary investments is determined as described in note 4a).

c) Significant judgement: subsidiaries

The Company and the HoldCos operate as an integrated structure whereby the Company invests solely in the HoldCos. Per IFRS 10, there is a requirement for the Board of Directors to assess whether the HoldCos are themselves investment entities. The Board of Directors have performed this assessment and has concluded that each of the HoldCos are investment entities for the reasons below:

(a) The HoldCos have obtained funds for the purpose of investing in equity or other similar interests in multiple investments and providing the Company (and its investors) with returns from capital appreciation and investment income.

(b) The performance of investments made through the HoldCos are measured and evaluated on a fair value basis.

Furthermore, the HoldCos themselves are not deemed to be operating entities providing services to the Company, so the group is able to apply the exception to consolidation.

5. Income

Period ended
30 September 2019 £'000

Year ended
31 March 2019 £'000

Interest income

Investment income

Management fee income

Total Income

34,238

55,613

6. Investments

The Company owns the investment portfolio through its investments in the HoldCos. This is comprised of the investment portfolio and the residual net assets of the HoldCos. The total investments at fair value are recorded under non-current assets in the Condensed Statement of Financial Position.

Period ended
30 September 2019
£'000

Year ended
31 March 2019
£'000

Brought forward cost of investments

Investment proceeds from HoldCos

Investment payments to HoldCos

Additions - acquisition of Eurobonds

Disposal - de-recognition of loans*

Carried forward cost of investments

791,591

689,478

Brought forward unrealised gains on valuation

Movement in unrealised gains on valuation

Carried forward unrealised gains on investments

26,761

33,285

Total investments at fair value

818,352

722,763

*          Non-cash transactions: On 28 February 2019 and 18 September 2019, a number of facilities totaling £125m, between the Company and certain of the Holdcos were de-recognised and replaced with Eurobond instruments listed on the TISE.

On 28 February 2019, NESH III and NESH V issued Eurobond instruments listed on TISE totalling £175m. On 18 September 2019, a further issue by NESH III was made totalling £125m. The Eurobonds were purchased by the Company as a non-cash transaction by re-allocating cost of investment.

The total change in the value of the investments in the HoldCos is recorded through profit and loss in the Condensed Statement of Comprehensive Income.

7. Trade and Other Receivables

Period ended
30 September 2019 £'000

Year ended
31 March 2019 £'000

Management fee income receivable

Prepayments

Due from HoldCos

Interest receivable

Total trade and other receivables

52,228

41,409

Amounts due from HoldCos are interest free and payable within 12 months.

8. Trade and Other Payables

Period ended
30 September 2019 £'000

Year ended
31 March 2019 £'000

Other payables

Preference dividends payable

Due to HoldCos

Total trade and other payables

29,438

39,384

Amounts due to HoldCos are interest free and payable on demand.

9. Subsidiaries

The Company holds investments through subsidiary companies ("HoldCos") which have not been consolidated as a result of the adoption of IFRS 10: Investment entities exemption to consolidation. The HoldCos, as per note 4c), are 100% directly owned. Below is the legal entity name for the SPVs, all owned 100% at 31 March 2019 and 30 September 2019 indirectly through the HoldCos (unless otherwise stated).

Name

Country of incorporation

Push Energy (Boxted Airfield) Ltd

Next Power Gover Farm Ltd

NextPower Higher Hatherleigh Ltd

NextPower Shacks Barn Ltd

BL Solar 2 Ltd

North Farm Solar Park Ltd

Glorious Energy Ltd

Sunglow Power Ltd

Push Energy (Croydon) Ltd

Wellingborough Solar Ltd

Nextpower Ellough LLP

Push Energy (Birch) Ltd

Bowerhouse Solar Ltd

Push Energy (Langenhoe) Ltd

ST Solarinvest Devon 1 Ltd

Greenfields (A) Ltd

Push Energy (Decoy) Ltd

Push Energy (Hall Farm) Ltd

Glebe Farm Ltd

Ellough Solar 2 Ltd

SSB Condover Ltd

NESF - Ellough Ltd

Trowbridge PV Ltd

ESF Llwyndu Ltd

Warmingham Solar Ltd

Moss Farm Solar Ltd

Gwent Farmers Community Solar Partnership Limited*

Greenfields (T) Limited*

EMGEN Solar 1288 Ltd

Lumicity 1 Ltd

BESS Pierces Ltd

Thornborough Solar Ltd

Temple Normanton Solar Ltd

UK Solar (Fiskerton) LLP

Helios Solar 2 Ltd

Little Irchester Solar Ltd

Balhearty Solar Ltd

Brafield Solar Ltd

Sywell Solar Ltd

Helios Solar 1 Ltd

Pierces Solar Ltd

Micro Renewables (Domestic) Ltd

RRAM Energy Ltd

RRAM (Portfolio 1) Ltd

Knockworthy Solar Park Ltd

RRAM (Portfolio 2) Ltd

Burcroft Solar Parks Ltd

Burrowton Farm Solar Park Ltd

Saundercroft Farm Solar Park Ltd

Renewable Energy Holdco Ltd

Chilton Cantello Solar Park Ltd

Crossways Solar Park Ltd

Wyld Meadow Farm Solar Park Ltd

Raglington Farm Solar Park Ltd

Nextpower Water Projects Ltd

 

Nextpower Bosworth Ltd

 

NextZest Ltd

 

Nextpower SPV 2 Ltd

 

Nextpower SPV 3 Ltd

 

Glebe Solar Ltd

 

Thurlestone-Leicester Solar Ltd

 

Empyreal Energy Ltd

 

Birch Solar Farm CIC

 

Fiskerton Limited

 

LE Solar 51 Ltd

 

Lark Energy Bilsthorpe Ltd

 

Wickfield Solar Ltd

 

SL Solar Services Ltd

 

Tau Solar Ltd

 

NESH 3 Portfolio A Ltd

 

Push Energy (Mill Farm) Ltd

 

Rampisham Estate Solar Park Ltd

 

WHEB European Solar (UK) 2 Ltd

 

WHEB European Solar (UK) 3 Ltd

 

PF Solar Ltd

 

Micro Renewables Ltd

 

Francis Lane Solar Ltd

 

Gourton Hall Solar Ltd

 

TGC Solar Radbrook Ltd

 

Moss Lane Farm Solar Ltd

 

Little Staughton Airfield Solar Ltd

 

Push Energy (Kentishes) Ltd

 

Ballygarvey Solar Ltd*

 

Whitley Solar Park (Ashcott Farm) Ltd

Hook Valley Farm Solar Park Ltd

Blenches Mill Farm Solar Park Ltd

NextEnergy Solar Holding VI Ltd

Fenland Renewables Ltd

Tower Hill Farm Renewables Ltd

Green End Renewables Ltd

Bowden Lane Solar Park Ltd

Garden Tiger Ltd

INRG (Solar Parks) 20 Ltd

KS SPV 39 Ltd

INRG (Solar Parks) 17 Ltxd

INRG (Solar Parks) 21 Ltd

Waltham Solar Ltd

Barred Straw Ltd

Stalbridge Solar Park Ltd

Aller Court Solar Park Ltd

Nextpower Radius Ltd

Berwick Solar Park Ltd

Bottom Plain Solar Park Ltd

Branston Solar Park Ltd

Emberton Solar Park Ltd

Great Wilbraham Solar Park Ltd

Macchia Rotonda Solar S.r.l.

SunEdison Med. 6 S.r.l.

Starquattro S.r.l

Fotostar 6 S.r.l.

Agrosei S.r.l.

*          as at 31 March 2019 the percentage ownership of these SPVs was 0%

10. Share Capital and Retained Earnings

Ordinary shares

Share issuance

Number of
shares

Gross amount
raised
£'000

Issue costs
£'000

Share capital
and premium
£'000

Total issued at
31 March 2019

581,730,541

607,494

(7,465)

600,029

Scrip dividend -
28 June 2019

Scrip dividend -
30 September 2019

Total issued at
30 September 2019

583,617,503

609,734

(7,465)

602,269

The Company currently has one class of ordinary share in issue. All the holders of the ordinary shares, which total 583,617,503, are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company.

Preference shares

On each of 12 November 2018 and 12 August 2019, the Company issued 100,000,000 preference shares at a price of 100.0p per preference share. The preference shares pay a preferred dividend of 4.75% p.a. fixed until March 2036 after which the preference shareholders have the right to convert into new ordinary shares or a new class of unlisted B shares with dividend and capital rights pari passu to ordinary shareholders, based on the NAV at the time of conversion. The preference shares do not hold any voting rights, except in limited circumstances.

The preference shares are also redeemable at the option of the Company at any time after 1 April 2030, in full or in part. The redemption price will be the subscription price plus any unpaid dividends. In addition, the preference shares may be redeemed in full at the election of the holders in the event of a delisting or change of control of the Company.

Retained earnings

Retained earnings are detailed in the Condensed Statement of Changes in Equity.

11. Earnings Per Share

Period ended
30 September 2019

Year ended
31 March 2019

Profit and comprehensive income for the period/year (£'000)

Plus: preference share dividends (£'000)

Profit and comprehensive income for the period/year used to calculate diluted earnings per ordinary share (£'000)

Basic weighted average number of ordinary shares

Weighted average number of additional ordinary shares used to calculate dilutive effect of preference shares

Weighted average number of ordinary shares used to calculate diluted earnings per share

Earnings per ordinary share - basic

Earnings per ordinary share - diluted

The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding for the ordinary shares that are potentially issuable on conversion of the preference shares and adding back the dividends paid on the preference shares to the profit and comprehensive income for the period. From 1 April 2036, the preference shares have the right to convert into new ordinary shares or a new class of unlisted B shares with dividend and capital rights pari passu to ordinary shares, based on the NAV at the time of conversion.

12. Dividends

Amounts recognised as distributions to equity holders:

Period ended

30 September 2019
£'000

Year ended
31 March 2019 £'000

Interim dividend for the period ended 31 March 2018 of 1.605p per ordinary share, paid on 26 June 2018

Interim dividend for the period ended 30 June 2018 of 1.6625p per ordinary share, paid on 28 September 2018

Interim dividend for the period ended 30 September 2018 of 1.6625p per ordinary share, paid on 28 December 2018

Interim dividend for the period ended 31 December 2018 of 1.6625p per ordinary share, paid on 28 March 2019

Interim dividend for the period ended 31 March 2019 of 1.6625p per ordinary share, paid on 28 June 2019

Interim dividend for the period ended 30 June 2019 of 1.7175p per ordinary share, paid on 30 September 2019

Total

19,674

38,159

13. Net Assets Per Ordinary Share

As at
30 September 2019

As at
31 March 2019

Ordinary shareholders' equity (£'000)

Number of ordinary shares

Net assets per ordinary share - pence

The conversion price of the preference shares will be based on the ratio of the nominal value (100p) (plus unpaid dividends, if any) per preference share relative to NAV per ordinary share at the date of conversion. Accordingly, conversion of the preference shares will not result in any dilution of the NAV per ordinary share.

14. Financial Risk Management

Capital management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders. In accordance with the Company's investment policy, the Company's principal use of cash (including the proceeds of the IPO, other ordinary share issuance and issue of preference shares) has been to fund investments and repay debt, as well as ongoing operational expenses.

The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. The capital and debt structure of the Company consists of equity comprising ordinary share capital and retained earnings, preference shares and financial debt.

The Company is not subject to any externally imposed capital requirements.

Financial risk management objectives

The Board, with the assistance of the Investment Manager, monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposures by degree and magnitude of risk. These risks include market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk.

Price risk

The value of the investments held by the Company is affected by the discount rate applied to the expected future cash flows and as such may vary with movements in interest rates, inflation, power prices, market prices and competition for these assets.

Currency risk

The Company is indirectly exposed to currency risk due to the cash flows from its Italian subsidiaries to NESH V. 92% of the expected cash flows are hedged to limit the exposure. The Company itself is not exposed to currency risk as all assets and liabilities are in pounds sterling, therefore the Company's functional and presentational currency is GBP.

Interest rate risk

The Company is indirectly exposed to interest rate risk from the credit facilities of the HoldCos. Of the £211m credit facilities outstanding, £124.7m had fixed interested rates and the remaining £86.6m had floating interest rates. For the floating amount of £72.6m, Interest Rate Swaps were implemented over the term of the loans to mitigate interest rate risks. The counterparties to these swaps are all Investment grade financial institutions. The remaining £14m had floating rates which are not hedged and are not considered to be significant.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company.

The maximum exposure to credit risk is the carrying amounts of the respective financial assets set out below:

30 September 2019
£'000

31 March 2019
£'000

Cash and cash equivalents

Trade and other receivables

Debt investments

Total

357,498

235,694

Debt investments relates to the Eurobond instruments executed in accordance with the investment objectives of the Company and which has been fair valued as part of the "Investments" as disclosed in note 6. No collateral is received from NESH III and NESH V. The credit quality of these investments is based on the financial performance of NESH III and NESH V as well as the underlying investments they own. The risk of default is deemed to be low and the principal repayments and interest payments are expected to be made in accordance with the agreed terms and conditions.

The Company does not have any significant credit risk exposure to any single counterparty in relation to trade and other receivables. Ongoing credit evaluation is performed on the financial condition of accounts receivable. As at 30 September 2019 the probability of default is considered to be close to zero and therefore no allowance has been recognised based on 12 month expected credit loss as any impairment would be insignificant to the Company. All receivables are from other entities in the NextEnergy Group and so management has sufficient oversight of the receivables to assess the probability of default.

At investment level, the credit risk relating to significant counterparties is reviewed on a regular basis and potential adjustments to the discount rate are considered to recognise changes to these risks where applicable.

The Company maintains its cash and cash equivalents across various banks to diversify credit risk. These are subject to the Company's credit monitoring policies including the monitoring of the credit ratings issued by recognised credit rating agencies.

30 September 2019

Credit rating Standard & Poor's

Cash
£'000

Total as at
30 September 2019
£'000

Barclays Bank PLC

Long - A

Short - A-1

Lloyds Bank PLC

Long - BBB+

Short - A-2

Total


5,270

5,270

 

31 March 2019

Credit rating Standard & Poor's

Cash
£'000

Total as at
31 March 2019
£'000

Barclays Bank PLC

Long - A

Short - A-1

Lloyds Bank PLC

Long - BBB+

Short - A-2

Total


19,285

19,285

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Board of Directors has established an appropriate liquidity risk management framework for the management of the Company's short-, medium- and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves by monitoring forecast and actual cash flows and by matching the maturity profiles of assets and liabilities.

The Company is indirectly exposed to liquidity risk from the credit risk facilities of the HoldCos. The HoldCos have sufficient funds to meet the obligations of the credit facilities, and this is monitored by the Investment Adviser.

The table below shows the maturity of the Company's non-derivative financial assets and liabilities. The amounts disclosed are contractual, undiscounted cash flows and may differ from the actual cash flows received or paid in the future as a result of early repayments.

30 September 2019

Up to
3 months
£'000

Between 3 and
12 months
£'000

Between 1 and
5 years
£'000

Total
£'000

Assets

Cash and cash equivalents

Trade and other receivables

Liabilities

Trade and other payables

Total

28,060

-

-

28,060

 

31 March 2019

Up to
3 months
£'000

Between 3 and
12 months
£'000

Between 1 and
5 years
£'000

Total
£'000

Assets

Cash and cash equivalents

Trade and other receivables

Liabilities

Trade and other payables

Total

21,310

-

-

21,310

Valuation methodology

The Directors have satisfied themselves as to the methodology used and the discount rates and key judgements applied in producing the valuations in accordance with the IPEV guidelines. All operational investments are at fair value through profit or loss and are valued using a discounted cash flow methodology. Investments which are not yet operational are held at fair value, where the cost of the investment is used as an appropriate approximation of fair value.

Discount rates

The discount rate used for valuing a solar PV asset is based on the industry unlevered discount rate and the risk premium, which takes into account risks and opportunities associated with the investment earnings.

The discount rates used for valuing the investments in the Portfolio are as follows:

30 September 2019

31 March 2019

Weighted Average discount rate

Discount rates

 

A change to the weighted average discount rate by plus or minus 0.5% has the following effect on the valuation.

Discount rate

+0.5% change

Total Portfolio value

-0.5% change

30 September 2019

Fair value - percentage movement

31 March 2019

Fair value - percentage movement

Power price

The NEC Group continuously reviews multiple inputs from market contributors and leading consultants and adjust the inputs to the power price forecast when a different approach is deemed more appropriate. Current estimates imply an average rate of decline of electricity prices of approximately (0.3%) in real terms and a long term inflation rate of 3.0%.

A change in the forecast electricity price assumptions by plus or minus 10% has the following effect on the valuation, with all other variables held constant.

Power price

-10%
change

Total Portfolio value

+10%
change

30 September 2019

Fair value - percentage movement

31 March 2019

Fair value - percentage movement

Energy generation

The portfolio's aggregate energy generation yield depends on the combination of solar irradiation and technical performance of the solar PV assets. The table below shows the sensitivity of the portfolio valuation to a sustained increase or decrease of energy generation by plus or minus 5% on the valuation, with all other variables held constant.

Energy generation

5% under performance

Total Portfolio value

5% over performance

30 September 2019

Fair value - percentage movement

31 March 2019

Fair value - percentage movement

Inflation rates

The portfolio valuation assumes long-term inflation of 3.0% p.a. for investments (based on UK RPI). A change in the inflation rate by plus or minus 0.5% has the following effect on the valuation, with all other variables held constant:

Inflation rate

-0.5% change

Total Portfolio value

+0.5% change

30 September 2019

Fair value - percentage movement

31 March 2019

Fair value - percentage movement

Operating costs

The table below shows the sensitivity of the portfolio to changes in operating costs by plus or minus 10% at project company level, with all other variables held constant.

Operating costs

+10% change

Total Portfolio value

-10%
change

30 September 2019

Fair value - percentage movement

31 March 2019

Fair value - percentage movement

 

Tax rates

The UK corporation tax assumption for the portfolio valuation was 19% to 2020, and 17% thereafter in accordance with the UK Government announced reductions.

The Italian tax rate used is 24% with an additional 2.7% after 2020.

15. Financial Assets and Liabilities Not Measured at Fair Value

Cash and cash equivalents are level 1 items on the fair value hierarchy. Current assets and current liabilities are Level 2 items on the fair value hierarchy. The carrying value of current assets and current liabilities approximates fair value as these are short-term items.

Preference shares are measured at nominal value less transaction costs amortised over the expected life of the preference shares.

16. Management Fee Expense

The Investment Manager is entitled to receive an annual fee, accruing daily and calculated on a sliding scale, as follows below:

·      for the tranche of NAV up to and including £200m, 1% of ordinary NAV;

·      for the tranche of NAV above £200m and up to and including £300m, 0.9% of ordinary NAV; and

·      for the tranche of NAV above £300m, 0.8% of ordinary NAV.

For the period ending 30 September 2019 the Company incurred £2.8m in management fees of which £nil was outstanding at 30 September 2019. For the year ending 31 March 2019 the Company incurred £5.4m in management fees of which £nil was outstanding at 31 March 2019. For the period ending 30 September 2018 the Company incurred £2.7m in management fees of which £nil was outstanding at 30 September 2018.

17. Related Parties

The Investment Manager, NextEnergy Capital IM Limited, is a related party due to having common key management personnel with the subsidiaries of the Company. All management fee transactions with the Investment Manager are disclosed in note 17. The Investment Manager was paid £0.5m for the issuance of the preference shares during the period (for the year ended 31 March 2019: £0.5m).

The Investment Adviser, NextEnergy Capital Limited, is a related party due to sharing common key management personnel with the subsidiaries of the Company. There are no advisory fee transactions between the Company and the Investment Adviser.

The Asset Manager, WiseEnergy (Great Britain) Limited and WiseEnergy Italia Srl, are related parties due to sharing common key management personnel with the subsidiaries of the Company. Each of the operating subsidiaries of the Company entered into an asset management agreement with the asset manager. The total value of recurring and one-off services paid to the asset manager during the six month period amounted to £2.5m (for the year to 31 March 2019: £4.0m, and for the six month period to 30 September 2018: £2.9m).

At the period end, £27.4m (31 March 2019: £37.9m, 30 September 2018: £39.0m) was owed to and from the subsidiaries, in relation to their restructuring. £4.2m of management fees were received from the subsidiaries during the period (year to 31 March 2019: £8.0m, period to 31 September 2018: £3.9m), £1.6m of which was outstanding at the period end (31 March 2019: nil, 30 September 2018: £1.7m). During the period dividends of £26.4m were received from subsidiaries.

18. Controlling Party

In the opinion of the Directors, on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party.

19. Remuneration of the Directors

The remuneration of the Directors was £104k for the period (for the year to 31 March 2019: £173k, for the period to 30 September 2018: £86k) which consisted solely of short-term employment benefits.

20. Revolving Credit and Debt Facilities

The Company's HoldCos have revolving credit and debt facilities which are factored into the calculation of the fair value of the underlying investments.

In January 2017, NESH closed a syndicated loan with MIDIS, NAB and CBA for £157.5m ("Project Apollo") to refinance its revolving credit facility. As part of the facility agreement, the lenders provide an additional Debt Service Reserve Facility of £7.5m and hold a charge over the assets of NESH Limited. As at 30 September 2019, the outstanding amount was £148.2m.

In July 2015, NESH II agreed a loan with NIBC for £22.7m. In July 2016, £1m was repaid and, in March 2018, the remaining balance was repaid. At the same time as the repayment the short-term facility was converted into a new £20m in revolving credit facility. As at 30 September 2019, the outstanding amount was £nil.

In March 2016, NESH IV agreed the purchase of Project Radius. The acquisition was part-funded by a debt facility entered into between NESH IV and Macquarie Bank Limited for £55.0m, which was fully drawn down in April 2016. As part of the debt facility agreement Macquarie Bank Limited holds a charge over the assets of NESH. As at 30 September 2019, the outstanding amount was £49.6m.

In July 2018, NESH VI agreed a RCF with Santander for £40.0m which was subsequently fully drawndown. In January 2019, the facility was increased to a total commitment of £70.0m with a subsequent £30.0m drawdown. In August 2019, £56.0m was repaid. As at 30 September 2019, the outstanding amount was £14.0m.

21. Reconciliation of Financing Activities

Opening (£'000)

Cash flows (£'000)

Net income allocation (£'000)

Non-cash
flows
(£'000)

Closing
(£'000)

Share capital

Preference shares

Retained earnings

Total

744,073

81,216

21,086

36

846,411

22. Commitments and Guarantees

The Company has parental guarantees in place with two financial institutions for a debt obligation and a currency hedge transaction executed by some of its HoldCos. The Company has no outstanding commitments.

23. Taxation

Under the current system of taxation in Guernsey, the Company is exempt from paying taxes on income, profit or capital gains. Therefore, income from investments in solar PV assets is not subject to any further tax in Guernsey, although these investments are subject to tax in the UK.

24. Events After The Reporting Period

On 13 November 2019, the Directors approved a dividend of 1.7175 pence per ordinary share for the period ended 30 September 2019 to be announced on 14 November 2019, and paid on 30 December 2019 to ordinary shareholders on the register as at the close of business on 22 November 2019.

Independent Review Report to NextEnergy Solar Fund Limited

Conclusion

We have been engaged by NextEnergy Solar Fund Limited (the "Company") to review the condensed interim financial statements in the half-yearly financial report for the six months ended 30 September 2019 of the Company which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Financial Position, Condensed Statement of Changes in Equity, Condensed Cash Flow Statement and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed interim financial statements in the half-yearly financial report for the six months ended 30 September 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting ("ISA 34") and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed interim financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The directors are responsible for preparing the condensed interim financial statements included in the half-yearly financial report in accordance with IAS 34.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed interim financial statements in the half-yearly financial report based on our review.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement letter to assist the Company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Dermot Dempsey

For and on behalf of
KPMG Channel Islands Limited
Chartered Accountants, Guernsey

13 November 2019

 

Corporate Information

Directors:

Kevin Lyon, Chairman


Patrick Firth


Vic Holmes


Sue Inglis


Sharon Parr

Registered Office:

1 Royal Plaza


Royal Avenue


St Peter Port


Guernsey


GY1 2HL

Company Website:

nextenergysolarfund.com

Investment Manager:

NextEnergy Capital IM Limited


1 Royal Plaza


Royal Avenue


St Peter Port


Guernsey


GY1 2HL

Investment Adviser:

NextEnergy Capital Limited


20 Savile Row


London


UK


W1S 3PR

Secretary and Administrator:

Apex Funds and Corporate Services (Guernsey) Limited


(formerly Ipes (Guernsey) Limited)


1 Royal Plaza


Royal Avenue


St Peter Port


Guernsey


GY1 2HL

Independent Auditor:

KPMG Channel Islands Limited (appointed 27 September 2019)


Glategny Court


Glategny Esplanade


St Peter Port


Guernsey


GY1 1WR



Independent Auditor

PricewaterhouseCoopers CI LLP (resigned following a competitive tender

process on 27 September 2019)


Royal Bank Place


1 Glategny Esplanade


St Peter Port


Guernsey


GY1 4ND



Registered Number:

57739



Registrar:

Link Market Services (Guernsey) Ltd

Legal Adviser to the Group as to UK law:

Simmons & Simmons LLP

Legal Adviser to the Group as to Guernsey law:

Mourant Ozannes LLP and Carey Olsen (Guernsey) LLP

Legal Adviser to the Group as to Debt Financing:

Stephenson Harwood LLP

Financial Adviser and Broker to the Company:

Cantor Fitzgerald Europe

Broker to the Company:

Shore Capital and Corporate Ltd

Media and Public Relations Adviser:

MHP Communications Limited



 

 

Alternative Performance Measures ('APMs')

This Interim Report and Accounts contain APMs, which are financial measures not defined in IFRS. These include certain financial KPIs shown in the table on page 2, certain financial highlights on page 1 and cash income on page 28. The definition of each of these APM measures is shown below. In addition to the APMs, the Interim Report shows portfolio information including debt held by the HoldCos or SPVs.

We assess our performance using a variety of measures that are not specifically defined under IFRS and are therefore termed APMs. The APMs that we use may not be directly comparable with those used by other companies. These APMs are used to present a clearer picture of how the Company has performed over the period and are all financial measures of historical performance.

The table below defines our APMs.

APM

Definition

Purpose

Calculation and (where relevant) reconciliation to IFRS

Asset Management Alpha

The outperformance relative to budget of the portfolio due to active management, excluding the effect of variation in solar irradiation.

A measure of the operating performance of the portfolio.

The difference between (i) the delta of generation vs. budget and (ii) the delta of irradiation vs. budget.

Cash dividend cover - pre-scrip dividends

The ratio of the cash income over the ordinary dividends paid in the period (and, for this purpose, treating all scrip dividends as if they had been paid as cash dividends).

A measure of the cash available to pay dividends.

The cash income (as defined below) less total expenses from the statement of comprehensive income (£32.9m for the period ended 30 September 2019) divided by the pre-scrip dividends paid from the statement of changes in equity (£19.7m for the period ended 30 September 2019).

Cash income

The cash received from the Company's investment portfolio during the year.

A measure of the cash generated from operations.

The reconciliation of cash income to IFRS for the period ended 30 September 2019 is shown below.

Dividend yield

The annual dividend per ordinary share expressed as a percentage of the share price.

A measure of the return to the ordinary shareholders.

For the period ended 30 September 2019, the expected annual dividend for the year to 31 March 2020 (6.87p) divided by the share price as at the period-end (122.0p).

Gearing level

Financial debt of the NESF Group plus the fair value of the preference shares expressed as a percentage of GAV.

A measure of the NESF Group's financial debt and the preference shares relative to GAV.

The ratio of financial debt outstanding at the subsidiaries (£197m as at 30 September 2019) plus the preference shares from the statement of financial position (£198m as at 30 September 2019) divided by GAV (being, as at 30 September 2019, the aggregate of each of the foregoing and the net assets from the condensed statement of financial position of £649m).

Invested capital

The amount deployed into solar PV assets through the HoldCos and SPVs.

A measure of capital deployed to generate investment returns for shareholders.

The valuation of the Company's portfolio (£932m as at 30 September 2019).

NAV per ordinary share

The Company's NAV divided by the number of ordinary shares in issue.

A measure of the value of one ordinary share.

The net assets as shown on the statement of financial position (£649m as at 30 September 2019) divided by the number of ordinary shares in issue as at the calculation date (583.6m as at 30 September 2019).

Ongoing charges ratio

Annualised regular operating costs incurred in the reporting period (excluding costs suffered within HoldCos and SPVs, interest costs, preference share dividends and taxation) calculated as a percentage of the average ordinary NAV in that period.

A measure of ongoing and regular costs relative to the Company's NAV.

The total expenses less the preference share dividends as shown on the statement of comprehensive income (being, for the period ended 30 September 2019, £6.6m and £3.0m respectively) and any non-recurring expenses (£90k for the period ended 30 September 2019), annualised and divided by the average ordinary NAV over the relevant period (being £646m for the period ended 30 September 2019).

Ordinary NAV total return

The increase/(decrease) in the NAV per ordinary share plus the dividends per ordinary share paid in the period.

A measure of the overall financial performance of the Company.

The difference in the NAV per ordinary share at the beginning and end of the period from the statement of financial position (0.3p for the period ended 30 September 2019) plus the dividends per ordinary share paid in the period (3.44p for the period ended 30 September 2019) as a percentage of the opening NAV per ordinary share as shown in the statement of financial position (being 110.9p per ordinary share as at 31 March 2019).

Ordinary shareholder total return

The increase/(decrease) in the ordinary share price plus the dividends per ordinary share paid in the period.

A measure of the performance of the Company's ordinary shares.

The difference in the ordinary share price at the beginning and end of the period plus the dividends per ordinary share paid in the period as a percentage of the share price at the beginning of the period.

Premium/(discount) to NAV

The amount by which the ordinary share price is higher/lower than the NAV per ordinary share, expressed as a percentage of the NAV per ordinary share.

A measure of the performance of the Company's share price relative to the NAV.

The Company's share price as a relative percentage of the NAV per ordinary share.

Reconciliation to financial statements

Cash income reconciliation

£'000

Income per statement of comprehensive income

Trade and other receivables - management service fee accrual at 1 April 2019

Trade and other receivables - management service fee accrual at 30 September 2019

Cash income

32,906

 

 

Glossary

AIC

Association of Investment Companies

APM

Alternative Performance Measure

Asset Management Alpha

The difference between (i) the delta of generation vs. budget and (ii) the delta of irradiation vs. budget

Apollo portfolio

21 plants held within NESH

Cash dividend cover

The ratio of the Company's Cash Income over dividends paid during the financial year.

CBA

Commonwealth Bank of Australia

Company/NESF

NextEnergy Solar Fund Limited

Consultants

Two of the leading energy market consultants

DCF

Discounted Cash Flow

ESG

Environmental, Social and Governance

FCA

Financial Conduct Authority

FiT

Feed-in Tariff

GAV

Gross asset value, being the net asset value of the ordinary shares plus the value of the outstanding preference shares plus the amount of debt outstanding at the subsidiaries

GFSC

Guernsey Financial Services Commission

Group

The Company, HoldCos and SPVs

GWh

Gigawatt hour - a measure of electricity generated per hour

HoldCos

Intermediate holding companies - NESH, NESH II, NESH III, NESH IV, NESH V and NESH VI

IAS

International Accounting Standards

IFRS

International Financial Reporting Standards

Investment Adviser

NextEnergy Capital Limited

Investment Manager

NextEnergy Capital IM Limited

IPEV

International Private Equity and Venture Capital

IPO

Initial Public Offering

IRR

Internal Rate of Return

ISAs

International Standards on Auditing

KPI

Key Performance Indicator

KPMG

KPMG Channel Islands Limited

MIDIS

Macquarie Infrastructure Debt Investment Solutions

MWh

Megawatt hour - a measure of electricity generated per hour

NAB

National Australia Bank

NAV

Net asset value

NAV per share

Net asset value per ordinary share

NAV total return

The actual rate of return from dividends paid and capital gains on NAV per share over a given period of time

NESH

NextEnergy Solar Holding Limited

NESH II

NextEnergy Solar Holding II Limited

NESH III

NextEnergy Solar Holding III Limited

NESH IV

NextEnergy Solar Holding IV Limited

NESH V

NextEnergy Solar Holding V Limited

NESH VI

NextEnergy Solar Holding VI Limited

OCR

Ongoing charges ratio per the AIC website (www.theaic.co.uk)

OECD

Organisation for Economic Co-operation and Development

Official List

The premium segment of the UK Listing Authority's Official List

Ordinary shareholder total return

The actual rate of return from dividends paid and capital gains on share price movements over a given period of time

Ordinary shares

The issued ordinary share capital of the Company

Performance ratio

Actual generation/expected generation when array constructed

POI Law

Protection of Investors (Bailiwick of Guernsey) Law, 1987

PPA

Power purchase agreement

Premium/discount to NAV

The amount by which the Company's ordinary shares trade above or below its NAV

PV

Photovoltaic

PwC CI

PricewaterhouseCoopers CI LLP

Radius portfolio

Five plants held within NESH IV

RCF

Revolving Credit Facilities

RO Scheme

Renewable Obligation Scheme

ROC

Renewable Obligation Certificates

RPI

Retail Price Index

Solis portfolio

Eight plants held within NESH V

SPVs

Special purpose vehicles which hold the Company's investment portfolio of underlying operating assets

Thirteen Kings portfolio

13 plants held in NESH III

TISE

The International Stock Exchange

UK

United Kingdom of Great Britain and Northern Ireland

WACC

Weighted average cost of capital

WiseEnergy

WiseEnergy (Great Britain) Limited and WiseEnergy Italia Srl

 


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